TAX PROCLAMATION

Tax proclamation provides for the taxation of income in accordance with the following schedules
1 schedules A income from employment
2 schedule B income from rental of buildings
3 schedule C income from business
4 schedule D other income
5 schedule E exempt income corporations are taxed 30% flat rate

Schedule A employment Income Tax

Employment income per Employment ncome tax Deduction Tax computation I =

month brr rate employment income EIT=
employment income tax
0-600 0
0%
601-1650 10% 720.00 EIT= I x 10% – 72
1651-3 200 1710.00 EIT = I x 15% – 1 710
15%
3201-5 250 20% 3630.00 EIT = I x 20% – 3 630
5 251-7 800 25% 6780.00 EIT= I x 25% – 6 780
7801-10 900 30% 11460.00 EIT= I x 30% – 11 460
more than 10 900

A taxpayer’s taxable rental income for a tax year is the gross amount of income that a taxpayer derives
from rental of a building reduced by the total amount of deductions allowed

Schedule B Rental Income Tax

Corporations are taxed 30% flat rate

Rental income per year (I) Rental Income tax rate Deduction Tax computation I = Rental
income RIT=Rental income
tax
0–to 7 200 0% 0
7 201-19 800 10% 720.00 RIT = I x 10% – 720
19 801-38 400 15% 1 710.00 RIT = I x 15% – 1 710
38 401-36 000 20% 3 630.00 RIT = I x 20% – 3 630
36 001-93 600 25% 6 780.00 RIT = I x 25% – 6 780
93 601-130 800 30% 11 460.00 RIT = I x 30% – 11 460
More than 130 800 35% 18 000 RIT = I x 35% – 18 000
A taxpayer’s taxable rental income for a tax year is the gross amount of income that a taxpayer derives
from rental of a building reduced by the total amount of deductions allowed.

Schedule C Income Tax

Business income tax shall be imposed on a person who has taxable income for the year and is
conducting a business.
Business income tax rate
The business income tax rate applicable to a body is 30%.
Business income per Business Income tax rate Deduction Tax computation I = Business
year (I income BIT = Business income
tax
0-7 200 0% 0
7 201-19 800 10% 720.00 BIT = I x 10% - 720
19 801-38 400 15% 1 710.00 BIT = I x 15% - 1,710
38 401-63 000 20% 3 630.00 BIT = I x 20% - 3,630
63 001-93 600 25% 6 780.00 BIT = I x 25% - 6,780
93 601-130 800 30% 11 460.00 BIT = I x 30% - 11,460
More than 130 800 35% 18 000 BIT = I x 35% - 18,000

The same business income tax rate applies to resident bodies and permanent establishments of
nonresident bodies.

Schedule D tax rates

This is the last and residuary Schedule of income. Any income which is taxable under them Income Tax
Proclamation but does not find place under any of the remaining three Schedules of income (i.e.,
Schedules A, B and C) will be taxable under this residuary.
Tax item Description Rate
A payment of any kind received as a consideration for the
Royalties use of ,or the right to use, any copyright of literary,
artistic or scientific work, including cinematography
films and films or tapes for radio or television 5%
broadcasting, any patent, trade work, design or model,
plan secret

formula or process, or for the use or for the right to use of

any industrial, commercial or scientific equipment, or for
information concerning industrial, commercial or
scientific experience .
Income from Rendering of The term “technical service” means any kind of expert 10%
Technical Services advice or technological service rendered.
Income from Games of Chance Every person deriving income from winning at games of 15%
chance (for example, lotteries, tom bolas, and other
similar activities) shall be subject to this tax
Every person deriving income from dividends from a 10%
Dividends share company or withdrawals of profits from a private
limited company shall be subject to this tax
Income from Rental of Property Every person deriving income from the casual rental of 15%
property (including any land, building, or moveable
asset) not related to a business activity taxable under
Schedule
B shall pay tax on the annual gross income.
Interest Income on Deposits every person deriving income from interest on deposits 5%
shall pay tax

Schedule E
This schedule contains income items that are exempted from taxation. Following is a list that includes
some of the exempted income items under Schedule E:
• Pension contribution, provident fund and all forms of retirement benefit contributed by the
employers in an amount that does not exceed 15% of the employee’s monthly salary;
• Payments made to a person as compensation or gratitude in relation to persona linjuries suffered by
the person or the death of another person;
• Amounts paid to employers to cover the actual cost of medical treatment of employees;
• Allowance in lieu of means of transportation granted to employees under contract of employment to
the extent of the amount to be determined by the tax authority.
Currently, transportation allowance is the lower of ETB 2,200 or 25% of the employee’s salary;
• Hardship allowance;
• Reimbursement of travelling expenses incurred on duty to the extent of the amounttobedetermined by
the tax authority;
• Travellingexpenses paidtoemployeesrecruitedfrom elsewhere than the place of employment; • Food
and beverages provided for free to an employee by an employer conducting a mining, manufacturing or
agricultural business.
• Salary paid to domestic servants.
• Maintenance or child support payments
Indirect Taxes
The main types of indirect taxes are VAT, customs duty, excise and turn over taxes.
1) VAT

A person who carries out a taxable activity is required to file an application for VAT registration if the
total value of taxable transactions, at the end of any 12 calendar months period, exceeds ETB 1 million
or there are reasonable grounds to believe that the taxable transactions of the coming 12 months exceed
the threshold.

Turnover tax (TOT)

Turnover tax is an equalization tax imposed on persons not registered for value-added tax to allow
them to fulfil their obligations and enhance fairness in commercial relations and complete the coverage
of the tax system, among other objectives. This tax is here fore, applicable to small taxpayers who do
not meet the VAT registration threshold of turnover of ETB 1,000,000 per year.

Turnover tax rates

The turnover tax shall be:
• 2% on goods sold locally.
• For services rendered locally:
• 2% on contractors, grain mills, tractors and combine harvesters
 Excise tax

Excise tax is imposed on selected goods that are

• Luxury goods and basic goods that are in inelastic demand.
• Hazardous to health and that are a cause of social problems .
Excise tax will be applicable on 19 groups of items and 378 goods. The tax rate ranges from 5% to
500%.
• Excisable value in respect of goods produced locally, ex-factory selling price excluding VAT,cost of
excise stamps and the cost of returnable containers.
• The customs value of the goods plus the amount of customs duty payable (whether paid or not).

Time of payment
Excise tax on excisable goods shall be payable:
• When imported at the time of clearing the goods from the customs area.
• When produced locally, not laterthan 30 days from the date of production.

Relief for raw materials

The excise tax paid on the raw materials shall be offset against the excise tax payable on the finished
goods except for tax paid on alcohol, tobacco, and sugar.

Customs duty
Duty means a charge levied and collected on any imported and exported goods in accordance with the
Customs Tariff Regulations and the International Convention on the Harmonized Commodity
Description and Coding System.
• Regular customs tariff ranges from 10%–35% depending on nature of goods imported.
• Special customs tariff applicable to goods produced in and imported from the Common Market for
Eastern and Southern Africa (COMESA) member countries is 10% less; i.e. 4.5% to 31.5%.
• Other taxes like VAT and excise tax are levied on imports at the same rate as domestic transaction.

Sur tax

It is an additional 10% tax that is applicable on imported goodsexcept for fertilizers, petroleum and
lubricants,motorvehicles for freight, passengers and special purpose motor vehicles, aircraft, spacecraft,
and parts thereof, and capital (investment) goods. The Ministry of Finance is authorized to increase or
decrease the list of goods exempt from surtax.

Pension contribution
It is applicable to private organizations’ employees who are salaried persons employed in a private
organization for not less than 45 days for a definite or indefinite period or a piece of work, including
managerial employees. However, it does not include employees engaged in cotton collection, sugar
cane cutting, and such other similar works regularly repeatedintheyear .Theterm“private organization”
means an organization established to engage in commerce, industry, agriculture, construction, social
service or inanyotherlawfulactivityandthathassalaried employees and includes charities and
associations.

The contributions payable to the Private Organizations Pension Fund shall, based on the employee’s
salary, be:
• By the employer, 11%;
• By the employee, 7%

Withholding Tax