SYSTEM OF DIVISION OF REVENUE IN ETHIOPIA

Abstract

In addressing the issue of the allocation of revenue raising powers, the main question is the taxation power distributed between the tiers of government in a federal system. It is an issue of vital significance that federations usually specify in their constitutions the revenue raising powers of the two orders of government. This is quite clear due to the very rational for creating and maintaining federal system. Scholars are undivided in arguing that fiscal federalism may aggravate imbalances if mistakes are committed in tax assignments of major tax bases. However, there is no one best model for all societies, except for those broad guidelines such as local governments should be assigned taxes whose burdens are local. Note also that assignment of tax bases may have to consider the importance of other tax objectives other than raising revenue, such as income distribution and economic stabilization. Besides, informational and technical requirements as well as potential gains and losses (economies and diseconomies of scale) have to be evaluated in assigning of tax bases.