QUEENS’ college

Training, Teaching and Learning Materials

ACCOUNTS AND BUDGET SERVICELEVEL IV

Learning Guide
Unit of Competence Process Business Tax Requirements
Module Title Processing Business Tax Requirements
LG Code: BUF ACB406 0812

TTLM Code: BUF ACB4M06 0812

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INTRODUCTION

Welcome to the module “Process Business Tax Requirements”.

This learner’s guide was prepared to help you achieve the required competence in
“Accounts and Budget Support Level IV”. This will be the source of information
for you to acquire knowledge attitude and skills in this particular occupation with
minimum supervision or help from your trainer.

Summary of Learning Outcomes

After completing this learning guide, you should be able to:

Lo1:- . . Maintain accounting records for taxation purposes
Lo2:- . Establish and maintain a process for managing business tax returns
Lo3:- Process business tax returns and lodgments
How to Use this TTLM

o Read through the Learning Guide carefully. It is divided into sections

that cover all the knowledge, skills and attitude that you need.
o Read Information Sheets and complete the Self-Check at the end of
each section to check your progress
o Read and make sure to Practice the activities in the Operation Sheets.
Ask your trainer to show you the correct way to do things or talk to
more experienced person for guidance.
o When you are ready, ask your trainer for institutional assessment and
provide you with feedback from your performance.

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Lo1:- Maintain accounting records for taxation purposes

Business Profit Tax

This is the tax imposed on the taxable business income / net profit realized from
entrepreneurial activity. Taxable business income would be determined per tax
period on the basis of the profit and loss account or income statement, which shall
be drawn in compliance with the generallyaccepted accounting standards.
Corporate businesses are required to pay 30% flat rate of business income tax. For
unincorporated or individual businesses the business income tax ranges from 10% -
35%.
Unincorporated or individual businesses are taxed in accordance with the
following schedule below:
Example: Computation of business profit tax
Business Net Profit per year/Taxable Income = 70,500.00 Birr
- Business Profit Tax = 70,500 Birr x 35% tax rate = 24,675 Birr
- Deduction = 24,675 Birr - 7,950 Birr deduction fee
- Tax payment = 16,725.00 Birr
In the determination of business income subject to tax in Ethiopia,
Deductions would 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.
The following expenses shall be deductible from gross income in calculating
taxable income:
􏂷 The direct cost of producing the income, such as the directcost of
manufacturing, purchasing, importation, selling and such other similar costs;
􏂷 General and administrative expenses connected with thebusiness activity;
􏂷 Premiums payable on insurance directly connected with the business activity;
􏂷 Expenses incurred in connection with the promotion of thebusiness inside and
outside the country, subject to the limits set by the directive issued by the Minister
of Revenue;
􏂷 Commissions paid for services rendered to the business;
􏂷 Sums paid as salary, wages or other emoluments to the children of the proprietor
or member of the partnership shall only be allowed as deduction if such employees
have the qualifications required by the post.
The following categories of income would be exempted from payment of business
income tax:
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􏂷 Awards for adopted or suggested innovations and cost saving measures;

􏂷 Public awards for outstanding performance;
􏂷 Income specifically exempted from income tax by the law in
Force in Ethiopia, by international treaty or by an agreementmade.
Penalty for understatement of tax:
􏂷 If the amount of tax shown on a declaration understates the amount of tax
required to be shown, the taxpayer is liable for
a penalty in the amount of 10% of the understatement or
50% if the understatement is considered substantial. The understatement is
considered substantial if it exceeds 25% of the tax required to be shown on the
return or 20,000 Birr;
􏂷 The penalty shall continue to apply until, the Appeal
Commission or a Court, as the case may be shall have rendered its final decision.
Penalty for late payment:
A taxpayer who fails to pay tax liability on the due date is subject to:
􏂷 A penalty of 5% of the amount of unpaid tax on the first day after the due date
has passed; and
􏂷 An additional 2% of the amount of tax that remains unpaid on the first day of
each month thereafter.

Income tax shall be imposed on the taxable business income realized from
entrepreneurial activity. Business means manufacture or purchase and sale of a
commodity with a view to make profit. If includes any trade, commerce or
manufacture or any other adventure or concern in the nature of entrepreneurial
activity. It is not necessary that these should be a series of transactions in a
business and it should be carried on permanently, nether repetition nor continuity
of similar transactions is necessary. Profit of an isolated transaction is also taxable
under this schedule, provided that it is a venture in the nature of business or trade.
In this connection, it is important that the intention of purchase or manufacture
should be sell of a profit.
Taxable business income shall be determined per tax period on the basis of the
profit and loss account or income statement. Which shall be drawn in compliance

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with the generally accounting standards, subject to the provisions of this

proclamation and the directives issued by the tax authority

Lo2: Establish and maintain a process for managing

business tax returns

Tax Rate
1. Taxable business income of bodies is taxable of the rate 30%.
2. Taxable business income of other tax payers shall be taxed in accordance
with the following schedule C.
Schedule ‘C’
Taxable business income/ Tax rate Deduction
net profit per year (in %) (in Birr)
Over Birr to Birr
0 1800
Exempt Threshold ___
1801 7,800
10 180
7801 16,800
15 570
16,801 28,200
20 1,410
28,201 42,600
25 2,820
42,601 60,000
30 4,950
∞
Over 60,000 35 7,950

DEDUCTIBLE EXPENSES

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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 tax payer and subject to the limitations specified by this proclamation.
The following expenses shall be deductible from gross income in calculating
taxable income.
 The direct cost of producing that income, such as the direct cost of
manufacturing, importation, selling and such other similar costs.
 General and administrative expenses connected with the business activity
 Premiums payable on insurance directly connected with the business activity
 Expenses incurred in connection with the promotion of the business inside
and outside the country, subject to the limits set by the directive issued by
the minister of revenue.
 Commissions paid for services rendered to the business provided that
a. Said services were in fact rendered
b. the amount paid corresponds to normal rates paid for similar services by
other persons or bodies similarly situated.
 Sums paid as salary, wages or other emoluments to the children of the
proprietor or member of the partnership shall only be allowed as deduction if
such employees have the qualifications required by the post.
 In the case of a business located and operating in Ethiopia as the branch,
subsidiary or associated company of a business located and operating
abroad, no payment of any kind made to the having or associated company
of the business in Ethiopia shall be accepted as deduction unless:-
a. the payment in question was made for service actually rendered and

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b. Said service was necessary for the business and could not be performed by
the persons or bodies or by the business itself at a lower cost.
 If the income tax authority has reason to consider that the total amount
of salaries and other personal emoluments payable to the manager of a
private limited company is exaggerated it may reduce paid amount for
taxation purpose of the limit which, in view of operation of the
company appears justifiable, either by disallowing
 The payments made to more than one manger of in any other way
which may be just and appropriate.
 In computing taxable income, the above listed expensed could be
deducted from gross income. If some conditions are met, the
proclamation also allows such expenses as depreciation, bad debts,
interest expense and donation and gifts which is covered separately in
this section as deductible expenses.
NON-ALLOWABLE EXPENSES
All those expenses which are not wholly or exclusively incurred for the business
activity are not allowable deductions from gross income. Therefore, in computing
taxable income the following expenses should be added back, only if the taxpayer
has deducted them in determining the business income
i. Capital expenditure:- the cost of acquisition, improvement, rental and
reconstruction of depreciable assets.
ii. Additional investment:- an increase of the share capital of a company or
the basic capital of a registered partnership
iii. Declared dividends and paid out project shares
iv. Voluntary pension or provident fund contributions over and above 15%
of the monthly salary of the employee.

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v. Damages covered by insurance policy

vi. Interest in excess of the rate used between the national Bank of Ethiopia
and the commercial banks increased by two (2) % points
vii. Punitive damages and penalties
viii. The creation or increase of reserve, provisions and other special purpose
funds unless otherwise allowed by the proclamation.
ix. Income tax paid on schedule “C” income and recoverable value added
tax (VAT)
x. Representation expenses over and above 10% of the salary of the
employee
xi. Personal consumption expenses
xii. Expenditures exceeding the limits set forth by the proclamation or
regulations
xiii. Entertainment expenses “Entertainment” means the provision of food,
beverages, tobacco, accommodation, amusement, recreation or
hospitality of any kind to any person whether directly or indirectly.
xiv. Donation and gift other than those permitted by regulation.
xv. Sum paid as salary, wages or other personal emoluments to the proprietor
or partner of the enterprise. Expenditure for maintenance or other private
purpose of the proprietor or partner of the enterprise.
xvi. Losses that are not connected with or not arising out of the activity of
enterprise.

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LOSS CARRY FORWARD

A business is said to have made loss when the total expenses incurred by the
business during a fiscal year are greater than the total income generated in by the
business the same year. Loss carry for ward is a procedure when by a loss incurred
in one tax period is carried forward to the next tax period to be deducted from the
available profit. If any loss carry forward is one of the several changes introduced
by new tax law. The importance of the loss carry forward provision to a company
is that it preserves valuable cash which otherwise would have to be paid out in
Taxes. Such funds are retained in the business and can be used for working capital
and/or expansion of the business. A business, which has alternative profit and loss
years of about the same dimension, would pay no tax at all.
Example:- Computation of business profit tax
Business net profit per year / Taxable income = 70,500.00 Birr
Business profit tax = 70,500 * 35% tax rate
= 24,675.00 Birr
= 24,675 – 7950 (deduction fee)
Tax payment = 16,725.00 Birr

In the determination of business income subject to tax in Ethiopia, deductions

would 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 tax payer.

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Lo3:- Process business tax returns and lodgments

Change of Address and Cessation of Business

1 Any taxpayer who makes a change of address shall notify the tax authority of
the change within 30 days.
2 Any taxpayer who ceases a trade or business activity shall notify the Tax
authority within 30 days that the activity has ceased.
3 Upon cessation of business, the business income should be declared within
10 days.
4 Any tax due for the period in which the cessation occurred shall be paid on
or before the declaration due date determined under this provision.
Record Keeping Requirement
1 All persons who are engaged in a business or defined or who own the
buildings held all or in part for rental, except for category C taxpayers
shall keep books and records for at least 10 years.
1.1 A record of the business assets and liabilities, including a register of fixed
assets showing the date of acquisition, the cost of acquisition, and the
current book value of each asset.
1.2 A record of all daily income and expenses related to the business activity
and the matter to which they relate.
1.3 A record of all purchases and sales of goods and services related to
business activity showing:
i. The particular goods and services sold;
ii. The name of the buyers and sellers or providers in such a manner
that they can be identified by the Tax Authorities;
iii. Pre- numbered invoices containing the vendor tax identification
number;
1.4 A record of trading stock on hand at the end of the accounting period,
including the type, quantity and cost of that stock as well as the
method of valuation of that stock.
1.5 Any other document relevant for the determination of the tax liability.
Submission of Memorandum of Association
This Income tax law requires companies, partnerships and other
business organizations established under the provisions of the Ethiopian
commercial Code should submit their Memorandum and Articles of

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Association and shall notify the Tax Authority of any subsequent change
therein.

Tax Declarations, Assessment and Payment of Tax.

1 Tax Year and Accounting Period
1.1 The Income tax law stipulates the time of declaration and method of
assessment of tax to all types of taxpayers. Normally tax on business
income is declared at the end of the tax year.
1.2 The normal tax year (fiscal year) of the Ethiopian government runs from 1
Hamle to 30 Sene of the following year. Individual business such as sole
proprietorships and partnerships should follow the government fiscal
year. However, the tax year of bodies is the same as their financial year.
1.3 Companies can only change its accounting period with prior approval of the
tax authority.
1.4 The Tax Authority has the right to revoke change of an accounting period if
a company does not comply with the conditions attached with the change
of the accounting period.
1.5 A Company tax may be assessed for a transitional period; i.e., the period
between the end of the previous accounting period to the commencement
of the new accounting period.

Declaration
Schedule A Income
1 An employee whose taxable income for a tax year consists exclusively of
Schedule A income, no declaration of income is required.
2 The amount of tax withheld on an employee's Schedule A income, paid to the
Tax Authority and accompanied by the employer's statement shall be
the amount assessed by the Tax Authority effective on the date the tax
is paid, and subject to later amendment if the Tax Authority determines
that an error or omission has been made.
3 The tax-withholding certificate issued by an employer to an employee shall be
proof that tax in the amount stated was withheld on the employee's
Schedule A income of the amount stated.
Declaration of Schedule B and C Income
2.1 Category A taxpayers shall submit the tax declaration to the Tax Authority
within 4 months from the end of the taxpayers tax year. For example,
the tax year for Wegagen Bank corresponds to its accounting period
which runs from 1st July to 30th June. Therefore, it has to file its tax
return by 30th of October.
2 Category A taxpayers shall submit to the Tax Authority a balance sheet and a
Profit and Loss Account and provide details of the following on Tax
declaration for m:
i. Gross Profit;
ii. General and Administrative Expenses;
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iii. Depreciation;
iv. Provision and Reserves
3 Category B Tax payers shall submit a profit and loss account within two
months of the end of the tax year. The law does not require Category B
taxpayers to submit a balance sheet.
4 The amount of tax due for the year, as stated in the declaration, shall be the
amount assessed by the tax Authority although the Tax Authority may
determine that an error or omission has been made and therefore may
issue an amended assessment.
Declaration of Schedule D Income
Taxpayers who have Schedule D income not subject to withholding tax (such
as gain on sale of investment property) should declare that income
within 2 months of the fiscal year.
The amount of tax year, as stated in the declaration, shall be the amount
assessed by the tax Authority unless the Tax Authority determines that
an error or omission has been made.
Declaration and Assessment of Business Income by category C Tax Payers
1 Category C Taxpayers shall declare their income only from 2 July to 1
August.
2 Category C taxpayer declare to the tax authority:
i. his annual turnover;
ii. the amount derived from a source other than his regular operation;
iii. Whether the type of business carried on is changed.
If a Category C taxpayers are not required to maintain records, there is no need
to declare expenses by such category of taxpayers. The Tax Authority
uses a standard assessment as stipulated in the Income Tax Regulation
23/2002
If a Category C taxpayer maintains book of accounts acceptable to the Tax
Authority, he shall pay the tax on the basis of such books of account.

Place of Declaration of Income

1 If a resident taxpayer is engaged in more than one- business activities he
shall declare his income to the Tax Authority at the place the head
office of the business is situated.
2 A non- resident taxpayer shall declare his income to the tax Authority at the
place where he derived most of his income.
3 A regional tax payer who operates business with licenses issued by more
than one region or city administration shall declare his income and pay
tax thereon, to the Tax Authority of each such region or city
Administration which issued the business license.
Tax Assessment
1 Assessment by Estimation
If no records and books of accounts are maintained by the taxpayer, or if,
for any reason, the records and books of accounts are unacceptable to
the Tax Authority, or if the taxpayer fails to declare his or its income
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within the time discussed above, the Tax Authority may assess the tax by
estimation.

2 Aggregation
A taxpayer who derives income from different sources subject to the
same schedule shall be assessed on the aggregate of such income.
3 Assessment Notification
Every assessment notification shall contain the following elements:
i. gross income and deductions applicable under the Ethiopian Income
Tax Proclamations:
ii. taxable income;
iii. rates applicable or percentage;
iv. rates paid and due;
v. any penalty or interest;
vi. the taxpayer's name, address, and TIN; and
vii.brief explanation of the assessment and a statement of the taxpayer's
rights.
4 Services of Tax Notices
4.1 Income tax assessment notices or other notices issued by the Tax Authority
to any taxpayer shall be communicated in writing.
4.2 Any assessment of income tax duly served on the taxpayer shall become
final when:
i. the taxpayer fails to pay the tax due or to lodge his or its appeal
with the Tax Appeal Commission within 30 days from the date of
receipt of an assessment notice or from the date of decision of the
review committee.
ii. the time for appealing the decision of Tax Appeal Commission has
expired; or
iii. A taxpayer who does not pay the final assessment as provided
above is in default.
4.3 A taxpayer who does not pay the final assessment as provided above is in
default.
5 Limitation of Assessment Period
.5.1 If a taxpayer has submitted a declaration of income within the time limit
discussed above, the Tax Authority has five years to amend the
assessment. If the taxpayer declared late, the five-year assessment
period runs from the date the declaration was received by the Tax
Authority.
5.2 If a taxpayer has not declared his income or has submitted a fraudulent
declaration, not time limit provided in any other law shall bar the
assessment of the tax by the Tax Authority.

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Payment, Interest and Refund

Tax Payable When Due
Any tax including withholding taxes discussed above should be paid
to the relevant. Tax Authority by a stated date. Failure to make a
timely payment results in the imposition of interest and late payment
penalty.
Interest
If any amount of tax is not paid by the due date, the taxpayer is
obliged to pay interest on such amount for the period from the date
the tax is due to the date it is paid. The rate of interest to be paid on
late payment is equal to 25% above the highest commercial lending
interest rate that prevailed during the preceding quarter.
Credit and Refund
If the Tax Authority has ascertained that the taxpayer has overpaid tax, it
applies the overpayment to the following.
a. Credit the overpayment against any other unpaid tax liability of the
taxpayer under the Income Tax Proclamation or any other Tax Law.
b. Refund the remainder to that person within 90 days of becoming
satisfied. If refund is not paid within 90 days, the taxpayer is entitled to
get interest at 125% of the highest commercial lending interest rate of the
preceding quarter on the unpaid balance.
A refund application is made to the Tax Authority within 3 years of the latter of
:
a. the date on which the Tax Authority has notified the tax payer that that
he or it has a tax refund.
b. the date on which the tax or interest was paid.
Tax collection Enforcement Procedures
The Ethiopian Income Tax Law has given the following enforcement
mechanisms for Tax Authorities.
Seizure of Property to Collect Tax
Once the Tax Authority has served a final assessment and the taxpayer
is unable to settle the assessed tax within the time discussed above, the
Authority has the legal right to collect the unpaid tax by sizing any
property belonging to the tax payer.

It should be noted that seizure includes seizure by any means, as well

as, collection from a person who owes money or property to the taxpayer.
The Tax Authority may request a police officer to be present during
seizure.
Production of Books
If seizure has been made or is bout to be made on any property, any
person having custody or control of any books or records containing
evidence or statements relating to the property subject to seizure shall,

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on demand of the Tax Authority, exhibit such books or records to the tax
Authority.
Preferential claim to Assets
Subject to the prior secured claims of creditors, the Authority has a
preferential claim over al other claims upon the assets of the person
liable to pay the tax until the tax is paid.
Priority of Claim on Tax Withheld
Tax withheld by a withholding agent under the Ethiopian income Tax
Proclamation is:
 Held by the withholding agent in trust for the Tax Authority;
 Is not subject to attachment in respect of a debt or liability of the
withholding agent.
 In the event liquidation or bankruptcy of the withholding agent, does
not form part of the estate in liquidation, or bankruptcy and Tax
Authority has a first claim before any distribution is made.
Penalties
4.2.1 Penalty for Late Filing or Non-Filing
A taxpayer who fails to file a timely tax declaration is liable for a penalty
equal to:
i. 1, 000 Birr for the first 30 days (or part thereof) the declaration
remains unfilled.
ii. 2,000 Birr for the next 30 days (or part thereof) the declaration
remains unfilled.
iii. 1,500 Birr for each thirty days (or part thereof that the declaration
remains unfilled.
Penalty for Understatement of Tax
i. If the amount of tax shown on a declaration understates the amount
of tax required to be shown, the tax payer is liable for a penalty in
the amount of 10% of the understatement,
ii. If the understatement is greater than the smaller of 20,000 or 25%
of the tax required to be shown, it is considered substantial and the
penalty would be50%.
iii. The penalty shall continue to apply until, the Appeal Commission or
a court, as the case may be, shall have rendered its final decision.
Penalty for Late Payment
A taxpayer who fails to pay tax liability on the due date is subject
to:
i. A penalty of 5% of the amount of unpaid tax on the first day after the
due date has passed.
ii. An additional 2% of the amount of the tax remains unpaid on the first
day of each month thereafter.

Penalty for Failure to Keep Proper Records

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i. The taxpayer shall be liable for a penalty of 20% of the tax assessed if
he failed to keep proper books of account, records, and other
documents regarding a certain tax year.
ii. Repeated failure to maintain records may result in suspension and
revoking of license.
Penalty for Failure to Withhold Tax
i. A withholding agent, who fails to withhold tax in accordance with
the Ethiopian Income Tax Proclamation, he is personally liable to
pay the amount of tax that would have been withhold.
ii. In addition, a penalty of Birr 1,000 is payable for each instance of
failure. The penalty of Birr 1,000 is imposed on:
1. A manager who knew or should have known of the failure;
2. A chief Accountant or another senior officer who is
responsible for supervision or control of withholding
procedures and who knew or should have known the failure.
Penalty for Failure to Meet TIN Requirements
i. A withholding agent who makes a payment to a person who has not
supplied a TIN is required to withhold 30% of the amount of the
payment.
A taxpayer who has not supplied the TIN to the withholding agent, is
liable to pay 30% of the amount he received or 5,000 which ever is
less.

Obstruction of Tax Administration

Obstruction Constitute:
i. Refusal to satisfy a request of the Tax Authority for inspection of
documents, reports, or other information related to a tax payer's
income producing activities.
ii. Non-compliance with a Tax Authority request to report for an
interview;
iii. Interference with a tax officer's right to enter the taxpayer's business
premises.
The penalty ranges from Birr 10,000 to 100,000 and imprisonment of
2 years. The Penalty can be effected upon conviction.
Un authorized Tax Collection
Any person who is not authorized to collect tax under the proclamation
commits an offence and is liable, on conviction, to a fine of not less than
50,000 Birr and to imprisonment for a term of not less than 5 years and
not more than 10 years.
Offence by Entities
i. Where an entity commences an offence, the manager of that entity at
the time of commission of the offence is treated, as having committed
the same offence is liable to a fine and imprisonment under the tax
proclamation.

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ii. Any person who refuses to supply goods or render services to a

withholding agent, by reason of him withholding an amount of tax
from the payment to that person, shall personally be liable to a fine
not less than Birr 5,000 and not exceeding Birr 10,000 and to
imprisonment for a term of not less than one year and not more than
two years.
Abiding or Abetting
A person who aids, incites or conspires with another person to commit a
violation against the Ethiopian Income Tax Proclamation commits an
offence under the Proclamation and is subject to prosecution and upon
conviction be liable to a fine and imprisonment not in excess of the
amount of fine or period of imprisonment provided for offences under the
proclamation. Every list published specifies:
Publication of Name
The Ethiopian Income Tax Law has provisions to publish by notice in
daily Gazettes a list of persons who have been convicted of offences under the
proclamation. Every list published specifies:
i. The name and address, of the enterprise or of the person,
ii. The particulars of the offence as the Authority may think fit.
iii. The amount or estimated amount of the tax evaded; and
iv. The amount, if any of the additional tax imposed.

Appeal Procedures
Appeal to a Review Committee
A Review committee which shall be appointed by the Minister of Revenue
shall have the following duties:
i. To examine and decide on all applications submitted by taxpayers for
compromise of penalty, interest, and waiver of tax liability;
ii. To gather any written evidence or information relevant to the matter
submitted;
iii. To summon any person, who directly or indirectly has dealt wih the
assessment, to appear before it for questioning him about the case
under investigation; and
iv. To review determination made by the Tax Authority for accuracy,
completeness, and compliance with this proclamation
The committee shall only review applications submitted to it within 10
days of receipt of tax assessment of notification
v. The review committee may waive administrative penalties in
accordance with directives issued by the Ministry of Revenue.
vi. The head of the Tax Authority may approve the recommendations or
remand the case, with his observations, to the committee for further
review.

Appeal to Appeal Commission

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i. Any taxpayer who objects to an assessment may appeal to the Tax

Appeal Commission if he fulfills the following:
1. A deposit of 50% of the disputed amount is made to the Tax
Authority.
2. The appeal is lodged with the Appeal Commission within 30 days
following the day of receipt of the Assessment Notice or from the
date of decision of the Review Committee
ii. Any party dissatisfied with the decision of the appeal commission may
appeal to the competent court of appeal on the ground that it is
erroneous on any matter of law within 30 days from the date or
receipt of the written decision of the Appeal Commission.
iii.A taxpayer's appeal shall not be accepted by the court unless at the
time of appeal is lodged, the taxpayer has paid the tax liability
determined by the Appeal Commission.
iv. An appeal to the next court of appeal from the decision of the lower
court of appeal may be made by either part, within 30 days of the
decision of the lower court of appeal.

Administrative Penalties
For Violation of the Proclamation
1. Where any person engages in taxable transactions without VAT
Registration where VAT registration is required, the penalty will be
100% of the amount of tax payable for the entire period of
operation without VAT registration.
2. Where a person issued incorrect tax invoice resulting in a decease
in the amount of tax, the penalty will be 100% of the amount of
the tax.
3. Where a person fails to maintain records, he would be charged Birr
2,000 per month for each of the period he did not keep the
records.

Penalties for Late Filing

1. For the first time the penalty would be 5% and it the failure
continues this penalty would increase to 25%. The Penalty is limited
to Birr 50,000 for the first month.
2. Late filing penalty may not be less than 10,000 or 100% of the
amount of tax required to be shown on the return.
Late Payment Interest
If the amount of tax is not paid by the due date, the person liable is obliged to
pay interest on such amount for the period from the due date to the date the tax is
paid. The Interest would be 25% above the commercial lending rates prevailed the
preceding quarter.

TTLM Development Manual Date: October 12,2013

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Compiled by: Acct department
QUEENS’ college
Training, Teaching and Learning Materials

Criminal Offences
Tax Evasion
A person who evades the declaration or payment of tax or a person who, with
the intention to defraud the government, applies for a refund he is not entitled to,
commits an offence and, in addition to any Administrative penalty, may be prosecuted
and, on conviction, be subject to a term of imprisonment of not less than 5 year.

Making False or Misleading Statements

A taxpayer who makes a statement to a tax officer of the Authority that is false
or misleading in material particular or omits from a statement made to an officer of
the Authority without which the statement is misleading in a material particular
commits an offence and is liable on conviction. Where the statement or omission is
made without reasonable excuse:
i. And if the inaccuracy of the statement were undetected may result in an
underpayment of tax by an amount not exceeding 1,000 Birr to a fine of
not less than Birr 10,000 and not more than Birr 20,000 and
imprisonment of not less than 1 year and not more than 3 year.
ii. If the underpayment of tax is an amount exceeding 1,000 Birr to a fine of
not less than 20, 000 Birr and not more than 100,000 Birr and
imprisonment for a term of not less than three years and not more than
5 years.
iii. where the statement or omission is made knowingly or recklessly: If the
inaccuracy of the statement were undetected 1,000 Birr, to a fine of not
less than Birr 50,000 and not more than 100,000 Birr, and
imprisonment for a term of not less than 5 years and not more than 10
years. And if the underpayment of tax is an amount exceeding 1,000 Birr
to a fine of not less than 25,000 Birr and not more than 200,000 Birr
and imprisonment for a term of not less than 10 years and not more
than 15 years.

Penalty for failure to notify change of address

Final of 10,000 Birr and 1 year imprisonment.

Penalty for Unauthorized VAT Collections

Any person not authorized to collect tax under this proclamation who collects or
attempts to collect tax commits an offence and is liable on conviction to a fine of not
less than 50,000 Birr and to imprisonment for a term of not less than five years and
not more than 10 years.

TTLM Development Manual Date: October 12,2013

19
Compiled by: Acct department