Ethiopia is preparing a new motor vehicle ownership tax expected to begin in the 2027/28 budget year, with a revenue-sharing plan between federal and regional governments.
Ethiopia is preparing to establish a formal revenue-sharing system for a new motor vehicle ownership tax expected to take effect in the 2027/28 budget year. The Council of Ministers is expected to submit the proposal to the House of Federation by the end of December 2026. If approved, the plan will create a legal framework for sharing revenue from the new tax between the federal government and regional states.
The vehicle ownership tax forms part of efforts to strengthen domestic revenue collection and raise the tax-to-GDP ratio. Officials expect the measure to contribute about 0.1 percent of GDP in its first year and around 0.2 percent in the second year. State Minister of Finance Semereta Sewasew noted that the country’s tax-to-GDP ratio had risen from 6.2 percent to 8.2 percent over the past two years.
Economist Aschalew Tefera said the reform is necessary to strengthen government revenue but warned that its effects on the wider economy need close attention. He noted that many vehicle owners rely on their cars for daily income and that the tax could raise operating costs for low-income drivers.
