This paper explores some of the challenges to explain why tax to GDP ratio is low at 13.4 per cent despite strong and sustained growth recorded in the past twelve years, through analysis of the determinants. Also, the gap between the potential and actual tax revenue in Ethiopia will be estimated using peer country comparisons.
The paper deploys both descriptive and empirical analysis. While the descriptive segment attempts to dwell on trend analysis in DRM and tax performance, the empirical model attempts to identify key determinants of the ratio.