Turnover tax is charged under the turnover tax proclamation at a rate of 2% on the supply of goods and. Turnoverbased presumptive taxation ethiopia ids opendocs. As per the proclamation, the tax rates are as follows. To implement its presumptive tax, the ethiopian revenue and customs authority erca carries out an assessment process to estimate the income earned by small informal sector firms. According to proclamation no 28694 any person whose permanent residence is in ethiopian, has to pay tax from the income that he gets within ethiopia or abroad. The survey is conducted as part of the tax administration component of the wbg ethiopia investment climate program. Turnover tax rate, computation, obligation and exemption in. For example, when manufacturing activity is completed, a tax may be charged on some companies. Short title this proclamation may be cited as the tax administration proclamation no. The government considers,for administrative feasibility and other reasons, persons whose annual taxable transaction exceeds 500,000 to be registered for vat. Vat revenue performance and its neutrality and efficiency are also the reasons for superiority of this tax in contrast to other common tax instruments such as the turnover tax. Mamo mihretu, program manager at wbg, coordinated the overall work and program. If the person is not resident of ethiopia gets his income which has its source in ethiopia also should pay tax.
Category a includes any company incorporated under the tax law of ethiopia or in or a foreign country and other entities having annual turnover of birr 500,000 and more. The revised draft income tax proclamation, drafted by the ministry of finance and economic cooperation mofec and ethiopian revenue and customs authority ecra, proposed a revision of the exemption threshold and the tax rates applied. Employers must withhold the tax from each payment to an employee and pay the tax over to the tax authorities for each month. A turnover tax is similar to vat, with the difference that it taxes intermediate and possibly capital. The major tax reforms in ethiopia occurred in the 1940s, in the aftermath of the ethiopian revolution of 1974, after the fall of the derg in 1991 and most recently in the 2002 tax reforms.
Turnover tax is a simplified tax system only available to sole proprietors, partnerships, companies or close corporations with a qualifying turnover of less than r1m per year. Business profit schedule c tax rates, calculation, rates. As per income tax proclamation no 9792016, here are the business profit tax rates in ethiopia. File a turnover tax return with the tax authority with one month after the end of every accounting period.
The study focused on value added tax administration at bishoftu town. Official pdf, 80 pages world bank documents world bank group. It seizes and takes legal action on the people and vehicles involved in the act of smuggling while it facilitates the legitimate. This study was restricted on bishoftu town vat registered business those who have annual sales turnover of birr 500,000 and above. Employment income is one of the most well known forms of tax in ethiopia. On march 12, 2019, the government of ethiopia enacted a new law on civil society organizations csos.
Senior police officers enhance knowledge on humanitarian principles ethiopia. Those who are categorized under a have to maintain all records and accounts which will enable them to submit a balance sheet and profit and loss account. Ethiopian legal information portal find laws, cases. The turnover tax system replaces income tax, vat, provisional tax, capital gains tax and dividends tax for micro businesses with a qualifying annual turnover of r.
The tax laws which are expected to come into force any time in 2016 are a new income. Pdf business peoples views of paying taxes in ethiopia. Ethiopian tax research network library resources on topics related to taxation in ethiopia, ranging from tax policy to tax administration, and from academic papers to practical case studies following the third international financing for development conference, the united nations general assembly endorsed the addis ababa action agenda. The turnover tax system replaces income tax, vat, provisional tax, capital gains tax and dividends tax for micro businesses with a qualifying annual turnover of r 1 million or less. Pay the tax for every accounting period by the deadline for filing the turnover tax return. What is the turnover tax who is considered taxpayer for the turnover tax on what is the turnover tax levied what is. However, employee turnover studies were conducted in ethiopia by the researchers on different sectors. Chapter 12, presumptive taxation 1 12 presumptive taxation victor thuronyi. This page contains turnover tax rate in ethiopia, base of computation obligation, and exemption from tot in ethiopia. The south africa turnover tax system, implemented on 01 march 2009 to. Presumptive income tax assessment of smes in addis ababa. List of taxes imposed on business companies operating in. Uncorporate or individual businesses are taxed in accordance with the following schedule below. This brochure contains information about the turnover tax.
Customs duties, valueadded tax, and turnover tax d. According to the federal income tax proclamation no. Turnover tax rate, computation, obligation and exemption in ethiopia. Definitions in the tax laws including this proclamation, unless the context otherwise. Whereas, it has become necessary to amend the turnover tax proclamation no. Federal turnover tax law of 2002 to collect turnover taxes. This is the tax imposed on the taxable business income net profit realized from entrepreneurial activity. The aim of the study will generally, to assess the main problem relating to vat administration and vat payers in bishoftu town. In addition to raising revenue, the mor is responsible to protect the society from adverse effects of smuggling. Setting up your business in ethiopia issues to consider employees contribution 7% it is the employers legal responsibility to pay over employees tax and pension deductions to the ethiopian tax authorities with in 30 days following the end of the month of pay. This is not a significant omission, as the federal government has had an. The international centre for tax and development ictd is a research network improving the quality of tax policy and administration in subsaharan africa.
This redistribution is controlled by the relative needs of the various provinces and the amount of revenue collected. This tax rate is on the gross salesturnover and is a final tax. Ethiopia tax rate for 20162017, 20152016, 20142015 ethiopia income tax rate 20152016. The corporate income tax tax on profit in ethiopia is 30 per cent. A turnover tax is similar to vat, with the difference that it taxes intermediate and possibly capital goods. Chapter four will be devoted to cover turnover tax and related concepts. Vat has also become an indispensable component of tax reforms in developing countries. For unincorporated or individual businesses the business income tax ranges from 10% 35 %. A 2 per cent tax is payable from supplying of goods to the local market and rendering of construction, grain mill, tractor, combine harvesting services undertaken in the country. Pdf on jan 1, 2015, girma alem getie and others published assessment of factors affecting turnover intention among nurses working at governmental health care institutions in east gojjam, amhara. They are subjected to presumptive tax, based on a percentage of turnover. The study has attempted to examine the impact of tax audit on tax compliance in ethiopia, at federal level by using secondary macro data. Ethiopias transition to democracy has hit a rough patch. In this folder you will find answers to question such as.
An ethiopian tax and customs law is characterized by frequent repeal and amendments. Similarly, for those persons who are not registered for vat, it is necessary to impose obligation of taxation. Accordingly, the material deals with the following. Turnover tax rate, computation, obligation and exemption. The burden of tax compliance expressed in terms of average tax. A number of different types of presumptive methods exist in different countries. Ethiopia tax rates for 20162017, 20152016, 20142015. Turnover tax is a simplified system aimed at making it easier for micro business to meet their tax obligations. Now, therefore, in accordance with article 55 1 and 11 of the constitution of the federal democratic republic of ethiopia it is hereby proclamimed as follows. These types of entities are called micro businesses. Ethiopian ministry of revenues mor is the body responsible for collecting revenue from customs duties and domestic taxes. It works with african partners to collaboratively generate policyrelevant research and build african research capacity in the area of taxation. Ethiopia to amend income tax proclamation a new draft bill has been prepared to amend the existing income tax proclamation.
The informal economy is just one of many concerns that affect tax policy. Ethiopias tax reform program has introduced vat since january, 2003. This is direct tax, which a person pays from any income he gets. Elizabeth meyo, the commissioner of domestic taxes at the kenya revenue authority kra, states that from january 2020, if one operates a salon, butchery, or grocery store, you will be required to declare your sales online and pay the taxes on the 20th of each month. Summary the federal democratic republic of ethiopia has a federal government system and follows the civil law tradition. The following is the progressive rate table for monthly employment income. The health and education taxes, and the two provincial taxes, are later reallocated to the provinces for their own use. Pdf assessment of factors affecting turnover intention. It is an indirect tax, typically on an ad valorem basis, applicable to a production process or stage. The turnover tax rate is 2 percent on goods sold locally.
For example, asmamaw 2011 explores the professional employees turnover and retention practice in ethiopian public sector and organization of ministries of finance and economic development. Turnoverbased presumptive taxation and taxpayers perceptions in ethiopia. A word or term in these regulations shall have the same meaning that it has in the. Chapter one introduces students to the basic concepts, principles and underlying assumptions of the many tax laws of ethiopia at present. Corporate businesses are required to pay 30% flat rate of business income tax.
Setting up your business in ethiopia issues to consider. The coordinating committee of the armed forces, police, and territorial army commonly referred to as derg, which is a socialist government that was in power until 1991. The survey on the taxation of small and mediumsized. In 20089 fiscal year, employment income tax amounting to 1. A 10 per cent tax is payable on other sectors excluding the above mentioned services. As the name implies, turnover tax is a type of tax, which is calculated against the turnover of a business, as opposed to a percentage. Accordingly, this teaching material tries to address, even though briefly, the basic component of tax law, especially in ethiopia. Turnover tax does not apply to rental income, management or professional fees or. Turnover tax turnover tax is charged under the turnover tax proclamation at a rate of 2% on the supply of goods and services relating to contractors, grain mills, tractors and combine harvesters and at a rate of 10% on other. The principal taxes that affect businesses in ethiopia are income taxes, value added tax vat, turnover tax. It needs support from abroad ethiopias first female chief justice. The turnover tax is an indirect tax that applies to business organizations whose annual transactions fall below the 500,000 birr threshold of the vat proclamation.
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