Types of tax in ethiopia pdf

Data collected was mainly from the field using questionnaires. Taxes in which the rate of tax remains constant, though the. Schedule a employment income per month tax rate in % deduction in birr over birr to birr. The focus in this chapter is the use of a presumption to supplant the entire tax base, or an entire category of taxable income. As per income tax proclamation no 9792016, here are the business profit tax rates in ethiopia. Taxation refers to compulsory or coercive money collection by a levying authority, usually a government. Value added tax is a tax system that has replaced the sales tax in ethiopia and has applied a uniform rate. Employment income tax in ethiopia introduction individuals may receive various types of income such as wages or salary from employment, rent from letting houses or buildings, interest from lendingsaving money, and profit from their trading activities or business. This is due to tax non compliant behavior of tax payers and inefficiency of the tax authority. Income tax is a tax payable, at the rate enacted by the union budget finance act for every assessment year, on the total income earned in the previous year by every person 6. Evidence from kaffa, bench maji and sheka zones category b. The vat regime under ethiopian law with special emphasis. Indirect tax is a kind of tax which the tax payer collects it from the customers indirectly and not from his own income.

A tax is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority. Taxation in ethiopia direct and indirect taxes categories of tax payers declaration of income and assessment of taxes tax incentives addis ababa 12005 published by. The objective of fiscal policy is to create healthy economic growth. The government has to finance its expenditure including interest payments on accumulated public debt by using taxation, borrowing from the market i. In this article, we will explain the main 14 types of audits being performed in the current audit industry or practices. Personal taxes, on the other hand, are levied on individuals or households. That plan was for a 9% business transaction tax, a 9% personal income tax and a 9% federal sales tax.

Unlike business taxes, personal taxes are generally not levied on the profits of a household how much a household has left over after paying for what it buys but rather on the revenue of a household, or what the household brings in in income. The direct and indirect taxes applicable in ethiopia fikadu. It is an important and most significant source of revenue of the government. Income tax income tax is levied on all income and profit received by a taxpayer, which includes individuals, companies and trusts. Chapter two will introduce the students to the income tax in ethiopia. Bear in mind that income tax is applicable to anyone who owns landed property, has an apartment rented out, has a business, or works in ethiopia, regardless of what his country of origin is. Income tax in ethiopia can be a burden, and you need to be sure you are placed in the correct tax brackets. Now, what are the tax rates, and on what kinds of income should a person pay tax. Taxation in ethiopia in ethiopia a company, based on its activities may be required to pat the following taxes. It is used in conjunction with the monetary policy implemented by central banks, and it influences the economy using the money supply and interest rates. The survey is conducted as part of the tax administration component of the wbg ethiopia investment climate program. Employment income tax is a tax on the earnings of an employee. A tax is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to. Public finance and taxation in ethiopia pdf in a moment of dismissive hubris, the ethiopian tax system may be.

In the same year, a study by geda and shimeles 2005 explored the changes in tax structure over time and the distributional impacts of tax reform in ethiopia. A tax is a compulsory payment levied on the persons or companies to meet the expenditure incurred on conferring common benefits upon the people of a country. Accordingly, the material deals with the following. Value added tax is a types of indirect tax levied on consumption. Proposed amendments following the benhaus mining judgment. Ethiopian ministry of revenues mor is the body responsible for collecting revenue from customs duties and domestic taxes. For example both oecds task force on tax and development 2010 and the g20 keen, 2012, highlighted the importance of tax collection in developing countries.

Direct tax according to proclamation no 28694 any person whose permanent residence is in ethiopian, has to pay tax from the income that he gets within ethiopia or abroad. The principal taxes currently in place are company profit tax, turn over taxvalueadded tax vat, excise tax, customs duty, income tax from employment and income tax from business. For different taxes by country, see tax rates around the world. Reports on observance of standards and codes rosc is a world bank and imf joint initiative that helps member countries strengthen their financial systems by improving compliance with internationally recognized standards and codes of best practice.

In the determination of business income subject to tax in ethiopia, deductions shall be allowed for expenses incurred for the purpose of earning, securing, and maintaining that business income to the extent that the expenses can be proven by the taxpayer and. This redistribution is controlled by the relative needs of the various provinces and the amount of revenue collected. It is a proportional tax which is levied at the constant rate. Tax provisions do not typically form a principal part of iias, partly owing to the existence of the taxspecific dtts. This means, the tax money comes from the customers. Uncorporate or individual businesses are taxed in accordance with the following schedule below. The definition, measurement, and evaluation of tax.

The seller receives a tax credit for taxes paid on inputs that the seller. Corporate businesses are required to pay 30% flat rate of business income tax. A word or term in these regulations shall have the same meaning that it has in the. Employment income is one of the most well known forms of tax in ethiopia. Here is the list of 14 types of audits and level of assurance. Ethiopian chamber of commerce ecc, ethiopian business development services network ebdsn, on behalf of. Apr 15, 2018 personal taxes, on the other hand, are levied on individuals or households. The details of a tax relief are specified in the tax law, and there. Contractors in ethiopia are faced with masses of paperwork and numerous wasted hours filing a. Both the income tax and vat rates are presented on a taxinclusive basis, as is the norm for income tax rates and the way they are presented throughout this report.

Various other types of tax fall under the income tax act, including capital gains tax, donations tax, site, paye and provisional tax. The idea is to put more money into consumers hands, so they spend more. This redistribution is controlled by the relative needs of. Taxes generally fall into the following broad categories. Accordingly, this teaching material tries to address, even though briefly, the basic component of tax law, especially in ethiopia. Basic types of income taxes personal income tax, levied on income of individuals,households,partnership and soleproprietorships.

In addition the international development committee 2012 recommended that uks aid program should increase its focus on supporting tax authorities. The research employed a cross sectional research design which was descriptive in nature basing on differ4ent scholars literature. In addition to raising revenue, the mor is responsible to protect the society from adverse effects of smuggling. Income from rent of patent and copyright, income from winning lottery, income from share in companyetc fall under this category. If the person is not resident of ethiopia gets his income which has. Tax laws affecting ngos in ethiopia fall under a broad category of taxes such as income tax profit tax on incoming generating activities, income from employment or payroll tax, property, real state and land tax, customs duty import duty, stamp duty and consumption tax or value added tax vat. The principal taxes currently in place are company profit tax, turn over tax valueadded tax vat, excise tax, customs duty, income tax from employment and income tax from business. Mamo mihretu, program manager at wbg, coordinated the overall work and program. Using an umbrella company for income tax in ethiopia. The term taxation applies to all types of involuntary levies, from income to capital. Evidence from kaffa, bench maji and sheka zones category b tax payers, snnpr, ethiopia.

This is not a significant omission, as the federal government has had an. Latest tax news sa budget 202021 clarifying rollover relief for unbundling transactions involving nonresident shareholders sa budget 202021 contract mining and capital expenditure. Income tax regulations, assessment and payment in ethiopia. Salary income tax calculation in ethiopia, pension, gross. So an individual foreigner, who lives in ethiopia for more than 183 days in a period of twelve calendar months, whether continuously or intermittently, is regarded as being resident for the entire tax period and is taxed in accordance with the provisions of income tax proclamation no. Withholding of tax from dividends, interest, and royalties. Many muslim countries do not pay income tax at all. The health and education taxes, and the two provincial taxes, are later reallocated to the provinces for their own use. Chapter one introduces students to the basic concepts, principles and underlying assumptions of the many tax laws of ethiopia at present.

For easy understanding, ethiopian tax must be broken down into 2 major parts. Personal income tax, rental tax, withholding tax, business profit tax and. Congress uses it to end the contraction phase of the business cycle when voters are clamoring for relief from a recession. The survey was conducted by department of economics of the addis ababa university. Value added tax registration, rates, and exemptions in ethiopia. There are many types of audits including financial audit, operational audit, statutory audit, compliance audit and so on. Here are the formulas on how to calculate personal employee income tax, pension, gross and net income in ethiopia. For comparison purpose, we have also added the old net salary, pension and income tax caluculation methods. Jan 27, 2020 fiscal policy is how congress and other elected officials influence the economy using spending and taxation. Hence, while the tax base of sales tax is the purchase price.

One reason for the limited role of taxation provisions in iias is that the inclusion of taxation matters can sometimes unduly complicate and draw. The types of taxes in ethiopia makes interesting reading for those who may be thinking of emigrating to ethiopia, for work, or to start a business. In most of the economies income tax is a major source of government revenue. Pdf analysis of tax compliance and its determinants. Jun 19, 2019 the types of taxes in ethiopia makes interesting reading for those who may be thinking of emigrating to ethiopia, for work, or to start a business. Business profit schedule c tax rates, calculation, rates. It seizes and takes legal action on the people and vehicles involved in the act of smuggling while it facilitates the legitimate movement of goods and people. According to proclamation no 28694 any person whose permanent residence is in ethiopian, has to pay tax from the income that he gets within ethiopia or abroad.

The tax payer adds selling price on the service or product he renders so that the customers may pay the tax indirectly. The major tax reforms in ethiopia occurred in the 1940s, in the aftermath of the ethiopian revolution of 1974, after the fall of the derg in 1991 and most recently in the 2002 tax reforms. These types of taxes are common in statelevel sales taxes but not common at the federal level. The most widelyused is expansionary, which stimulates economic growth. Considering the relation between the tax rate and the tax base income, there can be four types of taxation, viz i proportional taxes, ii progressive taxes, iii regressive taxes and iv digressive taxes. Effective taxes, government policies that arent explicitly taxes, but result in income to the government through losses to the public.

Consistency of the practice with the ethiopian transfer pricing rules. Value added tax vat this is a sales tax based on the increase in value or price of product at each stage in its manufacture and distribution. We hope to keep it simple and to answer these five main questions for each and every tax. A resident of ethiopia or a permanent establishment in ethiopia of a nonresident making a payment to a nonresident entertainer subject to tax shall withhold tax 10% from the gross amount paid for the nonresident. Pdf on jan 1, 2019, wondimu sebhat and others published analysis of tax compliance and its determinants.

The application of ethiopian transfer pricing rules on multinational enterprises. That information is clearly and neatly provided below. Nov 28, 20 basic types of income taxes personal income tax, levied on income of individuals,households,partnership and soleproprietorships. Chapter 12, presumptive taxation 2 circumstances of each case. This page, a companion page to tax, lists different taxes by economic design. The major types of taxes that exist in ethiopia, their meaning, rates and conditions, as provided by the federal inland revenue authority, are presented as follows. Posted by the ethiopia observatory teo by addis fortune. Mar 19, 2018 here are the formulas on how to calculate personal employee income tax, pension, gross and net income in ethiopia. Types of direct taxes income taxincome tax is collected on all incomes received by private individuals after certain allowances are made. The government either spends more, cuts taxes, or both.