Second, there is an emerging body of literature that finds that small firms or traders are required to pay multiple taxes or fees, such as trade association fees, business licenses, storage fees, and market fees in the Democratic Republic of Congo (Paler et al., 2017), Ghana (Anyidoho et al., 2022, Caroll 2011, Prichard and van den Boogaard 2017), Nigeria (Akpan and Cascant-Sempere 2022 and Meagher 2016), Sierra Leone (van den Boogaard 2018, van den Boogaard, Prichard, and Jibao 2019), Uganda (Pimhidzai and Fox 2013), and Zimbabwe (Ligomeka 2019). Many of these papers show evidence of regressivity of small taxes and fees on female traders and entrepreneurs. This paper contributes to this literature by focusing specifically on the presumptive tax on small enterprises with a gender lens.

Third, this paper makes a methodological contribution by demonstrating how the gender dimension of a small business tax can be evaluated with publicly available survey data, such as the ESS. It also shows how the effective tax rates and revenue implications can be examined through a policy simulation. Surveys typically do not collect data on taxes paid by small and microenterprises, but the ESS fills this data gap. The enterprise module in the ESS data with detailed information on enterprise activities, revenue, and tax questions allows for this type of granular analysis.

This paper is organized as follows: section 2 provides background on the presumptive tax in Ethiopia, section 3 describes the data and the descriptive statistics on gender and nonfarm enterprises, and section 4 discusses the empirical methodology. The results on the effective tax rates are discussed in section 5, the policy simulation of a hypothetical presumptive tax is presented in section 6, and section 7 provides the conclusion.

# **2. The presumptive tax on small and microenterprises: The Ethiopia context**

Businesses in Ethiopia are classified into three groups for tax administration purposes, namely Category A, B, and C taxpayers. This paper’s focus is on Category C taxpayers, which are unincorporated small and microenterprises, with an annual turnover of less than 500,000 birr (approximately USD 9,040<sup>3</sup> ) (Harris and Seid 2021).<sup>4</sup> Category C taxpayers pay the presumptive tax, which is calculated using the gross annual turnover, and are not required to keep a book of accounts (Proclamation No. 410/2017).<sup>5</sup> The presumptive tax rates differ by activity and revenue, consisting of lump sum tax liabilities for 99 business sectors with 19 turnover bands (with a total of 1,881 activity-bands) (see Council of Ministers Regulation No. 410/2017

> 3 1 USD=55.31 Ethiopian birr (exchange rate on October 6, 2023).

> 4 In contrast, Category A taxpayers are all incorporated businesses (regardless of turnover) and unincorporated businesses with a turnover of more than 1 million birr. Category B taxpayers are unincorporated businesses with a turnover between 500,000 and 1 million birr (Harris and Seid 2021, Mascagni and Molla 2018).

> 5 There is also an indicator system for operating public buses, freight transport, and flour mills (Council of Ministers Regulation No. 410/2017).

4