The Poverty Penalty: How Tax Systems Punish the Poor

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In any society, taxes are supposed to play a crucial role in ensuring the government can provide essential services to its people. Roads, healthcare, education—these are all things that tax revenues are supposed to fund. But in Ethiopia, the tax system is increasingly becoming a tool of oppression, where the poor are forced to bear the brunt while the wealthy avoid their fair share. This is not just an issue of financial mismanagement; it's a systemic problem that keeps the poorest citizens in a cycle of poverty, all while the government boasts about record tax collections.

The Unfairness of the Tax System

Let’s start with the basics: tax systems are meant to be fair. They should help support the collective good and distribute the burden equitably across all levels of society. However, in Ethiopia, the reality is far from this ideal. The wealthiest citizens and big corporations have ways to sidestep taxes, leaving the majority—especially the poor and small business owners—to shoulder a disproportionate burden. This is evident in how taxes are structured and the methods used to collect them. The poorest individuals and small businesses pay a significant portion of their income or revenue in taxes, while wealthier individuals can afford to exploit loopholes and avoid paying their fair share.

For example, Ethiopia's recent implementation of the property tax has been a cause for concern. Designed to increase government revenue, this new tax primarily targets urban property owners—most of whom are not the wealthy elites but everyday citizens struggling to make ends meet. Small business owners, for instance, have seen their tax liabilities increase drastically. A small business that once paid 10,000 birr in taxes now faces a bill of 80,000 birr. This sharp increase is unsustainable for many small business owners who are already grappling with inflation and rising operational costs.

The Tax System's Impact on Small Business

Small businesses are the backbone of any economy, providing jobs, goods, and services that keep communities functioning. In Ethiopia, small business owners are being squeezed by rising taxes, which makes it increasingly difficult for them to stay afloat. As the government pushes for higher taxes, it directly impacts the ability of small businesses to operate. These businesses, which once had modest tax obligations, now find themselves burdened with tax rates that are far beyond their means. The result is a decrease in business activity, loss of jobs, and a further strain on the economy.

It is not just the tax rates that are problematic; the method of tax collection also plays a significant role. Corruption within tax offices, where bribes are often demanded to avoid penalties or delays, compounds the problem. Small business owners who are already struggling now have to navigate a corrupt system that further drains their resources. They are caught in a vicious cycle where they are forced to pay exorbitant taxes just to survive, and corruption ensures that the system remains inefficient and biased.

Corruption and Inefficiency in Tax Offices

Corruption within the tax system is an open secret in Ethiopia. Tax offices, which should be places of regulation and order, are often seen as breeding grounds for bribery and misconduct. For those who can afford to pay a little extra, there’s always a way to avoid the burdensome taxes that the average citizen cannot escape. This only serves to deepen the divide between the rich and the poor, leaving the latter to deal with excessive taxation and the feeling that the system is rigged against them.

The Impact of Property Tax and Inflation

One of the more recent tax changes in Ethiopia is the introduction of the property tax. On the surface, this tax may seem reasonable—it targets urban properties, which are typically associated with wealth. However, the reality is that many of the property owners affected by this tax are not wealthy elites, but rather working-class individuals who have managed to purchase a home or a small piece of land in urban areas. These individuals are now finding themselves taxed at rates that threaten to push them into deeper poverty.

Furthermore, this new property tax is likely to drive up rental prices and inflation. Landlords, faced with the increased tax burden, will likely pass these costs onto tenants. This will make housing even more unaffordable for the average Ethiopian, further exacerbating the economic struggles faced by the poor. Property taxes that increase inflation are a form of hidden taxation, making it more difficult for people to live day to day.

Ethiopian Government's Boastful Tax Collection at the Expense of the Poor

The Ethiopian government, under the leadership of Prime Minister Abiy Ahmed, has boasted about the increase in tax revenues in recent years. While this may sound like an accomplishment, the reality is that this "success" has come at the expense of the poor. The government has focused on expanding tax collection efforts, but instead of reforming the tax system to ensure it is more equitable, they have simply squeezed the people who are already struggling the most.

The government proudly announces record tax revenue collections, but what they fail to acknowledge is the toll this is taking on the average citizen. The poor are not benefiting from these increased revenues; instead, they are the ones bearing the burden. This disparity raises questions about the true priorities of the government and whether the wealth generated from taxation is being used to address the needs of the very people who are paying the price.

Why Ethiopia Needs Tax Reform

It is clear that Ethiopia's tax system needs reform. The current system is punishing the very people it should be protecting. Small businesses are being suffocated under tax rates they can no longer afford, and the poor are becoming increasingly impoverished as their tax burdens rise. Meanwhile, the rich are allowed to evade taxes and continue accumulating wealth.

In contrast, countries like the United States are considering the abolition of income tax, signaling a potential shift toward a more equitable tax system. Unfortunately, in Ethiopia, such discussions are far from reality. The government’s focus on increasing tax revenues at any cost, without considering the consequences for the poorest citizens, has created a system that disproportionately affects those who are already struggling.

Conclusion: Taxation as a Form of Modern Slavery

When taxes become so oppressive that they make it impossible for people to live and thrive, they cease to be a tool for national development and become a form of modern-day slavery. The Ethiopian government's over-taxation of its people is doing just that—creating a situation where people are forced to work harder, pay more, and receive little in return.

Until the tax system is reformed to be fair and equitable, the people of Ethiopia will continue to feel the weight of these taxes on their shoulders. The government needs to address this issue head-on and ensure that taxes are used to benefit all citizens, not just the elites.

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