The Value Added Tax and Sales Tax in Ethiopia: A Comparative Overview

This paper appraised and compared concisely the Ethiopian Value added tax (VAT) and Sales Tax. No extensive research has been done in these essential and critical features of the comparison of sales tax with VAT in the Ethiopian context. And this paper aims at comparing both of them by focusing on the general context of tax base, tax rate, the methods applied to implement and administer them based on the proclamations and regulations available for each. Replacing the outdated sales tax, VAT is still the most fashionable taxing system in Ethiopia. The paper revealed that there are some common features and different structures among VAT and sales tax. Both of them are consumption tax and revenue is collected from some entity other than the entity that actually bears the tax cost. While sales tax levied on the total value of an economic exchange, VAT comprehensively applied on all exchanges used in the production, distribution and consumption process. In addition, while sales tax has reduced but no zero rates, VAT has zero rates without reduced rate. As compared to sales tax, VAT contributed positively for the economy of one country if it is implemented and administered appropriately. Otherwise, the problem of sales tax continues in the VAT system too.