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Chapter Four
Ethiopian Tax System
4.1. Structure of Ethiopian Tax System and Administration
Ethiopia has a federal system of government that is the federal government and the constituent
regional and city administration, there are two-tax offices responsible for administering the internal
tax revenues. These are federal tax office and regional city gov’t tax offices.
The internal tax structure is basically made up of direct and indirect taxes. The direct taxes are
taxes on income, and property while the indirect taxes are on consumption / expenditure/.
The Federal Inland Revenue Authority /FIRA/
FIRA was established by proclamation no 367/2003. The authority is a semi-autonomous agent of
the government responsible for the administration of the federal as well as joint tax revenues (to
be shared between federal and constituted below).
The authority which administers a number of taxes is under the general supervision of revenue
authority.
Functions of FIRA
The major functions of the authority are to:
➢ Assess, collect enforce and account for federal and joint revenue lists.
➢ Administer efficiently and effectively all tax laws of the government.
➢ Promote voluntary compliance.
➢ Advise the ministry on the tax issues.
➢ Safeguard taxes from strand and evasion.
➢ Improve quality of service to the taxpayers.
➢ Undertake studies to improve the implementation of tax laws.
➢ Regulations and directives.
Tax Administration
In order to mobilize more domestic revenue and rationalize the tax system, thoughtful attention is
given to improve tax policies and laws. However, it is worth mentioning the change tax policy and
law without and improved tax administration will be a futile exercise. Thus, modern tax
administration is the key to effective tax system.
It is obvious that the ultimate goal of tax administration is promoting tax collection. The economic
efficiency gains obtained from the various reforms undertaken are equally important. Improvement
in the tax administration is not a one-time measure, is rather a continuous effort.
By and large to be successful and effective in tax administration reforms the following six factors
are considered very essential
❖ An explicit and sustained political commitment,
❖ A team of capable, hardworking officials dedicated full-time to tax administration reform,
❖ Relevant training for staff,
❖ Additional resources to the tax administration or at least some reallocation of existing
resources,
❖ Chants in incentives for bathe taxpayers and tax administrators.

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4.2. Income Taxes

Income is defined as every sort of economic benefit including non-recurring gains in cash or in
kind, from whatever source directed and in whatever form paid credited or received. The
proclamation governing income uses scheduler system of taxation. As per this proclamation, the
income tax proclamation classified income in accordance with its nature in to four schedules as
follows:
Income is classified for income tax purposes according to its nature and source. The classifications
into which the income falls are known as Schedules.
4.2.1. Employment Income Tax (Schedule A)
Schedule 'A' Income/Employment Income
Employment income shall include any payment or gains in cash or in kinds received from
employment by an individual. Except those exempted, any income arising from employment is
taxable under this schedule.
“Taxable income” means the amount of income subject to tax after deduction of all expenses and
other deductible items allowed under this Proclamation 286/2002 and Regulations 78/2002 issued.
1. Taxable Income
1) Every person deriving income from employment is liable to pay tax on that income at the
rate specified in Schedule A, set out in Article 11. The first Birr 600 (six hundred Birr) of
employment income is excluded from taxable income.
2) Employers have an obligation to withhold the tax from each payment to an employee, and
to pay to the tax Authority the amount withheld during each calendar month. In applying
the preceding, income attributable to the months of Nehassie and Pagumen shall be
aggregated and treated as the income of one month.
Tax Rate
Tax base (income in Birr) Tax rate (%) Amount of tax exemption (in
Birr)
Over Birr – Birr
0-600 0 No tax
601-1650 10 60
1651-3200 15 142.5
3201-5250 20 302.5
5251-7800 25 565
7801-10900 30 955
Over 10900 35 1500

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Determination of Employment Income

1) Employment income shall include any payments or gains in cash or in kind received
from employment by an individual, including income from former employment or
otherwise or from prospective employment.
2) The type of taxable fringe benefits and the manner of their assessment shall be
determined by regulations to be issued by the council of ministers.
3) Income received in the form of wages does not include representation and other similar
expenditures (on social functions, guest accommodations, etc.)
Exemptions
The following categories of income shall be exempted from payment of income tax.
I. Income from casual employment
Income from employment received by casual employees who are not regularly employed provided
that they do not work for more than one month for the same employer in any twelve months period.
II. Contribution of retirement benefits by employers:
Pension contribution, provident fund and all forms of retirement benefits contributed by employers
in an amount that does not exceed 15% (fifteen percent) of the monthly salary of the employee.
III. Reciprocity, income from employment: subject to reciprocity, income from
employment, received for services rendered in the exercise of their duties by:
(i) Diplomatic and consular representatives, and
(ii) Other persons employed in any Embassy, Legation, Consulate or Mission of a
foreign state performing state affairs, which are national of that state and bearers of
diplomatic passports or who are in accordance with international usage or custom
normally and usually exempted from the payment of income tax.
IV. Specifically exempted income: income specifically exempted from income tax by:
i. Any law in Ethiopia, unless specifically amended or deleted by this Proclamation;
ii. International treaty; or
iii. An agreement made or approved by the Minister.
E) Exempted income by regulations
The Council of Ministers may by regulations exempt any income recognized as such by this
Proclamation for economic, administrative or social reasons.
F) Payments as compensation
Payments made to a person as compensation or gratitude in relation to:
(i) Personal injuries suffered by that person;
(ii) The death of another person.
G) Allowable Deductions
The following payments, made to an employee by an employer, are allowed as deductions to
determine taxable income.
➢ Amounts paid by employers to cover the actual cost of medical treatment of employees
➢ Allowance in lieu of means of transpiration granted to employees under contract of
employment
➢ Hardship allowance

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➢ Amounts paid to employees in reimbursement of traveling expense incurred on duty

➢ Amounts of traveling expense paid to employees recruited from elsewhere than the place
of employment on joining and completion of employment, or in case of foreigners traveling
expense from or to their country, provided that such payments are provided by the contract
of employment.
➢ Allowance paid to members and secretaries boards of public enterprises and public bodies
as well as to members and secretaries of study groups set up by federal or regional
government
➢ Income of persons employed form domestic duties

4.2.2. Rental Income Tax (Schedule B)

Rental income includes all form of income from rent of a building and rent of furniture and
equipment if the building is fully furnished. Carefully note that income from the lease of business,
including goods, equipment’s and building which are part of the normal operation of a business,
(called business lease) are taxable under another schedule – schedule C.
Gross rental income also includes any cost incurred by the lessee for improvement to the land or
building all payments made by the lessee on behalf of the lessor in accordance with the contract
lease. In the lease contract there are two parties involved in renting a building, the lessor and the
lessee. The party who grants rent of the building is the lessor. The one who leases the property for
use is the lessee. In some occasions the lessor may allow the lessee to sub lease the building for
another party. In such circumstances the first lessee becomes the sub-lessor. The sub lessor must
pay tax on the difference between income from the sub leasing and the rent paid to the lessor,
provided that the amount received by the sub lessor. The owner of the building who allows a lessee
to sub- lease is liable for payment of the tax for which the sub lessor is liable, in the event the sub-
lessor fails to pay.
When a building is constructed for the purpose of giving on lease, the owner and contractor should
inform the Kebele Administration about its completion and the intention of giving it on lease. This
is also applicable when the building is rented before its completion. The Kebele Administration
will pass the information to the tax office for the administration of tax. It is also the responsibility
of Kebele administration to gather any such information and communicate to tax office in case
where the parties fail to do so.
Taxable Income
Gross income includes all payments, either in cash or benefited in kind, received by the lessor and
all payments made by the lessor on the behalf of the lessee. The value of any renovation or
improvement to the land or the building is also part of taxable income under this schedule if such
cost is borne by the lessee in addition to rent payable.
Tax Rate
The tax payable on rented houses shall be charged, levied and collected at the following rates:
(a) On income of bodies thirty percent (30%) of taxable income,
(b) On income of persons according to the Schedule B (hereunder) Schedule –B

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Taxable Business Income (per year Tax rate (%) Deductible Amount

Over Birr – Birr

0-7200 0 No tax

7,201-19,800 10 720

19,801-38,400 15 1,710

38,401-63,000 20 3,630

63,001-93,600 25 6,780

93,601-130,800 30 11,460

Over 130,800 35 18,000

Determination of Income
Income from rental of building shall be computed as follows:
a) If the tax payer leased furnished quarters the amounts received attributable to the lease
of furniture and equipment shall be included in income.
b) Sub-lessors shall pay tax on the difference between income from sub-leasing and the
rent paid to the lessor, provided that the amount received from the sub-lessor is greater
than the amount payable to the lessor.
The following amounts shall be deducted from income in computing taxable income:
i) For taxpayers not maintaining books of account, one fifth (1/5) of the gross income received
as rent for buildings furniture and equipment as an allowance for repairs, maintenance and
depreciation of such buildings, furniture and equipment;
ii) If the lessor maintains books of accounts the allowable deductions (deductible expenses)
include (but not limited to):-
a) Tax on land and buildings being leased
b) Cost of lease (rent) of land
c) Repairs, maintenance and depreciation of building (and furniture and equipment if
furnished) per income tax proclamations article 23.
d) Interest on bank loan if any
e) Premium paid on insurance of building.
It is important to keep proper accounts for period of times when the building was not leased (kept
idle).
4.2.3. Business Income Tax (Schedule C)
The current income tax proclamation and related regulations defined business as any industrial,
commercial, professional or vocational activity or any other activity recognized as trade by the
commercial code of Ethiopia and carried on by any person for profit.

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Based on the volume of their sales for a tax year and form of business.
Tax payers are categorized into three, namely category A, Category B, Category C.
Category “A”
Business having Annual turnover of Birr 1,000,000 and more and tax payers have to maintain all
records and accounts is classified as category “A”
Category “B”
Businesses having an annual turnover of over Br 500,000. Tax payers have to maintain all records
and accounts and the law requires all entries in the records and accounts.
Category “C”
Unless already classified in categories “A” and “B” include those tax payers whose annual turnover
is estimated by the Tax Authority at Birr 500,000 or less.
As compared to the previous income tax rate, the current proclamation provides a reduced tax rate
on business income as a measure of the tax reform program in progress. The reduced tax rate is
believed to serve as an investment incentive.
Business income tax 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
generally accepted 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
Taxable income from rental (per Tax rate (%) Deductible amount
year)

Over Birr – Birr

0-7,200 0 No tax

7,201-19,400 10 720

19,401-38,400 15 1,710

38,401-63,600 20 3,630

63,601-93,600 25 6,780

93,601-130,800 30 11,460

Over 130,800 35 18,000

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

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to the extent that the expenses can be proven by the taxpayer and subject to the limitations specified
by the proclamation.
Allowable Deductions (Deductible Expenses)
On the basis of this, the law permits the following lists of expenses as deductible from business
income.
1. The direct costs of producing the income, such as the direct cost of manufacturing, purchasing,
importations, selling and such other similar costs;
2. General administrative expenses connected with the business activity;
3. Premiums payable on insurance directly connected with the business activity;
4. 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.
5. 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.
6. 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.
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.
a. Capital Expenditure- the cost of acquisition, improvement, renewal and reconstruction
of depreciable assets
b. Additional Investment- an increase of the share capital of a company or the basic capital
of a registered partnership
c. Declared dividends and paid out project shares.
d. Voluntary pension or provident fund contributions over and above 15% of the monthly
salary of the employee.
e. Damages covered by insurance policy
f. Interest in excess of the rate used between the National Bank of Ethiopia and the
commercial Banks increased by two percentage points.
g. Punitive damages and penalties
h. The creation or increase of reserves, provisions and other special purpose funds unless
otherwise allowed by the proclamation.
i. Income tax paid on schedule “C” income and recoverable Value Added Tax (VAT)
j. Representation expenses over and above 10% of the salary of the employee.
k. Personal consumption expenses
l. Expenditures exceeding the limits set forth by the proclamation or regulations

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m. 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.
n. Donation and gift other than those permitted by regulation.
o. Sum paid as salary, wages or other personal emoluments to the proprietor or partner of
the enterprises.
p. Expenditure for maintenance or other private purpose of the proprietor or partner of the
enterprise.
q. Losses that are not connected with or not arising out of the activity of enterprise.
r. Grants and donations that exceed 10% of the taxable income of the tax payer.
4.2.4. Other Income Taxes (Schedule D)
Incomes which are not specifically included under Schedule A, Schedule B and Schedule C is
categorized under this schedule. Schedule D income includes;
Royalties
The term "royalty" means a payment of any kind received as a consideration for the 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 broadcasting, any patent, trade work, design or mode,
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.
Royalties shall be liable to tax at a flat rate of five percent (5%). The withholding Agent who
effects payment shall withhold the foregoing tax and account to the Tax Authority within the time
limit set out in this proclamation. However, if the payer resides abroad and the recipient is a
resident, the recipient shall pay tax on the royalty income within the time limit set out in this
proclamation. This tax is a final tax in lieu of a net income tax.
Income from rendering of technical Services
Income from technical service refers to income from any kind of expert advice or technological
service rendered. All payments made in consideration of any kind of technical services rendered
outside Ethiopia to resident persons in any form shall be liable to tax at a flat rate of ten percent
(10%) which shall be withheld and paid to the Tax Authority by the payer.
Income from games of chance
Every person deriving income from winning at games of chance (for example, lotteries, tombola’s,
and other similar activities) shall be subject to tax at the rate of fifteen percent (15%), except for
winnings of less than 100 Birr. The withholding Agent shall withhold or collect the tax and account
to the Tax Authority. This tax is a final tax in lieu of income tax.
Dividends
Every person deriving income from dividends from a share company or withdrawals of profits
from a private limited company shall be subject to tax at the rate of ten percent (10%). The
withholding Agent shall withhold or collect the tax and account to the tax Authority. This tax is a
final tax in lieu of income tax.
Income From rental of Property

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Every person deriving income from the casual rental of property (including any land, building, or
moveable asset) not related to a business activity taxable under Article 17 shall pay tax on the
annual gross income at the rate of fifteen percent (15%). This tax is a final tax in lieu of a net
income tax.
Interest Income on Deposits
Every person deriving income from interest on deposits shall pay tax at the rate of five percent
(5%). The payer shall withhold the tax and account to the Tax Authority in the manner provided
in Article 67. This tax is a final tax in lieu of income tax.
Gain on Transfer of Certain Investment Property
Gains obtained from the transfer (sale or gift) of building, factory, office and a share of company
is taxable under this category and taxable at the following rates:
a) building held for business, factory, office 15% (fifteen percent)
b) shares of companies 30% (thirty percent)
Gains obtained from the transfer of building held for residence shall be exempt.
The basis for computation of gains obtained from the transfer of properties described in this Article
shall be determined by Regulations to be issued by the Council of Minister Any exchange of shares
in a resident company which is a party to a reorganization - as defined in Article 24(4) - in exchange
for share in another resident company which is also a party is not a disposal of the shares. The
value of the shares given in exchange under Sub-Article (4) shall be equal to the value of the
original shares.
Loss on the transfer of such property shall be recognized and be available to offset gain subject to
the following limitations:
a) Loss on transfers under this Article may be used to offset gain on transfers under
this Article, but may not be used to offset any other income or gain. Unused losses
may be carried forward indefinitely.
b) No loss shall be recognized on transfer to associates within the meaning of Article
2(4).
Any person authorized by law to accept, register or in any way approve the transfer of capital
assets shall not accept, register or approve the transfer before ascertaining that the payment of the
tax has been duly effected in accordance with this Article.
4.3. Consumption Taxes
4.3.1. Value-Added Tax
The introduction of value Added Tax (VAT) is probably the most important tax development in
the world. VAT is applied in over 120 countries. This makes about 4 billion people or 70% of the
world’s populations live in countries with a VAT. In these countries VAT raises about $18 trillion
in tax revenue, roughly a quarter of all governments revenue. The Federal Democratic Republic of
Ethiopia recently has joined the over 120 countries of the world that have already adopted VAT
into their tax system.
VAT is a tax on consumer expenditure. It is collected on business transactions and imports. A
taxable person can be an individual, firm, company as long as such a person is required to be
registered for VAT.

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VAT is introduced in Ethiopia with the following main objectives.

- To minimize the damage caused by attempts to avoid and trade the tax and ascertain the
profit obtained by tax payables.
- To enhance economic growth and import the ratio relationship between from Domestic
Production and Government Revenue.
- To enhance saving and investment as it is essentially a consumption tax and does not tax
capital.
The best quality of VAT is that it is charged and collected throughout the production and value
adding processes with provisions for tax payable to be reduced by the tax point in respect of
purchases. It allows collection of tax on the added value wherever a sales transaction is conducted.
Most business transactions involves supplies of goods or services. VAT is payable if they are:
• Supplies made in Ethiopia
• Made by a taxable person
• Made in the course or furtherance of a business
• Are not specifically exempted or zero rated
Forms of Registration
A person who carries on a taxable activity is required to get registered if at the end of any period
of the 12 calendar months the person made taxable transactions whose value exceeds Br.
1,000,000.
Voluntary Registration
A person not required to be registered for VAT may voluntarily apply to the authority for such
registration, if he is regularly supplying or rendering at least 75% of his goods and services to
registered persons.
Obligatory Registration
A person who carries on a taxable activity is required to get registered if at the end of any period
of the 12 calendar months the person made taxable transactions whose value exceeds Br.
1,000,000. In addition to this, a person must get registered for VAT if there is a reasonable ground
to expect that the persons taxable activity shall exceed Br.1,000,000 at the beginning of any period
of 12 calendar months.
Divisional Registration
A registered person may conduct taxable activities in different branches or divisions. In such cases,
the registered person must be registered only in the name of the registered person at its main
address.
Notwithstanding the above, the authority may, upon application in writing by a registered person
operating in corporate form, allows the registered person to register one or more of its branches or
divisions as separate registered persons if it is satisfied that the branch or division maintains an
independent accounting system and can be separately identified by the nature of its activities or
location subject conditions and restriction the minister of revenue may seem fit.
Cancellation of Registration

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Cancellation of registration can also be initiated by a registered person if at any time after a period
of three years of his most recent registration, his total transaction for the period of 12 months then
beginning are expected to be not more than Br. 1,000,000.
Tax rate
Value added tax shall be levied and paid at the rate of 15% of the value of every taxable transaction
by a registered person, on every import of goods other than an exempt import, and on import of
services.
Exemption
An exempt supply is not subject to VAT. A registered person making exempt
A. Dwellings
A “dwelling” includes an area surrounding or appurtenant to the dwelling necessary for its
enjoyment. It does not, however, include farm land adjacent to a dwelling. The land surrounding
a dwelling complex, including the driveway, paths, gardens and landscaped grounds for the use
and enjoyment of residents are also taken as part of the dwelling. Dwellings of such nature are,
therefore, exempted from VAT.
B. Financial Services
Financial services, whether provided for explicit or implicit fees are exempt from tax. The financial
services exempt from tax include the following:
a. granting, negotiating or dealing with loans, credit, credit guarantees, or any security for
money, including management of loans credit, or credit guarantees by the grantor or
the arranging such services
b. transactions concerning money (including the exchange of currency), deposit, savings,
and current accounts, payments, transfers, debts, cheques, or negotiable instruments,
other than debt collection and factoring or arranging such services.
C. Supply or import of securities
The following securities are exempted from tax:
a. transactions relating to the issuance, transfer, or receipt of, or any dealing with shares,
stocks, bonds, treasury bills, or other debt or equity securities, other than custody
services;
b. transactions relating to financial derivatives, forward contracts, options, or similar
arrangements, and
c. transitions relating to the creation, issue, transfer, assignment or receipt of, or dealing
with, an option or warrant relating to securities included in (a)
D. Import of gold for National Bank of Ethiopia
The exemption of the import of gold to be transferred to the National Bank of Ethiopia applies to
imports by or for the National Bank, regardless of the level of purity of the gold or the form in
which it is imported.
E. Religious related Services
The supply of religious or church-related services by a religious organization is exempted from
tax. Generally, services rendered by a religious organization that are integral to the practice of that
religion come within the exemption. However, the activities of a religious organization that

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compete with the private sector or that are not integral to the practice of the religion do not come
within the exemption, hence taxable. If the value of these taxable supplies exceeds the threshold
specified in the proclamation, the religious organization much registers.
F. Medical Services and Prescription Drugs
Rendering of medical services, and the import and supply of prescription drugs specified in the
directives issued by the Minister of Health are exempt from tax. Medical services are exempt,
whether provided with or without charge and whether paid by the patient or resident or any third
party.
G. Education Services
The law exempts education services rendered by educational institutions, and child care services
at pre-school institutions. Qualified charges for education services are exempt if the services meet
two conditions provided that they are specified in the regulation governing VAT and they are
provided to students by a qualified educational institution.
4.3.2. Turnover Tax
Turnover tax is levied on goods supplied and services rendered by persons not covered by VAT.
It is not as such a sales tax.
Reasons for levy of turnover tax:.
■ To make complete coverage of the tax system.
■ To enhance fairness in commercial relations.
■ To overcome the limitations put on the compulsory registration of VAT.
■ To make the NON VAT taxpayers fulfill their tax obligations.
DEFINITIONS:
Most of the definitions given in the proclamation are similar to the one used in the VAT
proclamation except for the following:
Person not registered for VAT means a person who, according to article 16 and 17 of the value
added tax proclamation, is not registered by reason of his annual turnover being below birr
1,000,000 set by the minister, or by reason of not having applied for voluntary registration.
Scope of the Tax:
Unless exempted under article 7 of the turnover tax proclamation or directives issued there under,
turnover tax shall be payable on goods supplied and services rendered by persons not registered
for VAT.
Rate of Turnover Tax
The Turnover Tax shall be:
1. 2% (two percent) on Goods sold locally
2. For Services rendered locally;
➢ 2% (percent) on Contractors, grain mills, tractors and combine-
harvesters;
➢ 10% (ten percent) on others.
Base of Computation of the Turnover Tax
Base of computation of the Turnover Tax shall be the gross receipts in respect of goods supplied
or services rendered.

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Obligation to Collect and Transfer the Turnover Tax

A person who sells goods and services has the obligation to collect the Turnover Tax from the
buyer and transfer it to the Tax Authority. Hence, the seller is principally accountable for the
payment of the tax.
Exemption
The following shall be exempted from Turnover Tax:
a. the sale or transfer of a dwelling used for a minimum of two years, or the lease of a
dwelling;
b. the rendering of financial services;
c. the supply of national or foreign currency (except for the used for numismatic purposes)
and of security;
d. the rendering by religious organizations of religious or other related services;
e. the supply of prescription drugs specified in directives issued by the relevant government
agency, and the rendering of medical services;
f. the rendering of educational services provided by educational institutions, as well as child
care services of children at pre-school institution;
g. the supply of goods and rendering of services in the form of humanitarian aid;
h. the supply of electricity, kerosene, and water;
i. the provision of transport;
j. permits and license fees;
k. the supply of goods or services by a workshop employing disabled individuals if more
than 60% of the employees are disabled; and
l. the supply of books.
Responsibility for Administration and Reporting
a. The responsibility for the correct calculation and timely payment of Turnover Tax and
presentation of a return to the Authority by the prescribed deadline rests on the tax
payer in accordance with this proclamation.
b. The Tax Authority administers the Turnover Tax.

Records
Taxpayer shall keep the records for use in determining Turnover Tax.
4.3.3. Excise Tax
What is excise tax?
Excise is a tax levied upon goods manufactured not upon sales or the proceeds of the sale. It is
levied on the manufacturer or importer of the goods in respect of the goods produced or
manufactured or imported by him/her.
It is believed that this tax should be imposed on luxury goods and basic goods, which are demand
inelastic. It is also believed that imposing the tax on goods that are hazardous to health and which
are causes to social problems will reduce the consumption thereof.

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Excise tax, which is an indirect tax, is different from customs duty, which is collected on import
or export of goods into or out of the country respectively.. And also different from sales tax. VAT
and turnover tax that are collected on sales of goods and services.
Reasons why excise tax is levied?
There are basically three reasons why the excise tax is levied by the Ethiopian government.
1. To improve government revenue.
2. To impose on luxury goods and basic goods which are demand inelastic.
3. To reduce the consumption of goods that are hazardous to the health and which cause
to social problems are by imposing the excise tax.
Rate of Excise Tax
The excise tax would be imposed on goods imported or either produced locally in accordance with
the following schedule, given in Excise Tax Proclamation No. 307/2002.
The excise tax shall be paid on goods mentioned in the schedule when imported; when produced
locally at the rates prescribed in the Schedule
The excise tax is computed on
1. In respect of goods produced locally, the cost of production;
2. In respect of goods imported, cost, insurance and freight (C.I.F.);
4.4. Stamp Duties
Stamp duty is payable on certain legal and financial instruments. The basis of the duty is the cost,
which the instrument contains (bears)
The following instruments shall be chargeable with stamp duty:
Memorandum and articles of association of any business organization, cooperative or any other
form of association; Award; Bonds; Warehouse bond; Contract and agreements and memoranda;
Security deeds; Collective agreement; Contract of employment; Lease, including sub-lease and
transfer of similar rights; Power of attorney;
4.5. Foreign Trade Taxes
4.5.1. Custom Duties
Customs Duty includes both import and export duties. These duties are levied when the goods
cross the boundaries of the country.
Any good imported or exported would be subject to: Payment of duties and taxes according to the
tariff of Harmonized Commodity Description and coding system
Payment of duties and taxes according to the preferential tariff rate where goods are imported from
the preferred country.
4.5.2. Sur-Tax
1. An additional or extra tax on something already taxed.
2. One of a graded series of additional taxes levied on incomes exceeding a certain amount.
An importer has to pay 10% sur-tax on goods imported to Ethiopia. This article is compiled from
Import Sur-Tax Council of Ministers Regulation. The basis of computation, scope of application
and applicable exemptions are also included.
Refer Surtax on Imported Goods Regulation No 133/2007
Scope of Application

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The Sur-tax levied under these Regulations shall apply to all goods imported into Ethiopia except
those exempted under Article 5 of these Regulations:
Rate of the Sur-tax: without prejudice to Article 5 of these Regulations, Surtax of 10% shall be
levied and collected on goods imported.
Exemption from the Sur-Tax
1. The following shall be exempted from the Sur-tax:
a) Goods listed below;
Items exempted from Sur-tax
❖ Fertilizers;
❖ Petroleum and lubricants;
❖ Motor Vehicles for freight and passengers, and special purpose motor vehicles;
❖ Aircraft, spacecraft, and parts thereof;
❖ Capital (Investment goods).
b) goods imported by persons or organizations exempted from customs duty by law, directives or
by agreement entered into by the Government.
2. The Minister of Finance and Economic Development may at his own discretion increase or
decrease the items exempted from the Sur-tax under these Regulations and issue directives for the
proper implementation of these Regulations.

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