A new comprehensive property tax system is introduced in Ethiopia under Proclamation No. 1365/2025, replacing the former land lease and house tax system. The primary goals of this legislation are to generate significant revenue to meet the increasing demand for urban services, foster a more equitable distribution of wealth among the urban population, and finance modern, high-quality public services and infrastructure. The proclamation aims to establish a standardized, transparent, market-based, and efficient nationwide property tax system to foster a unified economic community.
Key Themes and Provisions
Rationale and Objectives
The previous “land lease and house tax system” was deemed insufficient for generating the necessary income to support the rapidly growing urban population’s service demands. The new property tax seeks to ensure an “equitable distribution of wealth among the urban population.”
It will enable the government to “provide, renovate, and sustain government services and facilities with better quality and with a wider scope” by leveraging taxes from increasing property values to cover investment costs.
Furthermore, it will establish a “consistent, transparent, market-oriented, efficient, and effective nationwide property tax system” to build a cohesive economic community.
Scope and Application
Geographic Scope: The proclamation applies to all property located within the country’s urban areas.
Definition of “Property”: This includes “lease-hold possession right, old possession right, building and land improvement on urban land.”
Definition of “Property Tax”: This refers to the “tax levied in respect of Property in accordance with this Proclamation.”
Taxable Property and Valuation
Property tax will be imposed on the urban land use right under the lease-hold system; old land use rights that are not part of the lease-hold system; and land improvements and/or ownership of buildings on urban land.
Property Market Value: This is determined by considering factors such as the selling price of similar buildings, the land or building area, current market prices, building location, and the current condition of the building.
Taxable Value: This is set at “25 (twenty five) percent of the Property Market Value.”
Valuation Updates: Property valuation for tax purposes is required to be updated every 5 years. However, if improvements are made to a property before the 5-year mark, a re-valuation must be conducted at the time of the improvements.
Tax Categories and Rates
The property tax is divided into two categories: the tax on urban land use rights, and the tax on land improvement and ownership of buildings on urban land. These two taxes will be assessed separately but collected together.
Initial Tax Rates: Pending determination by the Council of Ministers, the urban land use tax will be a rate of not less than 0.2% and not more than 1% of the taxable value. The building and/or land improvement tax will be a rate of not less than 0.1% and not more than 1% of the taxable value.
Gradual Implementation: The proclamation mandates a phased implementation of the tax rate, beginning at the lower end and incrementally increasing to the higher rate over a four-year period.
Higher Rate Application: Regional governments have the authority to apply the highest tax rate if urban land remains undeveloped beyond the legally specified development period or if a building is not used for its intended purpose beyond its operational start date.
Property Classification and Grading
Land Use Categories: Urban land use will be categorized based on existing urban planning laws.
Building Classification: For tax assessment, buildings will be classified based on location, city grade, service type, and infrastructure consumption into categories such as: Residential building, Manufacturing Industry, Social service Building, Commercial Building, Mixed-Service Building, Environmentally High-risk industry building, and other types as defined by regional legislation.
City Grading: Cities will be graded into two categories: “chartered cities and city administrations.” Regional governments will enact laws to classify these cities and grade the urban land within them, based on criteria from the Ministry of Urban and Infrastructure.
Tax Exemptions
The following are exempt from property tax: a residential building used as a primary dwelling by a low-income family (the specific taxable value to be determined by regional governments); religious institutions used for worship and cemetery services; land within urban areas used exclusively for agriculture; and organizations that provide free social services, for the properties used for that purpose.
Federal government entities, public utility properties, and organizations under bilateral or intergovernmental agreements may be exempted, subject to making “compensatory goodwill contributions” in lieu of taxes.
Payment Obligations and Penalties
Taxpayers: This includes any individual or entity with a use right to urban land (under lease-hold or old possession) or who owns a building or land improvement on such land. Joint holders and owners are also included.
Tax Liability Commencement: For existing properties, liability begins on the proclamation’s effective date. For newly acquired properties, it begins on the date of acquisition.
Joint Liability: Joint holders are “jointly or severally liable to pay tax.”
Penalties for Non-Payment: An initial 5% administrative penalty is applied to the unpaid amount if not paid by the due date. An additional 2% administrative penalty is added for each month (or part of a month) the tax remains unpaid. The total administrative penalty cannot exceed 100% of the original property tax owed. Once the penalty reaches 100%, the taxpayer must also pay interest at the average bank lending rate plus 3% until the full amount is settled.
Payment Methods: Payments can be made “at once or in installments” (annually or quarterly) as determined by regional law.
Deferral for Low-Income Residents: Individuals who are certified by the relevant government body as having no income to pay the property tax on their residential building can defer payment until the property is transferred. In such cases, they are only required to pay the last 2 years of accrued property tax, with any older arrears being waived.
Administrative and Procedural Provisions
Tax Notice: Taxpayers will receive a written or electronic notice detailing the property identifier, the amount of tax due, the payment deadline, the calculation method, and the period for filing a grievance.
Public Registers: Each urban area must establish and maintain two public registers: a valuation roll for periodic property valuations, and a register for periodic tax exemptions and in-lieu contributions. Both registers must be publicly accessible during business hours and available electronically.
Grievance Handling: Tax Review Committees, comprised of 3-5 experts in tax/audit, land administration, property valuation, and tax law, will be established to hear complaints. Complaints must be submitted within 21 days of receiving the tax notice or a copy of the valuation roll. The head of the tax authority or the review committee may waive administrative penalties; however, interest on delayed payments cannot be waived.
Appeals: Decisions from the review committee can be appealed to the Property Tax Appeal Tribunal within 30 days. To lodge an appeal, 50% of the disputed tax amount (excluding penalties and interest) must be deposited with the tax authority as a guarantee. Subsequent appeals can be made to the Lower Court of Appeal and then to the Supreme Court, with similar deposit requirements.
Roles and Responsibilities of Governmental Bodies
Ministry of Finance: Will set the national property tax framework and exemption rights, oversee implementation, and regulate compensatory contributions.
Ministry of Urban and Infrastructure: Will develop criteria for city grading, create systems for property valuation, and provide capacity-building support to regional governments.
Ministry of Revenue: Will develop modern, technology-assisted tax administration systems and provide ongoing capacity building.
Regional Governments and Federal Cities: Are responsible for enacting specific legislation for tax implementation, supporting economic studies, issuing directives on exemptions, allocating revenue, building capacity, and conducting taxpayer education.
Transitional Provisions
The previous land lease and house tax system will remain in effect until regional governments enact their own laws based on this proclamation. This transitional period cannot exceed two years from the effective date of this proclamation. Arrears and penalties from the old system will still be collected under the repealed laws. The “Urban Land Lease and House Tax Proclamation No. 80/1998” and its amendment (Proclamation No. 161/1971) are repealed, subject to these transitional rules.
Effective Date
The proclamation came into force on March 26, 2025, the date of its publication in the Federal Negarit Gazette.