The Ethiopian government has directed the collection of all federal fuel taxes at full statutory rates, with the measure expected to generate revenue equivalent to about 0.8 percent of gross domestic product in the 2026/27 fiscal year.

Under the new framework, the Ethiopian Customs Commission will collect fuel related taxes, including value added tax and excise tax, and remit all proceeds directly to the federal treasury. The measure changes the previous arrangement under which part of the revenue was retained by entities including the Ethiopian Petroleum Supply Enterprise and the Road Fund.

The reform forms part of Ethiopia's IMF supported economic reform program and is intended to strengthen government revenue collection, reduce off budget arrangements and support the gradual removal of fuel subsidies.

According to IMF program documents, value added tax and excise tax liabilities on fuel will be calculated using the applicable statutory tax bases, without caps or other adjustments that reduce the effective amount collected.

The government incorporated fuel subsidies into the federal budget during the 2025/26 fiscal year. The budget provided a Birr 100 billion ceiling for fuel subsidies and Birr 84 billion for fertilizer subsidies. Fuel subsidy spending, however, reportedly exceeded the initial ceiling.

For 2026/27, the government plans to substantially reduce the fuel subsidy allocation while implementing an automatic fuel price adjustment mechanism developed with IMF technical assistance.

The measures also form part of efforts to increase Ethiopia's tax to GDP ratio. Tax policy reforms already introduced are projected to raise the general government tax to GDP ratio to 10.1 percent in 2026/27 and 10.5 percent by 2027/28.

The government is also restructuring the Ethiopian Petroleum Supply Enterprise to address accumulated fuel related liabilities. The Ministry of Finance has approved Birr 286 billion for recapitalization.

Source: Capital Ethiopia Newspaper