# **Table 10. Imputed Tax Incidence Using Tax Schedules for Amhara, Oromia, and SNNP Regions**

||**Pane**<br>Imputed househo|**l 1**<br>ld tax incidence|Edi|**Panel**<br>Imputed indi<br>incide|**2**<br>vidual tax<br>nce<br>Fl|
|---|---|---|---|---|---|
|Expenditure<br>quartile<sup>a</sup>|Male-headed|Female-<br>headed|xpenture<br>quartile<sup>a</sup>|Male holders|emae<br>holders|
|Poorest|0.22|0.25<sup>b</sup>|Poorest|0.59|0.60|
|2|**0.13**|**0.21**<sup>**b**</sup>|2|0.32|0.32|
|3|**0.09**|**0.13**<sup>**b**</sup>|3|0.22|0.22|
|Richest|0.06|0.08<sup>b</sup>|Richest|0.11|0.12|
|Total tax|||Total tax|||
|incidence|**0.14**|**0.18**|incidence|0.32|0.33|
|_Number of_<br>_households_|_979_|_284_|_Number of_<br>_respondents_|_1,075_|_1,110_|
||**Pane**|**l 3**<sup>**c**</sup>||**Panel**|**4**<sup>**d**</sup>|
||Imputed house|hold-level tax||Imputed hous|ehold-level|
||incide|nce||tax incid|ence|
|Position in<br>expenditure<br>distribution|Dual adult|Female-only|Position in<br>expenditure<br>distribution|Married<br>male-headed|Single<br>female-<br>headed|
|Bottom 40%|**0.19**|**0.26**|Bottom 40%|**0.19**|**0.26**|
|Top 60%|**0.09**|**0.15**<sup>**b**</sup>|Top 60%|**0.09**|**0.15**|
|Total tax|||Total tax|||
|incidence|**0.14**|**0.20**|incidence|**0.14**|**0.20**|
|_Number of_<br>_households_<br>_Notes_: Tax liabilities|_1,058_<br>are imputed by usi|_172_<br>ng the area of househ|_Number of_<br>_households_<br>old landholdings and th|_926_<br>e tax schedules fr|_212_<br>om three reg|

_Notes_ <u>: Tax liabilities are imputed by using the area of household landholdings and the tax schedules from three regions.</u> Household tax incidence in panels 1, 3, and 4 is calculated by dividing the imputed tax liabilities by household expenditure. The individual tax incidence is panel 2 is estimated by imputed individual tax liabilities divided by per capita expenditure. The sample is restricted to landholding households and respondents in the three regions. Tests of equality of means were conducted between (1) male- and female-headed households, (2) male and female landholders, (3) dual adult and female-only households, and (4) single female-headed and married male-headed households. Significant differences at p<0.05 are reflected in bold. a Households and respondents are ranked by adult equivalence scale expenditure. b The sample size is less than 100 observations.<sup>c</sup> Male-adult- only households are excluded in this panel because of small sample size.<sup>d</sup> Single male-headed and married female-headed households are excluded in this panel because of small sample size. Household sampling weights are used.

# **c) Hypothetical Tax Incidence**

In this section, we carry out an exercise to calculate the tax incidence of a hypothetical tax schedule that reduces per-hectare tax rates for farmers with less than 0.5 hectare of land and progressively increases the tax liabilities for larger land areas to assess how it affects vertical and horizontal equity.

We start with the tax schedule of Amhara region for _kebeles_ (or wards) that are not in the Productive Safety Net Program (PSNP) because the average per-hectare tax rate is the most progressive for land that is larger than one hectare (see Figure 2), and we then increase the tax liabilities for larger landholdings. We set the agricultural income tax liability for smallholder farmers (<0.5 ha) at zero, which is consistent with the current agricultural income tax for rain-dependent farmers in Oromia (see Appendix 1). The hypothetical tax schedule outlined in Table 11 results in an average per-hectare tax rate that increases with land area (column 4), while increasing the total tax liabilities in birr (column 3) to slightly higher levels than the current schedule for Amhara region (nonPSNP _kebeles_ ) (column 5).

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