World Bright College, Faculty of Business and Economics, Department of Accounting and Finance

CHAPTER FOUR
ETHIOPIAN TAX SYSTEM
4.1. Structure of Ethiopian Tax System and Administration
Tax revenue is the vital governments‟ revenue in any world. The Ethiopian government collects diversified type of tax from its citizens in
order to fulfill public goods and services and improve the living standards of the society. To do this, the government of Ethiopia delegated
to one government institution called Ethiopian Revenue and Custom Authority (ERCA) in order to establish tax rules, regulations, and
policies; administer and collect tax revenue to the government. ERCA is established starting from at federal level up to the kebele level.
Powers and Duties of Tax Authority (Article-38)
The implementation and enforcement of this proclamation and of regulations issued hereunder shall be the duty of the tax authority.
Notwithstanding anything to the contrary in any other law, the Tax Authority shall be empowered to investigate any statements, records
and books of account submitted by any taxpayer at any time by:
a) Sending duly accredited inspectors to the place of business or practice of the tax payer to check same or any vouchers, stocks of other
material items of the taxpayer;
b) requiring the taxpayer or any employee thereof who has access to or custody of any information, records or books of account to produce
the same and to attend during normal office hours at any reasonably convenient tax office and answer any questions relating thereof;
c) Requiring any person including municipality, Body, Financial Institution Department or Agency of Federal or Regional Government to
disclose particulars of any information or transactions, including any lending or borrowing which it may have relating to the taxpayer.
Confidentiality of Tax Information (Article-39)
The Tax Authority and all persons who are or have been its agents or employees shall maintain the secrecy of all information except such
information as are required by the Commercial Code of Ethiopia to be published by trade gazette, on particular taxpayers received by them
in an official capacity, and may disclose such information only to the following persons:
i. Employees of the Tax Authority, for the purpose of carrying out their official duties;
ii. Law enforcement agencies, for the purpose of the prosecution of a person for tax violations;
iii. Courts, in proceedings to establish a person‟s liability for tax, penalties, or interest, or in any criminal case;
iv. Tax authorities of a foreign country, in accordance with an international treaty to which Ethiopia is a party. Information concerning a
taxpayer may be disclosed to another person with the taxpayer‟s written consent.
Code of Conduct for Tax Authority Employees (Article-40)
1. Each employee of the Tax Authority shall
a. Be honest and fair, treating each taxpayer with courtesy and respect;
b. Apply the law, regulations and rulings to each case on the basis the objective facts in that case, showing no partiality to members of his
family or to friends;
c. Refrain from participating in any determination that will affect his or his spouse‟s tax liability;
d. Where either a known family relationship or a business interest might influence any determination he must, as an employee, make public
(in the manner provided by regulations) such relationship or interest;
e. Subject to Article 39 protect the confidentiality of any tax or duty information, and
f. Not solicit or accept any bribe or perform any other improper act relating to the duty to determine or collect any tax.
No employee of the Tax Authority shall act as a tax accountant or consultant or accept employment from any person preparing tax
declarations or giving tax advice. Generally, tax revenues in our country Ethiopia is collected by both federal and regional governments.
1. Central or Federal government tax revenues
a. Duties, tax and other charges levied on the importation and exportation of goods;
b. Personal income tax collected from the employees of the central Government and the International Organizations
c. Profit tax, Personal income tax and sales tax collected from enterprises owned by the Central Government. (Now sales tax is replaced
with VAT and Turnover taxes).
d. Taxes collected from National Lotteries and other chance winning prizes;
e. Taxes collected on income from air, train and marine transport activities;
f. Taxes collected from rent of houses and properties owned by the central government;
g. Charges and fees on licenses and services issued or rented by the central government.

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 World Bright College, Faculty of Business and Economics, Department of Accounting and Finance

2. Regional government tax revenues

a. Personal income tax collected from the employees of the Regional government and employees other than those covered under the
sources of central government.
b. Rural land use fee.
c. Agricultural income tax collected from farmers not incorporated in an organization.
d. Profit and sales tax collected individual traders.
e. Tax on income from inland water transportation.
f. Taxes collected from rent of houses and properties owned by the Regional governments;
g. Profit tax, personal income tax and sales tax collected from enterprises owned by the Regional government:
h. With prejudice to joint revenue sources, income tax, royalty and rent of land collected from mining activities.
i. Charges and fees on licenses and services issued or rented by the Regional government.
3. Joint tax revenues
a) Profit tax, personal income tax and sales tax collected from enterprises jointly owned by the central government and Regional
governments;
b) Profit tax, dividend tax and sales tax collected from Organizations;
c) Profit tax, royalty and rent of land collected from large scale mining, any petroleum and gas operations;
d) Forest royalty

4.2. Income Taxes

4.1.1 Schedule „A‟ Income: Employment Income
Any remuneration paid by an employer to his employee in consideration of his services is called salary. It includes the value of fringe
benefits provided by the employer. Every person deriving income from employment is liable to pay tax on that income at the rate specified
in Schedule A-Article 11.
Tax Rate (Article-11)
The tax payable on income from employment shall be charged, levied and collected at the following rates:
Schedule A

oN Employment income (per month) Birr Employment Income Tax Rate Deductions

1. 6 – 666 0 (Exempted) oiN

2. 601-1650 10% 66
3. 1651-3200 15% 142.5
4. 3201-5250 20% 362.5
5. 5251-7800 25% 565
6. 7801-10,900 30% 955
7. Above 10,900 35% 1566
Determination of Employment Income (Article-12)
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.)
Exempted Incomes (Article-13)
The following categories of income shall be exempt from payment of income tax hereunder:
(a). 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 (1) month for the same employer in any twelve (12) months period;

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 World Bright College, Faculty of Business and Economics, Department of Accounting and Finance

(b). 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;
(c). Reciprocity, income from employment: subject to reciprocity, income from employment, received for services entered 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, who 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.
(d) 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.
4.2.2. Schedule „B‟ Income: Income from Rent of Buildings
Under the Schedule „B‟ the basis of charge is the rental income received from the property. That is, Income tax shall be imposed on the
income from rental of buildings. Every person deriving income from rent of buildings is liable to pay tax on that income at the rate
specified in Schedule B-Article 15.
Schedule B

oN Total rental income (per year) Rental income tax rate Deductions
1. 6 – 7266 0 oiN
2. 7201 – 19800 10% 726
3. 19801 – 38400 15% 1716
4. 38401 – 63000 20% 3636
5. 63001 – 93600 25% 6786
6. 93601 – 130800 30% 114466
7. Above 130,800 35% 184666
Determination of Income Tax Rate (Article-16)
1) 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 the 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.
(c) The following amounts shall be deducted from income in computing taxable income:
(i) Taxes paid with respect to the land and buildings being leased; except income taxes; and
(ii) 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;
(iii) for taxpayers maintaining books of account, the expenses incurred in earning, securing, and maintaining rental income, to the extent
that the expenses can be proven by the taxpayer and subject to the limitations specified by this Proclamation, deductible expenses include
(but are not limited to) the cost of lease (rent) of land ,repairs , maintenance, and depreciation of buildings, furniture and equipment in
accordance with Article 23 of this Proclamation as well as interest on bank loans, insurance premiums.
2) The owner of a building who allows a lessee to sub-lease is liable for the payment of the tax for which the sub-lessor is liable, in the
event the sub-lessor fails to pay.
3) At the earlier of the time construction of a rental building is completed or when the building is rented, the owner and the builder are
required to notify the administration of the kebele in which the building is situated about such completion and the name, address, and tax

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 World Bright College, Faculty of Business and Economics, Department of Accounting and Finance

identification number of the person (or persons) subject to tax on income from rental of the building. The Keble administration has the
obligation to communicate this information or information obtained by the administration‟s own initiative to the appropriate tax authority.
Example: Mr. X has a building that is available for rent in year 2012. The following are the details of the property lease out
 He has let out for twelve months
 Actual rent for a month is birr 30,000 83
 He paid 15% of the actual rent received as land taxes and 3% as other taxes
 He spent birr 10,000 for maintenance of the building
Depreciation Schedule
Type Year Original Cost Addition Total Cost
iuiNnidl 2623 3.6664666.66 --- 3.6664666.66
tnuipiudE 2623 1564666.66 --- 1564666.66
Computer & accessory 2623 1664666.66 664666.66 1664666.66
Required: Compute the taxable rental income and tax liability assume
A. Mr. X does not maintain any books of accounts in this regard
B. Mr. X has maintained books of accounts
Solution (A):
Annual rental income (birr 30,000*12 months) --------------------------------------- 360,000
Less: allowable deductions
 Land tax (lease) (15% of 360,000) ----- 54,000
 Other taxes (3% of 360,000) ------------ 10,800
 Maintenance (1/5 of 360,000) ---------- 72,000 (136,800)
Taxable rental income ……………………………………………………………. 223,200
Tax liability = (Taxable income x Tax rate)- deduction
= Birr (223,200 x 35%)-18,000
= Birr 60,120
Solution (B): Depreciation Schedule
1. for building 300,000 x 0.05 = 15,000
2. for Equipment 15,000 x 0.20 = 3,000
3. for computer 16,000 x 0.25 = 4,000
Annual rental income (birr 30,000*12 months) --------------------------------------- 360,000
Less: allowable deductions
 Land tax (15% of 360,000) ---------- 54,000
 Other taxes (3%of 360,000) --------- 10,800
 Maintenance --------------------------- 10,000
 Dep Expense Building ---------------- 15,000
 Dep Expense Equipment ------------- 3,000
 Dep Expense computer --------------- 4,000 ----------------------------------------- (96,800)
Taxable rental income ……………………….……………………………………... 263,200
Tax liability = (Taxable income* Tax rate) - Deduction
= (Birr 263,200 x 35%) - 18,000
= Birr 74,120
4.2.3. Schedule „C‟ Income: Business Income
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. It includes any trade, commerce or manufacture or any other adventure or
concern in the nature of entrepreneurial activity. It is not necessary that there should be a series of transactions in a business and it should
be carried on permanently. Neither 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 at a profit.

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 World Bright College, Faculty of Business and Economics, Department of Accounting and Finance

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 with the Generally Accepted Accounting Standards, subject to the provisions of this Proclamation and the directives
issued by the Tax Authority.
Tax Rate
1) Taxable business income of bodies is taxable at the rate of 30 %.
2) Taxable business income of other taxpayers shall be taxed in accordance with the following
Schedule C

oN Total Business Income (per year) Birr Business income tax rate Deductions
1. 6 – 7266 0 oiN
2. 7201 – 19800 10% 726
3. 19801 – 38400 15% 1716
4. 38401 – 63000 20% 3636
5. 63001 – 93600 25% 6786
6. 93601 – 130800 30% 114466
7. Above 130,800 35% 184666
1. Deductible and non-deductible expenses
Non-Deductible Expenses for business profit tax
1) The following expenses shall not be deductible:
(a) The cost of the acquisition, improvement, renewal and reconstruction of business assets that are depreciated pursuant to Article 23 of
this Proclamation;
(b) An increase of the share of capital of a company or the basic capital of a registered partnership;
(c) Voluntary pension or provident fund contributions over and above 15% of the monthly salary of the employee.
(d) Declared dividends and paid-out profit shares;
(e) Interest in excess of the rate used between the National Bank of Ethiopia and the commercial banks increased by two (2) percentage
points.
(f) Damages covered by insurance policy;
(g) Punitive damages and penalties;
(h) The creation or increase of reserves, provisions and other special-purpose funds unless otherwise allowed by this Proclamation;
(i) Income Tax paid on Schedule C income and recoverable Value-Added Tax;
(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 this Proclamation or regulations issued hereunder.
(m) Entertainment expenses;
(n) Donation or gift.
2. Notwithstanding the provisions of Sub-Article (1) (n) of this article, the Council of Ministers may by Regulations allow donations or
gifts provided for public use to be deducted.
3. Interest paid to shareholders on loans and advances shall not be deductible to the extent that the loan or advances in respect of which the
interest paid exceeds on average during the tax period four times the amount of the share capital. This sub-article does not apply to banks
and insurance companies.
4. In the case of bodies other than companies, Sub-article (3) above shall apply as if for the reference to share capital there were substituted
a reference to basic capital.
Deductible expenses of business profit tax
1. Operating expenses
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 subject to the
limitations specified by this Proclamation.
2. Trading Stock (Article-22)
a. For the purposes of ascertaining the income of a person for a tax period from a business, there shall be deducted the cost of trading stock
of the business disposed of by the person during that period.

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 World Bright College, Faculty of Business and Economics, Department of Accounting and Finance

b. The cost of trading stock disposed of during a tax period is determined on the basis of the average cost method, i.e. the generally
accepted accounting principle under which trading stock valuation is based on an average cost of units on hand.
c. The term “trading stock” means any business asset that is either used in the production process and becomes part of the product, or that is
hold for sale.
3. Depreciation (Article-23)
Depreciation means decrease in the value of assets by wear and tear, caused by their use in the business over a period of time. Its cost is
spread over its anticipated life by charging depreciation every year against the profits of the business.
4. Assets eligible for Depreciation
Assets eligible for Depreciation are (i) Building, Plant and machinery (iii) Furniture.
1) In the determination of taxable business income, the owner of the business assets may deduct depreciation for business assets.
2) Fine art, antiques, jewellery, trading stock and other business assets not subject to wear and tear and obsolescence shall not be
depreciated.
3) The acquisition or construction cost, and the cost of improvement, renewal and reconstruction, of buildings and constructions shall be
depreciated individually on a straight line basis at five per cent (5%)
4) The acquisition or construction cost, and the cost of improvement, renewal and reconstruction, of intangible assets shall be depreciated
individually on a straight-line basis at ten percent (10%)
5) The following two categories of business assets shall be depreciated according to a pooling system at the following rates:
(a) Computers, information systems, software products and data storage equipment: twenty five (25%).
(b) All other business assets: twenty percent (20%).
6) In each category as referred to in Sub-Article (5), the rate of depreciation specified in that Sub-Article shall be applied to the
depreciation base of the category.
7) The depreciation base shall be the book value of the category as recorded in the opening balance sheet of the tax period:
(a) Increased by the cost of assets acquired or created and the cost of improvement, renewal and reconstruction of assets in the category
during the tax period.
(b) Decreased by the sales price of assets disposed of and the compensation received for the loss of assets due to natural calamities or other
involuntary conversion during the tax period.
8) If the depreciation base does not exceed Birr 1,000 the entire depreciation base shall be a deductible business expense.
9) If a revaluation of business assets takes place, no depreciation shall be allowed for the amount of the revaluation.
10) In determination of taxable business income a deduction is permitted in respect to each category of business assets for the maintenance
and improvement expenses of business assets belonging to that category for the actual amount of then expenses, but not in excess of twenty
percent (20%) of the depreciation base of the category at the end of the year. Any actual expenses exceeding this twenty percent (20 %)
shall increase the depreciation base of that category.
5. Transfer of Business Assets (Article-24)
i. When assets used in a business are sold, exchanged, or otherwise transferred, gain or loss is recognized on the transfer.
ii. Transfers of business assets among companies which are parties to reorganization are not treated as a disposal of the property.
iii. The value of business assets held by a company or companies which are parties to a reorganization is the same as the value of such
assets immediately before the reorganization. Similarly, the balance value of any depreciation categories shall be carried over.
iv. „reorganization” means:
a) a merger of two or more resident companies;
b) the acquisition or takeover of fifty percent (50%) or more of the voting shares and fifty percent (50%) or more of all other shares by
value of a resident company solely in exchange for shares of a party to the reorganization;
c) the acquisition of fifty percent (50%) or more of the assets of a resident company by another resident company solely in exchange for
voting participations with no preferential rights as to dividends of a party to the reorganization;
d) A division of a resident company into or more resident companies; or
e) A spin-off: The Tax Authority shall ensure that the merger, acquisition, takeover, division, or spin-off is not having tax avoidance as a
principal objective.
v. The rules of Sub-Article (1) – (4) shall not apply to the transfer of assets described under Article 23(5).
vi. Loss shall not be recognized on the transfer of a business asset to related person within the meaning of Article 2(24).

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 World Bright College, Faculty of Business and Economics, Department of Accounting and Finance

Bad Debts (Article-25)

In the determination of taxable business income, a deduction shall be allowed for a bad debt if the following conditions are met:
a) An amount corresponding to this debt was previously included in the income;
b) The debt is written off in the books of the taxpayer; and
c) Any legal action to collect the debt is not recoverable.
Special Reserves for Finance Institutions (Article-26)
In the determination of taxable business income of finance institutions, a deduction shall be allowed for special (technical) reserves in
accordance with the directives issued by the National Bank of Ethiopia; the business income, however, shall be increased by amounts
drawn from such reserves.
Participation Deduction (Article-27)
a. If a resident company or partnership reinvests the profit it earned to raise the capital of another company or partnership subject to the
conditions in Sub- Article (2) and (3); such amount shall be deductible from its taxable income.
b. The deduction mentioned in letter (a) of Sub-Article (1) shall apply to shares of resident companies that are subject to taxation under
Schedule C and in which the investing body has a shareholding of at least twenty-five percent (25%), by value or by number, in the share
capital or the voting rights.
c. The deduction mentioned in letter (b) of Sub-Article (1) shall apply to basic capital of resident registered partnerships that are subject to
taxation under Schedule C and in which the investing body holds at least twenty-five percent (25%) by value of basic capital.
d. The Council of Ministers shall by regulations determine the manner in which the incentive granted in this Article shall be applied.
6. Loss Carry forward (Article-28)
i. If the determination of taxable business income results in a loss in a tax period, that loss may be set off against taxable income in the next
five (5) tax periods, earlier losses being set off before later losses.
ii. If during a tax period the direct or indirect ownership of the share capital or the voting rights of a body changes more than twenty-five
percent (25%), by value or by number, Sub-Article (1) shall cease to apply to losses incurred by that body in that tax period and previous
tax periods.
iii. A net operating loss may be carried forward and deducted only for two periods of three years.
7. Transfer Pricing :( Article- 29)
a) Where conditions are made or imposed between persons carrying on business in their commercial or financial relations which differ
from those which would be made between independent persons, the Tax Authority may direct that the income of one or more of those
related persons is to include profits which he or they would have made but for those conditions. The Tax Authority shall do so in
accordance with the directives to be issued by the Minister.
b) In order to ensure the just and efficient application of this Article the Tax Authority may conditions if necessary, the specified conditions
between related persons do not differ from those which would be made between independent persons.
8. Exemptions (Article- 30)
The following categories of income shall be exempt from payment of business income tax hereunder:
i. Awards for adopted or suggested innovations and cost saving measures, and
ii. Public awards for outstanding performance tax any field.
iii. Income specifically exempted from income tax by the law in force in Ethiopia, by international treaty or by an agreement made or
approved by the Minister.
iv. The revenue obtained by:
 The Federal, Regional and Local Governments of Ethiopia;
 The National Bank of Ethiopia from activities that are incidental to their operations shall be exempt from tax on Schedule C
income.
Example 1: Melat enterprise, unincorporated business has reported earnings before tax of birr 80,000 at the tax year ended Sene 30, 2015.
Required: A. Determine the amount of business income tax? B. Record necessary journal entries?
Solutions:
Business income tax = (80,000 x 10%) - 720
= 8,000-720
= 7,280
To record recognition of income tax expense;

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 World Bright College, Faculty of Business and Economics, Department of Accounting and Finance

Income tax expense ……………………7,280

Income tax payable ………………………. 7,280
To record payment of tax;
Income tax payable……………. 7,280
Cash …………………………………… 7,280
Example 2: Ato.Mesfin is the proprietor of a business. His P/L A/C for the period ended June 2004 is as follows.
Profit and Loss Account for the Period 1st December 2003 to 30th June 2004.
Particulars Amounts (in Birr)
Sales 100,150,200
Less - Cost of sales 87,300, 457
Gross profit 12,849,743
Transport service profit (loss) (420,102)
Add: other income 10,225
12,439,866
Expenses:
Administrative Expenses 100,068
Selling and distributing Expenses 2,042,322
Bank Interest and charges 34,217
Audit fees 27,000
Provision for stock obsolescence 41,987
2,155,564
Profit for the Year 10,284,302
Provision for Profit tax 3,600,000
6,684,302
Legal Reserve 60,640
Balance carried forward to balance Sheet 6,623,662
Note:
The following information are available from the records of the firm.
1. Gross Loss on consignment sales Birr. 81,491.
2. Vehicle rent overstatement Birr 6,700
3. Rental and general Expenses for sister company Birr 22,500
4. Advertise expenses include Birr 8,700 spent for sister company.
Required: Compute the adjusted business profit and tax liability of the firm for the year.
Particulars Amounts (Birr)
Profit as per the external auditors report 10,284,302
Add: Disallowed items
1. Gross loss on consignment sales 81,491
2. Vehicle rent overstatement. 6,700
3. Rental and General Expenses for sister company 22,500
4. Advertisement expense made for sister company 8,700
5. Provision for stock obsolescence 41,987
Adjusted profit 10,122,924
Tax Liability for the year at 35% = Birr 3,525,023.40
Example 3: The following information is obtained from Ama private limited company. The book value of a pool of computer in the
opening balance sheet of the tax period as of Hamle 1, 2015 was birr 150,000. During the year 2012:
 Ama bought data storage equipment for birr 75,000, software products for birr 50,000.
 The existing computer was upgraded and renewed for birr 12,000.
 Ama has also received Birr 15,000 as compensation from Haron computer, supplier, since some of storage equipment is not
functioning.
 Ama also sold two old computers and received birr 8,500.
Required:
1. Determine depreciation base of computer?
2. Determine depreciation expense of computer.
3. Record necessary journal entries.
Solution:
Beginning balance of book value ……………………………………………..……........... 150, 000
Add: Storage equipment ……………………………...75,000
Software product ………………………………. 50,000

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 World Bright College, Faculty of Business and Economics, Department of Accounting and Finance

Upgrading………………………………………. 12,000 137,000

Subtotal ……………………………………………………………………………… 287,000
Less: Compensation ……………………………………….. 15,000
Cash proceed from selling …...................................... 8,500 23,500
Depreciation base for tax ………………………………...............................………….. 263,500 (1)
Depreciation expense = 0.25x 263,500 = 65,875 (2)
Journal entries (3):
Depreciation expense of Computer ………………………... 65,875
Accumulated depreciation of Computer ……………………. 65,875
4.2.4. Schedule „D‟ Income: Other Incomes
Any income which is taxable under the 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 Schedule “D” Other Incomes.
The following incomes shall be chargeable to income tax under the Schedule-D:
Royalties (Article- 31)
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 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. It is taxable as follows:
Rate of tax: Royalties shall be liable to tax at a flat rate of flat rate of 5%
1. The amount of tax shall be withheld and paid to the Tax Authority by the payer. That is 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.
2. Where 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 (Article- 32)
The term “technical service” means 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 under this Article- 32.
Rate of tax: It is Taxable at a flat rate of 10%. The amount of tax shall be withheld and paid to the Tax Authority by the payer.
Income from Games of winning a Chance (Article- 33)
Every person deriving income from winning at games of chance (for example, lotteries, tom bolas, and other similar activities) shall be
subject to tax.
Rate of tax: It is Taxable at the rate of 15% except for winnings of less than 100 Birr.
a. The payer shall withhold or collect the tax and account to the Tax Authority in the manner provided in Article 67.
b. This tax is a final tax in lieu of income tax.
Dividends (Article- 34)
Every person deriving income from dividends from a share company or withdrawals of profits from a private limited company shall be
subject to tax under Article 34.
Rate of tax: It is Taxable at the rate of 10%
1. The withholding Agent shall withhold or collect the tax and account to the Tax Authority.
2. This tax is a final tax in lieu of income tax.
Income from Rental of Property (Article- 35)
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.
Rate of tax: It is Taxable at the rate of 15%. This tax is a final tax in lieu of a net income tax.
Interest Income on Deposits (Article- 36)
As per Article 36, every person deriving income from interest on deposits shall pay tax.
Rate of tax: It is Taxable at the rate of 5%
1) The payer shall withhold the tax and account to the Tax Authority in the manner provided in Article 67.
2) This tax is a final tax in lieu of income tax.

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Gain on Transfer of Certain Investment Property (Article- 37)

Income Tax shall be payable on gains obtained from the transfer (sale or gift) of property described in this Article at the following rates:
Rate of tax
a) building held for business, factory, office 15% (fifteen percent)
b) shares of companies 30% (thirty percent)
1) Gains obtained from the transfer of building held for residence shall be exempt.
2) 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 Ministers.
3) 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. 4) The value of the shares given in exchange under Sub-
Article
(4) shall be equal to the value of the original shares.
5) 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). 6) 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 affected in accordance with this Article.
Unexpected profit tax: this type of profit may be obtained arbitrary rather than the effort of the taxpayers and the tax rate will be specified
based on the nature of the profit by the minister.
Entertainment income tax: this type of tax is obtained from those foreign business firms that render entertainment services like football,
series film, and so on. The tax rate is 10% of the taxable income.
4.2.5. SCHEDULE „E‟ EXEMPT INCOME
According to article 65 of federal income tax proclamation number 979/2016 the exempted taxes are regulated differently named as
schedule E.
Exempt Income
1. The following amounts are exempt income for the purposes of this Proclamation:
a) Subject to the limits set forth in the directive to be issued by the Minister in regard to items specified under number (2), (3), (4) and (6)
of this paragraph following benefits provided to an employee:
1. an amount paid by an employer to cover the actual cost of medical treatment of an employee;
2. an allowance in lieu of means of transportation granted under a contract of employment
3. a hardship allowance;
4. transport expenses and per diem payments to an employee travelling on a tour of duty;
5. travelling expenses paid to an employee recruited from place other than the place of employment on joining or completion of
employment, including, in the case of a foreign employee, travel expenses from and to their country of origin, but only if the travel
expenses have been paid pursuant to specific provisions of the employee‟s contract of employment;
6. food and beverages provided for free to an employee by an employer conducting a mining, manufacturing, or agricultural business;
7. allowances paid by the Government of the Federal Democratic Republic of Ethiopia to employees engaged in public service in a foreign
country
b) allowances paid to members and secretaries of boards of public enterprises, public bodies, or study groups established by the Federal or
a State Government or City administration;
c) contributions by an employer to a pension, provident, or other retirement fund for the benefit of an employee provided the monthly total
of contributions does not exceed 15% of the monthly employment income of the employee;
d) a pension to the extent exempt from tax under the Public Servants Pension Proclamation or the Private Organization Employees' Pension
Proclamation;
e) an amount derived by the Federal, or a State or Local Government of Ethiopia, or the National Bank of Ethiopia, from activities that are
incidental to official operations;
f) an amount exempts from tax to the extent provided for under an international agreement;

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g) an amount exempt from tax to the extent provided for under a provision (referred to as an “exemption provision”) in an Agreement
entered into by the Government of the Federal Democratic Republic of Ethiopia when the following conditions are satisfied: (1) the
agreement is for the provision of financial, technical, humanitarian, or administrative assistance to the Government; and (2) the Minister
has concurred, in writing, with the exemption provision;
h) a public award for outstanding performance in any field or an award granted under Article 135 of the Tax Administration Proclamation;
i) an amount as compensation for personal injury or the death of another person;
j) subject to Article 59 of this proclamation, a cash amount, or the value of asset, acquired by gift or inheritance, other than a gift that is
employment, rental or business income;
k) a scholarship or bursary for attendance at an educational institution;
l) maintenance or child support payments;
m) the income of a non-profit organization other than business income that is not directly related to the core function of the organization;
n) a cash indemnity allowance paid by an employer to an employee, but only to the extent that the allowance compensates the employee for
shortfalls on money counts;
o) an amount that is specifically exempted from income tax under a law in force in Ethiopia;
p) salaries paid to domestic servants;
q) payments made by Contractors engaged in petroleum operations to their sub-contractors.
2. The Council of Ministers may, by regulations, exempt any income for economic, administrative, or social reasons.

4.2. Consumption Taxes

Taxes that are categorized under consumption taxes are VAT, TOT and Excise tax.
4.3.1. Value-Added Tax (VAT)
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.
Most business transactions involve 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.
The Value Added Tax would be levied at the rate of 15% of the value of:
 Every taxable transaction by a registered person;
 Every import of goods, other than an exempt import; and
 Import of services.
A person who carries on taxable activity and is not registered is required to file an application for VAT registration with the Authority if:
At the end of any period of 12 calendar months the person made , during that period, taxable transactions the total value of which
exceeded 500,000 Birr; or
At the beginning of any period of 12 calendar months there are reasonable grounds to expect that the total value of taxable
transactions to be made by the person during that period will exceed 500,000 Birr.
Registration procedure:
 A person applying to register for VAT is required to do so in such a form as is established by the implementation directives
issued by the Ministry of Revenue;
 When a person carrying out taxable transactions files an application to be registered for VAT, the Authority is required to register
the person in the VAT register, and to issue a certificate of registration within 30 days of the registration;
 A person registered for VAT is required to use his taxpayer identification number on all VAT invoices, and on all tax returns and
official communications with the Authority.
There is a VAT invoice prepared by the Ministry of Revenue containing the following information:
 Full name of the registered person and the purchaser, and the registered;
 Person‟s trade name, if different from the legal name;
 Taxpayer identification number of the registered person and the purchaser;
 Number and date of the VAT registration certificate;
 Name of the goods shipped or services rendered;
 Amount of the taxable transaction;
 Amount of the excise on excisable goods;

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 Sum of the VAT due on the given taxable transaction;

 Issue date if the VAT invoice, and
 Serial number of the VAT invoice.
The registered person is required to issue the VAT invoice to the purchaser of goods or services upon the supply or rendering, but not later
than 5 days after the transaction.
Record Keeping Requirement
A registered person or any other person liable for VAT under the proclamation shall maintain for 10 years in Ethiopia:
Original tax invoices received by the person;
Copy of all tax invoices issued by the person;
Customs documentation relating to imports and exports;
Accounting records; and
Any other records as may be prescribed by the Minister of Revenue by directive.
Administrative Penalties
The following penalties are imposed for violations of the VAT Proclamation:
 Where any person engages in taxable transactions without VAT registration where VAT registration is required; 100% of the
amount of tax payable for the entire period of operation without VAT registration;
 Where any person issued incorrect tax invoice resulting in a decrease in the amount of tax or increase in accredit or in the event
of the failure to issue a tax invoice; 100% of the amount of tax for the invoice or the transaction;
 Where a person who is not registered for VAT issues a tax invoice ; a penalty of 100% of the tax which is indicated in the tax
invoice and is due for transfer to the budget but has not been transferred; and
 Where a person fails to maintain records required; 2,000 Birr for each month or portion thereof that the failure continues.
A person who fails to file a timely return is liable for a penalty equal to 5% of the amount of tax underpayment for each month (or portion
thereof) during which the failure continues, up to 25% of such amount. The penalty is limited to 50,000 Birr for the first month (of portion
thereof) in which no return is filed. If any 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 is set at 25% over and above the highest commercial lending
interest rate that prevailed during the preceding quarter. The following types of supplies of goods (other than by way of export) or
rendering of services, as well as the following types of imports of goods are exempt from payment of VAT:
 Sale, transfer or the lease of a used dwelling;
 Rendering of financial services;
 Supply/import of national/foreign currency and of securities;
 Import of gold to be transferred to the National Bank;
 Rendering of religious organizations or church services;
 Import or supply of prescription drugs specified in directives issued by Minister of health, rendering of medical services;
 Educational services provided by educational institutions, or child care services for children at pre-school institutions;
 Supply of goods and rendering of services in the form of humanitarian aid, as well as import of goods transferred to state
agencies of Ethiopia and public organizations for the purpose of rehabilitation after natural disasters, industrial accidents,
and catastrophes;
 Supply of electricity, kerosene, and water;
 Goods imported by the government, organizations, institutions or projects exempted from duties and other import taxes to
the extent provided by law or by agreement;
 Supplies by the post office authorized under the Ethiopian Postal Services Proclamation, other than services rendered for a
fee or commission;
 Provision of transport; Permits and license fees;
 Supply of goods or services by a workshop employing disabled individuals if more than 60 % of staff are disabled;
 Import or supply of books and other printed materials.
Example: Assume you bought a product that has original cost (price purchase from supplier) Br. 10,000;
Required: Calculate the VAT amount and Net price of the product.
Solution: Tax amount (liability) = (Original Cost x VAT rate)/100
= (10,000 x 15)/100
= Br. 1,500
Net price = Original Cost + tax Amount
= 10,000 + 1,500
= Br. 11,500.
4.3.2. Turnover Tax
The Turnover Tax would be payable on goods sold and services rendered by persons not registered for Value Added Tax. The rate of
Turnover Tax is:
 2% on goods sold locally;

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 for services rendered locally: 2% on contractors, grain mills, tractors and combineharvesters; 10% on others.
The base of computation of the Turnover Tax is the gross receipts in respect of goods supplied or services rendered. 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. In accordance with the Turnover Tax Proclamation No. 979/2016, the following would
be exempted:
 Sale or transfer of dwelling used for a minimum of two years, or the lease of a dwelling;
 Rendering of financial services;
 Supply of national or foreign currency and of securities;
 Rendering by religious organizations of religious or other related services;
 Supply of prescription drugs specified in directives issued by the relevant government agency, and the rendering of medical
services;
 Rendering of educational services provided by educational institutions;
 Supply of goods and rendering of services in the form of humanitarian aid;
 Supply of electricity, kerosene and water; P
 rovision of transport;
 Permits and license fees;
 Supply of goods or services by a workshop employing disabled individuals (if more than 60% of the employees are disabled);
 Supply of books.
Assessment of the Tax
 If after review by the Tax Authority, it appears that a person has understated his tax obligation, the Authority can issue an
additional assessment;
 If, for any reason, the books of account are unacceptable to the Tax Authority, or if the tax payer fails to submit same when
requested by the Authority, or if no books of account and supporting documents are maintained, the Tax Authority would assess
the tax on the basis of information available;
 A presumptive turnover tax would be payable by Category “C” tax payers who are not required to keep records. The base for the
presumptive turnover tax would be the total turnover used as base for the income tax;
 The assessment made would be prepared in an assessment notification and be delivered to the taxpayer;
 If the Authority makes an additional assessment and within 30 days of notice the person assessed does not pay the additional
assessment or appeal the assessment the person is in default;
 If the Tax Authority fails to assess the tax and notify the taxpayer of the amount still due within five years from the date of
declaration and payment of the tax by the taxpayer the tax so paid would be final and conclusive. In case where the taxpayer has
not declared his income or has submitted a fraudulent declaration, no time limit provided in any other law shall bar the
assessment of the tax by the Tax Authority.
4.3.3. Excise Tax
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.
Objectives of Levying Excise Duty
Excise duty is a duty levied on commodity produced with in the country for sale or consumption within the country. The basic objectives of
excise duties are given below:
1. Raising revenue for economic growth
2. Discouraging consumption of non-essential goods
3. Discouraging consumption of certain essential goods
4. Levy of duties where direct taxation is not possible
5. Curbing inflationary trends in the economy
6. Promotion of small scale industries
7. Proper allocation of scarce resources
8. Provide assistance to industries in distress
9. Encouragement of exports
10. Equitable distribution of income and wealth
11. Recouping losses arising from assistance and subsidies to specified industries.
The excise tax would be imposed on goods imported or either produced locally in accordance with Excise Tax Proclamation
No.1186/2020.
The base of computation of Excise Tax is the fair value of production for goods produced locally and goods imported.
Obligations of the taxpayer:
 Maintaining books of accounts and supporting documents in accordance with proper accounting principles and in a manner
acceptable to the Tax Authority;
 Submit every 30 days to the Tax Authority, in a form which would be supplied by the Authority, a declaration containing the
necessary information for the proper collection of the tax;

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 Comply fully with the requirements of inspection of his premises by the delegates of the Tax Authority;
 Immediately communicate to the Tax Authority the type and address as well as the commencement and termination date of his
business;
 Pay in full the tax due within 30 days from the date of termination where such business is terminated.

4.4. Stamp Duty

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;
® Notarial acts;
® Power of attorney;
® Documents of title to property.
Time and Manner of Payment: The stamp duty would be paid:
1) The stamp duty would be paid:
On memorandum and articles of association, before or at the time of registration;
on awards, before or at the time of issuance of the award;
on contracts or agreements, before or at time of signature;
on leases or sub-leases, before or at the time of signature;
on notarial(attorney) acts, at the time of issuance;
on security deeds, before or at the time of signature;
On documents of title to property, before or at the time issuance is effected.
2) The payment of stamp duty
Under Birr 50 would be effected by affixing stamp of appropriate value to the instrument;
when the stamp duty exceeds Birr 50 or where the type and nature of instrument so requires, the Federal Government Revenue
Board may by directive provide;
that stamp duty be paid by means other than affixing stamp.
Tax rate
No. Instruments chargeable with stamp duty Basis of Rates of Stamp Duty
Valuation
1. Memorandum and articles of association of any business
organizations, or any association:
 upon 1st execution Flat Br.350
 upon any subsequent execution Flat Br.100
2. Memorandum and articles of association of cooperatives:
 upon 1st execution
 upon any subsequent execution Flat Br.35
Flat Br.10
3. Award On value  determinable value; 1%
 un determinable value; Br. 35
4. Bonds On value 1%
5. Contracts and agreements and Memoranda Flat Br. 5
6. Security deeds On value 1
7. Collective agreement:
 on 1st execution Flat Br. 350
 on any subsequent execution Flat Br. 100
8. Contract of employment Salary 1%
9. Lease including sub-lease and transfer thereof On value 0.5 %
10. Notarial act Flat Br. 5
11. Power of attorney Flat Br. 35
12. Register title to property On value 2%
Penalty
Any person
 Executing or signing, otherwise than as a witness, a document chargeable with stamp duty without the same being stamped,

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 Who, with intent to defraud the appropriate payment of duty, conceals facts bearing on the true nature of any instrument, shall be
liable on conviction to a fine not less than Birr 25,000 and not exceeding Birr 35,000 and to rigorous imprisonment for a term not
less than 10 years and not more than 15 years.
 Any person who: Appointed to sell stamps or stamped papers, disobeys regulations issued under this proclamation; or
 Not so appointed, sells or offers for sale stamps or stamped papers; shall be liable on conviction to a fine not less than Birr 5,000
and not exceeding Birr 20,000 and to rigorous imprisonment for a term not less than 5 years and not more than 10 years.
Exemptions
® The Ministry of Revenue may for good cause grant exemption from payment of stamp duty;
® Public bodies on which the Federal Government of Ethiopia Financial Administration Proclamation No. 57/1996 applies
shall be exempt from payment of stamp duties;
® Goods imported for sale by traders having import license shall be exempt from payment of stamp duty when first registered
in the name of the trader;
® Documents may be exempted from the payment of stamp duty in accordance with international agreements and conventions
approved by the Government;
® Subject to reciprocity, the Minister may grant embassies, consulates and missions of foreign states exemption from payment
of stamp duty; Share certificates shall be exempt from stamp duty payable on the register of title of property.

4.5. Custom Duties (Import and Export taxes)

Customs taxes, also known as tariff duties, are classified into import duties and export duties. Import duties are imposed on imported
articles and are collected from the importers at the time foreign goods enter the country. Import duties may be levied to:
(a) discourage the import of particular commodities which compete with locally produced goods - such import duties are called protective
duties; and
(b) to raise revenue for the Government - known as revenue duties.
But it should be remembered that even protective duties will bring in revenue for the Government. The protective tariff duty will generally
be at a high rate so as to impose a price disadvantage upon the imported goods.

4.6. Categories of Taxpayers

Taxpayers are classified into the following three major categories:
1) Category “A” Taxpayers
2) Category “B” Taxpayers
3) Category “C” Taxpayers
1. Category “A” Taxpayers
This category of taxpayers includes:
a) Any company incorporated under the laws of Ethiopia or in a foreign country;
b) Any other business having an annual turnover of Birr 1,000,000 or more.
Category “A” taxpayers are required to submit to the Tax Authority, at the end of the year, a balance sheet and a profit and loss statement
and the following details:
a) Gross profit and the manner in which it is computed;
b) General and administrative expense;
c) Depreciation expense; and
d) Provisions and reserves.
In addition, these taxpayers should register with the Tax Authority the type and quantity of vouchers they use before having such vouchers
printed.
Any printing press before printing vouchers of taxpayers shall ensure that the type and quantity of such vouchers is registered with the Tax
Authority.
Note: (1) the tax declaration period for category “A” taxpayers are after 4 months of the end of the fiscal period; i.e., up to Tikmet 30.
(2) The amount tax will be assessed based on books of accounts.
2. Category “B” taxpayers
Unless already classified in category “A”, any business having an annual turnover of over Birr 500, 000 and less than Birr 1,000,000 would
be classified under Category “B” taxpayers. This category of taxpayers should submit to the Tax Authority only profit and loss statement at
the end of the year.

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Note: (1) the tax declaration period for category „‟B‟‟ taxpayers is after 2 months of the end of the fiscal period; i.e., up to Pagume 5 or 6
(2) The amount tax will be assessed based on books of accounts.
3. Category “C” Taxpayers
Unless classified in Categories “A” and “B”, those businesses whose annual turnover is estimated up to Birr 100, 000 are classified under
this category of taxpayers.
Note: (1) the tax declaration period for category „‟C‟‟ taxpayers is after 1 month of the end of the fiscal period; i.e., Hamle 30.
(2) The amount of tax will be assessed by estimation.

4.7. Tax penalty

Penalty for Late Filing or Non-Filing (Article-86)
A taxpayer who fails to file a timely tax declaration is liable for a penalty equal to:
(a) 1,000 Birr for the first thirty (30) days (or part thereof) the declaration remains unfilled);
(b) 2,000 Birr for the next thirty (30) days (or part thereof) the declaration remains unfilled);
(c) 1,500 Birr for each thirty (30) days (or part thereof) thereafter that the declaration remains unfilled.
Penalty for Understatement of Tax (Article-87)
1) 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% (ten per cent) of the understatement or 50% (fifty per cent) if the understatement is considered substantial in accordance
with Sub-Article (2) of this Article).
2) The understatement is considered substantial if it exceeds the smaller of the following two amounts:
(a) twenty-five percent (25%) of the tax required to be shown on the return; or (b) 20,000 Birr.
3) 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 (Article-88)
A taxpayer who fails to pay tax liability on the due date is subject to:
(a) a penalty of 5% (five percent) of the amount of unpaid tax on the first day after the due date has passed: and
(b) an additional 2% (two percent) of the amount of the tax that remains unpaid on the first day of each month thereafter.
Penalty for Failure to keep Proper Records (Article-89)
1. 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.
2. If the Tax Authority finds that a taxpayer has failed for two consecutive tax year, to keep proper books of account, records, and other
documents:
(a) the licensing authority shall forthwith suspend the taxpayer‟s license on notification by the Tax Authority;
(b) if in a subsequent year, the Tax Authority again finds that the taxpayer has failed to keep proper books, records and documents, the
licensing authority shall revoke the taxpayer‟s license on notification by the Tax Authority;
(c) A finding by the Tax Authority that the taxpayer‟s failure justifies notification of the licensing authority for purposes of suspension or
revocation of the taxpayer‟s license shall for all purposes of this Proclamation be treated as an assessment and notification may not be sent
to the licensing authority until the Tax Authority‟s finding is final.
Penalty for Failure to Withhold Tax (Article-90)
1) A withholding agent who fails to withhold tax in accordance with this Proclamation is personally liable to pay to the Tax Authority the
amount of tax which has not been withheld, but the withholding agent is entitled to recover this amount from the payee.
2) The tax withholding liability imposed by this Proclamation shall be treated as a tax liability for purposes of any Article providing
taxpayers with the right to contest the amount of tax due or to recover tax paid.
3) In addition to any amount for which a withholding agent is liable under Sub-Article (1), an agent who fails to withhold tax in accordance
with this Proclamation shall be liable for a penalty of 1,000 Birr for each instance of failure to withhold the proper amount.
4) A penalty of Birr 1,000 is imposed on the following individuals:
(a) a manager who knew or should have known of the failure described in Sub-Article (1);
(b) a chief accountant or another senior officer who is responsible for supervision or control of withholding procedures and who knew or
should have known of the failure described in Sub-Article (1), or whose improper supervision failed to prevent it.

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Penalty for Failure to Meet TIN Requirements (Article-91)

Taxpayers failing to meet the requirements for TIN are subject to the following penalties:
1. a withholding agent who makes a payment to a person who has not supplied a TIN is required to withhold thirty percent (30%) of the
amount of the payment.
2. A taxpayer who has not supplied the TIN to the withholding agent, in addition to what is stipulated under Sub-Article (1) of this Article
is liable to pay a fine of 5,000 Birr or the amount of the payment, whichever is less.

4.8. Appeal Procedure

Review Committee (Article-104) Members of the Review Committee shall be appointed by the Minister of Revenue or the competent
authority of the regional government, as appropriate, upon the recommendation of the head of the Tax authority.
Powers and Duties of Review Committee (Article-105)
1) The Review Committee shall be accountable to the head of the Tax Authority and shall have the following duties:
(a) to examine and decide on all applications submitted by tax payers for compromise of penalty, interest, and waiver of tax liability;
(b) to gather any written evidence or information relevant to the matter submitted;
(c) to summon any person, who directly or indirectly has dealt with the assessment, to appear before it for questioning him about the case
under its investigation; and
(d) to review determination made by the Tax Authority for accuracy, completeness, and compliance with this Proclamation.
2) The Committee shall only review applications submitted to it within 10 days of receipt of tax assessment notification
3) The Head of the Tax Authority may approve the recommendations or remand the case, with his observations, to the committee for
further review.
Right of Appeal against Assessment of Income (Article-107)
1) Any taxpayer who objects to an assessment may appeal to the Tax Appeal Commission (hereinafter referred to as the “Appeal
Commission”) upon the fulfilment of the requirements hereunder.
2) No appeal shall be accepted by the Appeal Commission, unless:
(a) A deposit of thirty-five percent (35%) of the disputed amount is made to the Tax Authority; and
(b) The appeal is lodged with the Appeal Commission within thirty (30) days following the day of receipt of the Assessment Notice or from
the date of decision of the Review Committee.
Decision of Appeal Commission (Article-111)
1) After reviewing the case, the Appeal Commission shall issue a written decision setting out the TIN of the appellant and the date of
decision, the names of the panel members and the panel‟s chair person, and a statement of the decision.
2) The statement of the Commission‟s decision shall include:
(a) the holding (whether the appellant‟s claim is justified and accepted partly or wholly, whether the claim is remanded with instructions to
the tax Authority; and the amount the appellant is required to pay, if any, and other necessary details of appellant‟s liabilities);
(b) the factual findings, citation to the applicable law, legal interpretation, a conclusion on each relevant issue presented; and any dissenting
opinion.
(c) a summary of the appellant‟s appeal rights.
3) The decision shall be signed by the panel members present, and the Seal of the Appeal Commission shall be affixed thereon.
4) The Appeal Commission may decide ex-part where:
(a) any appellant fails to give counter reply when necessary, or to appear before it on two occasions, after lodging appeal; or
(b) the Tax Authority, after receiving the memorandum of appeal, fails to give reply or to appear before it on two occasions.
Appeal from Decision of Appeal Commission (Article-112)
1. 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 of receipt of the written decision of the Appeal Commission.
2. The court of appeal shall hear and determine any question of law arising, on appeal and shall, after reaching its decision thereon, return
the case to the Commission.
3. An appeal to the next court of appeal from the decision of the lower court of appeal may be made by either party, within thirty (30) days
of the decision of the lower court of appeal.

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 World Bright College, Faculty of Business and Economics, Department of Accounting and Finance

4. A taxpayer‟s appeal shall not be accepted by the court unless at the time the appeal is lodged, the taxpayer has paid the tax liability
determined by the Appeal Commission.
Establishment of Appeal Commission (Article-113)
1. The following Tax Appeal Commissions shall be established:
(a) Federal Appeal Commission, at the Federal level;
(b) Regional Appeal Commission, in each Regional Government town;
(c) Zonal Appeal Commission, in each Zonal town; and
(d) Woreda Appeal Commission, in each Woreda Administrative town.
2. Notwithstanding the provisions of Sub-Article (1), if the Regional Government finds it unnecessary to have a separate Appeal
Commission at any of the above mentioned levels, it shall make an arrangement in such a way that such areas may be covered by the
Appeal Commission established in the neighboring locality.
3. The Federal Appeal Commission shall be accountable to the Minister of Justice;
City administration, appeal commissions to the executive organs of city administration, region, zone woreda, as the case may be.
Appointment of Members ((Article-114)
1) Members of Appeal Commission at every level shall be appointed from among persons having good reputation, acceptability, integrity,
general and professional knowledge, and from among persons who have not committed any offense in connection with tax and tax
administration.
2) The Minister of Justice or executive organs of city administrations and regions, as the case may be, shall issue directives setting out the
criteria to be applied in the selection, appointment and composition of members of Appeal Commissions.
3) On the basis of said directive members of the appeal commissions and panels shall be selected and appointed by the Minister of Justice
or the appropriate city administration, regional, zonal or woreda executive organ, as the case may be.
4). The Appeal Commission‟s President shall be appointed by appropriate entities listed under Article 113(3) above.
5. Each Appeal Commission may have more than one (1) panel. In such cases each panel shall have five (5) members and shall elect one
(1) member to serve as Chair person.
6. The person term of office of an Appeal Commission member shall be two (2) years. A member appointed to chair an Appeal
Commission or a panel shall serve in that capacity for two (2) years or the remaining period of that other member‟s term if he is a
substitute.
7. The Chairperson and other members of the Commission shall be entitled to receive such attendance fees for sitting on panels as shall be
fixed from time to time by the Minister or the Executive body of the Region, as appropriate.
Powers and Duties of Appeal Commission and of its Chairperson (Article-115)
1. The Appeal Commission shall have the authority:
(a) to confirm, reduce, or annul any assessment appealed against on the basis of established factual grounds and the law, and make such
further consequential order thereon as may seem just and necessary for the final disposition of the matter;
(b) to instruct the Tax Authority or the taxpayer to submit new facts, if any; and
(c) to order the Tax Authority or the taxpayer or any other person or governmental department or agency, as the case may be, to produce
supporting evidence relevant to the taxpayer‟s allegation.
2. An Appeal Commission‟s Chairperson shall:
(a) Make preliminary examination of memoranda of appeal;
(b) Prepare the agenda for the panel;
(c) Preside over and guide the proceedings;
(d) Ensure that the arguments are properly recorded in the minutes and that the decision conforms to the prescribed form; and
(e) Submit an annual report about the accomplishment (performance) of the commission he presides over.

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