Ethiopia Tax Project (CBA)

The World Bank contracted CRI to provide technical support to the Government of Ethiopia, particularly the Tax Policy Directorate in the Ministry of Finance (MoF), in conducting a Cost-Benefit Analysis (CBA) of various tax incentives (Custom Duty Exemptions, VAT Exemptions, and Income Tax Holidays) in order to improve the country's revenue mobilization and public financing system. These incentives aim to encourage foreign and domestic investment, promote technological transfers, stimulate industrial development, promote trade, and create employment.  

The Integrated Investment Appraisal (IIA) methodology was used to conduct a quantitative CBA of selected tax incentives. The impact of the selected tax incentives was carried out using two representative firms from the manufacturing sectors (an export-oriented firm and an import-substitution firm). IIA is a comprehensive CBA technique that allows for a diverse evaluation of such incentives. Using the various tools of IIA (financial, economic, stakeholder, sensitivity, and risk analysis), the analysis addressed the following questions i) What are the fiscal costs of these incentives? ii) To what extent does each of these incentives achieve its targeted financial goal? iii) What net economic impact would be if the incentive increases this activity? and iv) How is the burden of the incentives shared among the stakeholders? 

The analysis results were shared with the Tax Policy Directorate in the MoF to help them structure the tax incentives policy and identify the more economically efficient sector to promote with given tax incentives.