| Abstract: | African union member states were taken an action on policy reforms like tariff reduction to all member states including Ethiopia. There is a gap in assessing the implication of AfCFTA before its enforcement, on government revenue and change in export performance for Ethiopian trade in goods. The study aims to identify the revenue implication of African Continental Free Trade Area (AfCFTA) on Ethiopia economy. This study uses Partial Equilibrium model by TRIST based on average three years (2016-2018) import data and collected duties from the tariff, VAT and excise tax at the tariff line (Harmonized System (HS) 8 digit). Two alternative scenarios was used to investigate revenue impact of AfCFTA on Ethiopian economy, in both scenarios, the simulation assumes model elasticity parameters that equal to product demand elasticity = 1.5 and elasticity for export substitution effect = 0.5. This elasticity is fairly standard in the literature. The study finding indicates that Ethiopia’s import is expected to increase by 0.2 % if the country adopts the AfCFTA full liberalization, while it increases by 0.1 % if Ethiopia excludes those revenue sensitive product lists. The adoption of AfCFTA free trade agreement by Ethiopia, income tax collection is expected to fall by 0.04 % after taking into account all sources of revenue, that is, import tax, VAT and excise duties. The revenue loss is tolerable as it is a short term negative impact on the revenues since it had longer transition period for progressive liberalization with 7 % sensitive list and 3 % exclusive list for policy space and benefits the consumers and importers. |
