The CEQ in Ethiopia

tassew-webProfessor Tassew Woldehanna ( a member of CEQ’s Ethiopia team) of Addis Ababa University provided insights on CEQ’s impact in Ethiopia.

From your experience as a user of the CEQ tool, what did you find most useful and what should be improved? 

TW: The CEQ is a very useful tool to assess how poor households are affected by taxes and transfers. It would be useful to incorporate how the poor benefit from investment in infrastructure such as rural roads, water and sanitation, and so on. In Ethiopia, the government spends a significant portion of the budget on infrastructure and this is not accounted for in the current CEQ method.

The CEQ Assessment for Ethiopia was led by the World Bank who had direct interaction with the government. Did the results lead to any noteworthy policy change?

TW: Yes, definitely. The CEQ Assessment showed that the extreme poor were often paying taxes over and above what they received in transfers (Chapter 5, World Bank Group. 2015. Ethiopia Poverty Assessment 2014. Washington, DC. © World Bank).  The fact that many poor were left worse off was a consequence of two factors: the threshold of income at which people were liable to start paying taxes was very low and the Productive Safety Net Program (PNSP)—our flagship cash transfer—was well-targeted but both the coverage and benefit per household were small.  In January 2016, the government expanded the coverage of the PNSP to include households living in urban areas, among other things. In July 2016, the government raised the threshold of taxable personal income from Birr 150 to 750 birr per month and taxable business income from Birr 1800 to Birr 7500 per year. While these changes may not be enough to completely eliminate the problem, it has been an important policy change in the right direction.