Considerations for a commercial property tax in Ethiopia

Policy brief Cities, Tax and Cities that Work

In Ethiopia, commercial property make up a substantial proportion of the higher value building stock. This policy brief therefore considers the implications of introducing commercial property taxes in Ethiopia.

  • While mass appraisal works well to save data costs for residential properties, it is less accurate for commercial properties due to their heterogeneity.
  • Existing national surveys do not specify how much of rental income is commercial, nor capture characteristics of commercial properties owned. A low-cost way of accessing this data is by administering it through surveys.
  • Commercial properties are often levied at higher rates, are more likely to comply, and less politically sensitive than residential properties.
  • However, taxing commercial properties more creates multiple challenges, such as market distortions, given they rely less on public services, are more price sensitive and mobile, and can pass on the tax to customers through higher prices.
  • Focussing on improved administration, sensitisation, and overcoming vested interests for taxing all properties may be a more efficient solution in the long run.