In Bunna Tera, a small coffee trading section, women sort beans with care, their hands moving with precision. But sales are rare, and conversations often outnumber transactions. “We’re working, but we’re not earning,” one merchant said. “The work hasn’t changed, but the system around us has.”
Traders Blame Tax Pressure for Slump
Many traders in Merkato lay the blame squarely on a recent spike in tax enforcement and shifting policy mandates. According to them, the burden is not just heavy—it’s unjust. One coffee retailer recounted being slapped with a large VAT bill after officials rejected his purchase receipts, recalculated his prices at far higher rates than he actually charged, and disregarded his actual revenue.
With inflation driving up costs and squeezing consumer spending, he says it’s impossible to pass on the difference to customers. “Mothers who used to buy half a kilo now ask for 200 grams,” he said. “They can’t afford more. But the tax office says I should be selling at prices even I wouldn’t pay.”
This is a recurring story across Merkato. Merchants describe VAT calculations based on assumed profit margins and prices, not actual sales. The result: tax bills that don’t reflect reality, accompanied by interest, fines, and backdated penalties. For many, it’s not just frustrating—it’s devastating.
Policy Shifts Leave Traders Scrambling
The government’s recent move to shift VAT filing from quarterly to monthly has only intensified the pressure. “It’s a bureaucratic burden we’re not prepared for,” said a textile seller. “We spend more time filing papers than selling goods.”
Meanwhile, more than 4,000 businesses have been flagged by the Addis Ababa Revenue Bureau for expired licenses. But instead of offering pathways to renewal or relief, merchants say they’ve been met with penalties and enforcement.
Perhaps most troubling to traders is the Bureau’s insistence on levying income tax on nonexistent employees and ignoring inventory losses—like defective or unsellable goods. “We showed them moldy coffee beans, spoiled before they could be sold,” one merchant said. “They didn’t care. They taxed us anyway.”
Not Just Coffee and Cloth
This crisis cuts across sectors. Clothing vendors argue that the government’s pricing formulas are completely detached from market demand. “They say we sell at one price, but the market won’t buy at that rate,” said a trader in Menen Tera. “We’re being taxed on fiction.”
Oil station operators, small-scale manufacturers, and importers echo the same frustration. Under a blanket pricing model, they say individual business conditions and seasonal downturns are ignored, pushing already thin profit margins into the red.
Some smaller retailers have given up on the formal economy altogether. “We want to be compliant,” said one spice seller who recently closed his licensed shop and now sells informally. “But survival comes first. If we follow every rule, we won’t make it through the month.”
The Government’s View
Tax officials, however, remain firm. They argue that tighter enforcement is crucial to combatting widespread evasion and increasing the country’s low tax-to-GDP ratio. Standardising market prices and formalising receipts, they say, helps ensure fairness and revenue collection.
“Everyone must contribute,” said a spokesperson for the Revenue Bureau. “Many businesses have gone years without proper documentation. We’re simply asking them to follow the law.”
But traders argue that these laws, while perhaps sound in theory, do not account for the day-to-day realities of small businesses struggling with inflation, irregular foot traffic, and volatile supply chains. For many, the insistence on fixed valuation methods is not about fairness—it’s about control.
A Market on the Edge
Merkato has long been a symbol of Ethiopian resilience: chaotic, lively, and vital to the urban economy. Its energy has powered families, financed dreams, and fueled the informal sector for generations. But today, it teeters on the edge of silence—not from natural disaster or economic collapse, but from a tax regime that many traders see as disconnected from their lived experience.
In an effort to boost state revenues, the government may be driving some of its most entrepreneurial citizens into the shadows. The irony is stark: in trying to formalise the economy, the system may be pushing it further underground.
Back in Shema Tera, beneath the scaffolding of a half-rebuilt building, a merchant stared at his empty storefront. “The fire burned the walls,” he said. “But the taxes? They’re burning what’s left.”