The Ethiopian government’s new property tax law has sparked widespread debate, with opposition parties and members of the business community firmly condemning the move. This article explores the key provisions of the tax, its intended use, and the concerns it has raised.
Overview of the Property Tax Bill
On January 14, 2025, the Ethiopian House of People’s Representatives passed property tax bill aimed at generating revenue for urban development and addressing wealth distribution. The bill passed with four votes against and ten abstentions, despite strong opposition.
The proclamation empowers regional governments to collect property taxes through local administrations. It is part of the government’s broader economic reform program to increase domestic revenue and reduce dependency on federal funding.
Who Pays and How Much?
The property tax is calculated based on the annual change in the value of a property, with rates ranging from:
- 0.1% to 1% for houses
- 0.2% to 1% for land
Additionally, the taxable value of a property is set at 25% of its market value. This means only a quarter of the property’s market value is used as the base for calculating the annual tax. For example:
- A house with a market value of 20 million birr:
- Taxable value = 25% of 20 million = 5 million birr
- Annual tax at 0.1% = 5,000 birr
- A house with a market value of 10 million birr:
- Taxable value = 25% of 10 million = 2.5 million birr
- Annual tax at 0.1% = 2,500 birr
- A house with a market value of 5 million birr:
- Taxable value = 25% of 5 million = 1.25 million birr
- Annual tax at 0.1% = 1,250 birr
- A house with a market value of 1 million birr:
- Taxable value = 25% of 1 million = 250,000 birr
- Annual tax at 0.1% = 250 birr
Payments can be made in one or two installments. The Ministry of Finance retains the authority to adjust tax rates and taxable percentages based on further studies.
Exemptions
Certain properties are exempt from the tax, including:
- Government-owned properties and buildings used for social services.
- Religious institutions used for worship or burial purposes.
- Residential buildings providing services to low-income families.
However, the definition of “low income” remains contentious, with critics arguing that cost-of-living variations across regions make it difficult to establish a universal standard.
Opposition and Criticism
The bill has been met with strong opposition. Ato Desalegn Chane, a member of the Amhara National Movement (ABN), argued that “government employees and small businessmen” should not be burdened with property taxes. He criticized the lack of fairness, questioning whether it is justifiable to introduce this tax when the government is already close to covering its expenses with existing revenue.
ABN member Abebaw Desaleg expressed concerns that the revenue from the property tax might be diverted to controversial projects, such as the corridor development initiative championed by Prime Minister Abiy Ahmed, instead of addressing urgent community needs like roads, schools, and health centers.
“Corridor development is not expected to improve the lives of the community quickly,” Abebaw said, warning that infrastructure projects directly benefiting the public could be neglected.
Government’s Defense
Ato Desalegn Wedaje, chairman of the Planning, Budget, and Finance Standing Committee, defended the bill, emphasizing that the revenue would primarily be used for local infrastructure development.
“The community will discuss the tax for 60 days before implementation,” he explained. “After these discussions, the funds will be allocated to infrastructure, services, and other urban development needs.”
He dismissed concerns that the tax would significantly raise the cost of living, clarifying that it targets “created wealth” and applies only to those who own property. He assured the council that low-income individuals, including the elderly, would not be forced to sell their homes to pay the tax.
However, property owners unable to pay will be required to settle two years of property tax when selling or transferring ownership of their properties.
Ethiopia’s new property tax law is a key component of the government’s strategy to boost domestic revenue and reduce federal financial burdens. While it promises to fund critical urban development projects, critics argue that it may disproportionately affect low-income citizens and could divert funds to less urgent initiatives.
As the government prepares to implement the tax, balancing revenue generation with fairness and public acceptance will be crucial. The next 60 days of public discussions will determine how effectively this balance is achieved.
