Records show that property tax was introduced in Ethiopia during the reign of Emperor Haile Selassie.
Following the revolution, the Derg started making citizens pay land and roof taxes according to a new law.
At this time, land was not a taxable property, but citizens rented it from the government. However, it is necessary to pay an annual tax.
When the EPRDF came to power, it revised the ‘old and obsolete’ property tax, but it could not be extended.
Whether or not there is a property tax in Ethiopia is still controversial.
Recently, the people of Ethiopia and the federal councils have announced that they will prepare a new legal framework for property tax.
He said that according to the joint decision of the councils, the property tax levied in all states will be “proportionate”.
The members of the joint council decided by majority vote that “states should administer the tax imposed on property”.
But there were councilors who objected that this tax should not be imposed.
On the other hand, members who argue that this tax should be implemented say “it will be a source of income for the cities”.
What is property tax anyway? How will it be implemented in Ethiopia?
Property tax is the money an individual or legal entity pays to the government for the property they use.
In most countries of the world, property tax is measured based on the property’s annual assessed value.
Many cities around the world support themselves with the money they collect from property taxes.
Property taxes are usually levied on land and buildings, but there are countries that also levy taxes on vehicles.
Property tax is “a type of tax that is collected directly from the individual who pays the tax,” said assistant professor Tilahun.
Mhuru, who is a teacher and assistant professor at Debre Markos University, has done his second degree in land management and property tax, explaining that property tax has two aspects.
One is the ‘Property Transaction Tax’, which is a tax levied on the sale and exchange of property. The second and most important is the tax imposed on property based on the annual price increase.
The assistant professor says that although property tax includes both movable and immovable property, it is the property tax that is levied on immovable property [land and buildings].
“Property tax differs from other types of taxes in that it is not easily hidden. The annual value of a property is calculated based on the government’s valuation. So individuals have no way to hide this tax.”
In many countries, property taxes are implemented by city governments. But it is not easy to do with cost and technology.
However, Assistant Professor Tilahun explains that ‘property tax’ requires a lot of technology and human resources.
He added that apart from collecting property tax revenue, it will be a reason for citizens to reduce spending or get used to savings.
Property taxes account for 30 percent of the revenue collected by the central government and state governments in the United States.
But while the US is among the countries with the lowest property taxes, countries like Belgium and Spain are known for charging the highest property taxes.
Property tax in Ethiopia
Assistant Professor Tilahun says, “Whether or not there is a property tax in Ethiopia is controversial,” but he says that the first tax in Ethiopia is the property tax.
“I am not from the group that says there is no property tax in Ethiopia. But there is at least the second property tax. There is a (transactional) type of tax that occurs when an asset is sold or exchanged.”
The scholars who talk about the roof tax and land rent policy imposed during the Derg period explain that this law still exists but many people do not know about it, because the property tax collected is very small.
He added that in the current situation, people pay property tax when they voluntarily go to the municipality for other services.
“Therefore, it cannot be said that there is no property tax. But it is too old to fit the modern tax process.”
Assistant Professor Tilahun explained about the ‘transactional’ type of tax. This type of property tax is a tax that an individual pays to the government when he sells or exchanges property. This tax is called ‘stamp duty’ in English.
Countries that do not charge property tax have a stamp tax that an individual pays to the government when they buy or sell property.
In Ethiopia, for example, when a person sells a house, he is obliged to pay a two percent tax. “Some cities charge a ‘service charge’. For example, Addis Ababa will cut 4 percent and other cities will cut 3 percent.”
But what kind of property does an individual have in Ethiopia? Scholars point out that it is debatable which tax should be imposed.
The main reason for this, says Tilahun, “is a home owner, a building owner, a service building owner. . . It is the absence of a tax law that sets this apart.
The teacher in 2010/11 They did research on property tax focusing on Dredawa, Bahir Dar and Mekele. One of the issues they noticed in their research is that the Ethiopian constitution does not have a clear article about property tax.
In the conclusion of their research, they made a recommendation that “since there is no specific tax for the federal or the states, the Federation and the Houses of People’s Representatives should decide together.”
The property tax that came in a ‘new form’
Last May, Prime Minister Abiy Ahmed, in his discussion with Addis Ababa city cabinet members, raised the idea that buildings costing “more than a certain amount of money” should pay property tax.
According to assistant professor Tilahun, it took more than eight years when the property tax issue was discussed.
They say that it is a “big step” for the members of the Federation and the People’s Assembly to discuss together to prepare a legal framework for property tax in a ‘new form’.
However, they advise that property tax should be viewed carefully as it contains very complex concepts.
“For example, is it the land, the building that is taxed? Do we value the land alone or with the house? How much value is taxed? This has to be returned.”
He added that another issue that should be considered is how the lease system and property tax can go together. They say it is.
One of the questions raised when the members of the councils discussed property tax was that citizens pay taxes twice (double taxation).
“Citizens should not pay taxes on the houses they have built by saving from the wages they take after paying taxes” was raised by council members.
Assistant Professor Tilahun explains what “double taxation” is and says that the above mentioned idea is “wrong”.
According to scholars, when a person pays tax twice or more in the same transaction, it is called “double taxation”.
“For example, when a person is paid a salary, the federal government taxes it and gives it to an office, and if it is taxed, we call it double taxation.”
According to him, property is a “stand-alone source of income”. “Whether the income is converted into silver is another matter.”
Ethiopia should copy this policy from which country? The assistant professor, who says that he recently conducted a study on the topic, mentions that four countries were included in this study.
In his study of Tanzania, South Africa, Ghana and Thailand, the assistant professor and his research partners suggested that Ethiopia can learn from the experience of these countries.
“But what we said is the closest to Ethiopia is Tanzania.”
They also recommend that the social, economic and political background should be considered when the new framework is issued. For example, many countries see the political background and mention that they exempt embassies and international institutions from property tax.
But they don’t want the idea that property taxes, if implemented properly, “can be a great source of revenue for cities.”