The Estimation Of Excise Tax Revenues And Their Incidence Across The Households In Ethiopia

This report analyses the revenue generation and distributional impact of excise taxes in Ethiopia. Using the Ethiopian Household Consumption-Expenditure Survey (HCE), the study examines 10 categories of excisable goods, including alcohol, cigarettes, cosmetics, and motor fuel. The findings reveal that the top 40% of households account for over 84% of expenditures on excisable goods and 81.4% of total excise tax revenues. The most significant revenue sources are clothing, textiles, and garments (31.02%), motorized vehicles (20.79%), and cigarettes (14.88%). The excise tax system is mildly regressive, with lower-income households bearing a slightly higher burden relative to their total expenditures. Taxes on cosmetics and non-alcoholic beverages are the most regressive, while taxes on motor fuels and cigarettes are progressive due to higher consumption by wealthier households. The report also identifies five major items currently exempt from excise taxes, including edible oils, sugar, and kerosene. If these items were taxed, excise revenues could increase by 33%. Notably, taxing kerosene would be progressive, with 92.6% of the burden falling on the top 40% of households. The study suggests that revising exemptions and adjusting tax rates could make Ethiopia’s excise tax system more efficient and equitable. For example, taxing kerosene could generate significant revenue while targeting higher-income households, and revising exemptions on edible oils and sugar could reduce regressivity. Overall, the report highlights opportunities to enhance revenue collection and improve the equity of Ethiopia’s excise tax system by aligning policies with international best practices.