Addis Abeba — Jigjiga, the capital of the Somali Regional State, is currently at the centre of a heated dispute between the City Administration and segments of the business community--large traders, wholesalers, importers, and other high-volume enterprises. At the heart of the disagreement is the collection of value-added tax (VAT) and, specifically, the administration's effort to ensure that taxable sales are properly documented through the point-of-sale (POS) systems already in use by most businesses.
Addis Ababa city guide This local push mirrors a broader national trend. Ethiopia has been steadily advancing toward electronic invoicing as part of a wider tax modernisation agenda, though the transition has not been without friction. A recent analysis published by Addis Standard examines Ethiopia's fast-tracked shift to e-invoicing, highlighting the regulatory whiplash and implementation challenges accompanying the reform--challenges that Jigjiga's own experience now appears to mirror at the local level.
Ethiopian election analysisDiscover moreEthiopian travel guideInvestigative journalism reportsExecutive Branch The city administration's initiative is intended to close this second gap. Its underlying logic is simple: if a trader is already recording sales electronically through a POS system, it stands to reason that the VAT component of those transactions should also be visible to tax authorities, rather than existing as a separate, unverified figure. Some traders have pushed back, arguing that their sales data constitutes confidential commercial information that should not be shared so readily. This concern is reasonable, but it does not, on its own, resolve the underlying tension between business privacy and tax accountability.
Advertising space Framed this way, the ongoing standoff is not simply a contest between government authority and private enterprise. Rather, it reflects a more fundamental question: whether Jigjiga can move away from a taxation system historically shaped by negotiation and manual inspection toward one grounded in transparency--where the VAT charged to consumers is consistently recorded, traceable, and remitted.
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From customer payments to public coffers
A key fact often gets lost in this debate: VAT is, by design, ultimately borne by the customer, not the business. A VAT-registered business that charges VAT on a taxable sale is legally obligated to remit that amount to the state. Under Ethiopia's Value Added Tax Proclamation No. 1341/2024, VAT is defined as a consumption tax levied through VAT-registered businesses. While it is the business that collects the tax at the point of sale, that portion of the revenue was never the business's own money to begin with--it is held, in effect, on behalf of the government.
Discover moreEthiopian political analysisNews subscriptionHistory This distinction matters. When a customer pays a VAT-inclusive price, but the transaction goes unrecorded and unreported, the loss to the tax authority occurs after the customer has already paid their share. In other words, the issue at stake is not merely how much tax a business owes on its account, but what happens to the tax it has already collected from consumers in trust for the state. Unreported sales effectively mean that revenue rightfully belonging to the public purse simply disappears somewhere between the customer's payment and the government's coffers.
There is also a consumer-protection dimension to this that deserves more attention than it typically receives. A properly issued, VAT-compliant receipt is not just a tax instrument; it is also a customer's primary evidence in disputes over pricing, warranties, and refunds. Without it, consumers are left with little recourse when transactions go wrong. Addis Standard's reporting on Merkato traders illustrates the risks of pursuing enforcement without adequate groundwork--clear rules, meaningful consultation with the business community, and technically workable systems are all essential if reforms are to succeed rather than trigger prolonged standoffs. A well-functioning VAT system, in the end, serves the interests of everyone involved: taxpayers, tax administrators, and the state alike.
From the viewpoint of tax administration, however, the rationale for associating taxable transactions with a dependable record system is valid. Modern VAT systems operate based on the ability to record sales, match reported turnovers to tax payments, and minimise the possibilities of transactions being off-the-books. Ethiopia launched the Electronic Invoice Management System as part of its revenue digitalisation efforts and customs administration. Likewise, the country's overall approach to revenue administration tends to focus on issues such as electronic records, digital payment systems, electronic invoicing, and technology-based tax compliance through the national Value Added Tax Proclamation No. 1341/2024. Therefore, an increasingly thriving business city cannot rely solely on written documents, occasional audits, and manual revenue accounting when digital options are readily available.
Ethiopian election analysis Furthermore, the International Centre for Tax and Development (ICTD) recognised the importance of electronic invoicing for tax enforcement through traceable records while also enabling tax authorities to cross-check transactions. Similarly, ICTD has observed that e-sales recording in Ethiopia has led to better reporting of sales and VAT collection systems.
VAT paid by customers does not belong to traders; it must be recorded and remitted to the state."
Well-designed digital tax mechanisms have the potential to enhance record-keeping, simplify VAT accounting, minimise chances of underreporting, facilitate risk-based audits, and provide stronger audit trails. Addis Standard's reporting on Merkato traders highlights the need for proper mechanisms from the tax officials. It also bridges the gap between business records and tax records.
This last aspect is important since tax systems that depend greatly on the discretion of individual agents are vulnerable to abuse. A tax system in which there is much reliance on subjective assessment and negotiation could open up possibilities for discriminatory behaviour, favouritism, or even corruption. It should be noted that this does not mean the individual taxpayer or any official is guilty of such actions; neither is it an allegation against taxpayers or officials, but a risk inherent in the taxation system.
A system that automatically logs transactions and accounts adjustments and provides audit trails is harder to manipulate than one that relies on private negotiations.
Digital tax reform is more than a tool used to generate income. It also works as a tool to minimise corruption and ensure competition in the marketplace. Honest businesses will have an advantage over those companies that will no longer be able to conceal revenues and therefore avoid taxes.
Between VAT enforcement and business data protection
Authorities should not answer valid business queries by claiming that the government has an intrinsic right to obtain everything. Ethiopia's Personal Data Protection Proclamation No. 1321/2024 establishes a national framework for personal data protection, particularly during collection and processing. As a result, it should be recognised that traders possess trade secrets and confidential business data, including supplier relationships, customer information, inventory patterns, and pricing policy. This is because tax compliance should not be used as an excuse for unlimited government access to commercial information that does not relate to the legitimate function of tax administration.
Ethiopian election analysis It is not about open access to commercial intelligence but about transparency in tax-related information only. The city's tax authorities need to inform what kinds of data will be obtained, who will have access to this data, for how long it will be stored, what level of IT security has been applied, and what actions may be triggered in case of data misappropriation. Thus, a distinction should be drawn between protecting legitimate commercial confidentiality and hiding taxable turnover. A reliable digital tax system should reconcile the two.
There is no way to resolve the consumption tax situation in Jigjiga strictly through cash registers. Jigjiga is deeply linked to cross-border business networks, and hence issues in the initial stages of the supply chain may have an impact on internal taxation. If the product makes it into the city without the proper customs clearance, and it subsequently proceeds through wholesale and retail outlets with incomplete records, the city will lose revenues twice: once when the product is imported and, secondly, when it is sold.
This leads to unfair competition. The importer who follows proper regulations, keeps records, issues invoices, and clears VAT won't be able to compete with a business scheme that skips the major steps of the customs process and VAT chain. As a result, a long-term and communal resolution has to involve the complete process, including easy-to-regulate customs operations, documented import, controlled wholesale transfer, dependable invoicing, recorded sale to the end customer, and exact VAT accounting. Enforcement of domestic tax has to go in parallel with customs activities.
Practical Settlement: Building trust, fixing VAT system
To begin with, a City-Business VAT Forum should be established, bringing together representatives from the city administration, regional tax authorities, large and small businesses, accountants, lawyers, and IT specialists. The forum would be responsible for developing practical guidelines for implementing the regulation and addressing concerns from different stakeholders. More importantly, discussions should focus on how VAT obligations can be fulfilled in accordance with existing legislation, rather than debating whether VAT should be paid at all.
The next step should be the gradual transition toward POS-linked data reporting. Authorities should initially focus on VAT-registered businesses with high turnover that already use digital systems. Starting with these businesses would allow the government to test the technology, identify potential challenges, and address technical or operational gaps before expanding the system more broadly.
The issue is not whether VAT should be paid, but how it can be collected through a fair, transparent, and accountable system."
A comprehensive taxpayer data protection framework must also be established alongside the electronic reporting system. Such a framework should clearly define the type of information collected, the purpose for collecting it, authorised access levels, data retention periods, and penalties for any misuse or unauthorised disclosure of taxpayer information.
It is also important to distinguish between technical errors and deliberate tax evasion. Businesses facing challenges caused by system failures, limited accounting capacity, or genuine mistakes should have access to mechanisms for correction and compliance support. However, deliberate attempts to conceal transactions or evade tax obligations should be addressed through appropriate legal and disciplinary measures.
The discretionary nature of tax enforcement should be reduced by introducing clear, transparent, and consistent procedures. Auditing should increasingly rely on risk-based and data-driven approaches rather than subjective assessments. Any adjustment or replacement of digital tax records should be automatically documented, clearly indicating who made the change, when it occurred, and the reason for the modification.
Furthermore, stronger formalisation of cross-border trade and customs compliance is necessary to ensure that VAT enforcement remains credible and sustainable. Effective VAT administration cannot be achieved through domestic monitoring alone; it also requires improved oversight of import and export transactions.
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Public participation is equally important in strengthening the VAT system. Citizens should be encouraged to request valid invoices whenever they make purchases, ensuring that transactions are properly recorded. Individuals who pay VAT should receive documentary evidence confirming the transaction and the tax component included in their payment.
Finally, public authorities should improve financial transparency by demonstrating how collected taxes contribute to public services and development initiatives. Greater accountability in public finance management would help build citizens' confidence in the taxation system and encourage broader compliance.
Conclusion: Turning tax dispute into reform opportunity
Compliance with VAT isn't just a matter of accounting for taxpayers; it is part of the overall revenue stream that is necessary to pay for roads, administrative offices, policing, firefighting, administration of justice, waste management, etc.
A city that is unable to generate legitimate revenue will have less capability to cope with infrastructure demands, unemployment, insecurity, and rapid urban growth. As such, paying lawful taxes becomes part of the social contract that makes commerce possible. Yet the government also has the duty to ensure that the revenues are safeguarded from corruption and mismanagement.
Consequently, the current VAT conflict must be viewed as a chance and not as a prolonged stand-off. The City Administration recognises the need for competent entrepreneurs, but at the same time, those entrepreneurs want the help of the state. Traders have a right to be concerned about regulation around how their data is collected and used, and the city authorities should be equally concerned about finding up-to-date international taxation procedures.
Therefore, the principle at the heart of the case is fairly simple: VAT paid by a customer does not belong to the trader. When VAT is charged legitimately, it has to be recorded and paid. This is what the city administration is trying to institutionalise and enforce, as the mayor publicly explained in his recent VAT-related controversy interview. Mayor's Public Explanation. If Jigjiga succeeds in this challenging task, the current case may be a starting point for a fairer, less corrupt, and more modern business environment. AS
Editor's Note: Adan Hussein (PhD) is a senior lecturer at Jigjiga University, as well as a researcher, trainer, and freelance writer. He holds a PhD in Educational Policy and Leadership Studies, alongside master's degrees in both Curriculum and Instruction and Migration and Development Studies. He can be reached at adanlunbag55@gmail.com or Adan.hussein@jju.edu.et
