Ethiopia: Revised tax rates for Salary and Small businesses
Ethiopian government disclosed the draft income tax proclamation that has been the subject of speculation for long.
The government has been indicating for about two years that it was considering a revision of the income tax, which has been in place since 2002.
The 2002 Income Tax Proclamation governs income tax from employment, from rental of buildings and from business. The law applies a progressive tax rate, except for corporate tax, which is flat 30%.
However, the amount of income and the corresponding tax rate has been static for more than a decade, despite inflation.
The draft legislation proposed a revision of the exemption threshold and the tax rates applied.
See below the details of the changes proposed regarding income from employment, from business and from rental of buildings.
The draft Income Tax Proclamation also proposes changes into the classifications of taxpayers.
Currently, taxpayers are classified into three categories. “Category A” consists taxpayers with annual turnover Birr 500,000 or more as well as PLC and Share Companies regardless of their turnover. “Category B” consists taxpayers with annual turnover between Birr 100,000 and Birr 500,000. “Category C” consists businesses with annual turnover less than Birr 100,000.
The draft proclamation proposes “Category A” to include taxpayers with annual turnover Birr 1,000,000 or more, while “Category B” is to consist taxpayers with annual turnover between 500,000 and Birr 1,000,000. Taxpayers below Birr 500,000 annual turnover will be classified under “Category C”.
Unlike “Category A” and “Category B”, businesses under the third category are not obliged to keep books and accounts rather a simple a simple report only recording their profit and expenditure with no need to record payable and receivable moneys. They are subjected to presumptive tax, based on a percentage of turnover.
The revised draft Income Tax Proclamation, drafted by the Ministry of Finance and Economic Cooperation (MoFEC) and Ethiopian Revenue and Customs Authority (ECRA), proposed a revision of the exemption threshold and the tax rates applied.
In a rare move, the draft proclamation is presented for stakeholders’ discussion before its submission to the Council of Ministers and the Parliament. However, it is slated to be enacted into law before the end of the fiscal year on July 7.
The proposed tax rates on monthly Income from Employment is as follows:
-> up to 585 birr = exempted
-> from 586 to 1650 birr = 10 percent
-> from 1651 to 3145 birr = 15 percent
-> from 3146 to 5195 birr = 20 percent
-> from 5196 to 7758 birr = 25 percent
-> from 7759 to 10833 birr = 30 percent
-> over 10833 birr = 35 percent
The proposed tax rates on annual Income from Business and Income from Rental of Buildings is as follows:
-> up to 7,000 = exempted
-> from 7,001 to 19,300 birr = 10 percent
-> from 19,301 to 37,750 birr = 15 percent
-> from 37,751 to 62,350 birr = 20 percent
-> from 62,351 to 93,100 birr = 25 percent
-> from 93,101 to 130,000 birr = 30 percent
-> over 130,000 birr = 35 percent
For the sake of those who wish to compare the changes, we presented below the current rates which has been in place since 2002.
The current tax rates on monthly Income from Employment is as follows:
-> up to 150 birr = exempted
-> from 151 to 650 birr = 10 percent
-> from 651 – 1400 birr = 15 percent
-> from 1401 – 2350 birr = 20 percent
-> from 2351 – 3550 birr = 25 percent
-> from 3551 – 5000 birr = 30 percent
-> Over 5000 birr = 35 percent
The current tax rates on annual Income from Business and Income from Rental of Buildings is as follows:
-> up to 1,800 = exempted
-> from 1,801 to 7,800 birr = 10 percent
-> from 7,801 to 16,800 birr = 15 percent
-> from 16,801 to 28,200 birr = 20 percent
-> from 28,201 to 42,600 birr = 25 percent
-> from 42,601 to 60,000 birr = 30 percent
-> over 60,000 birr = 35 percent
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