In 1987 addis ababa taxed all exports at 2 percent and levied an additional export duty and a surtax on coffee. Taxes are levied in almost every country of the world, primarily to raise revenue for government expenditures, although they serve other purposes as well. Jul 08, 2016 new salary income tax in ethiopia as of the new budget year, which starts at hamle 2008 e. Accordingly, the material deals with the following. It will start with a brief look at the history of income taxes in ethiopia and will go on to look at different concepts and definitions involved in income taxation. Pdf public finance and taxation yonas moges academia.
How employers can determine the tax to be withheld. The direct and indirect taxes applicable in ethiopia. Our view corresponds closely to that of blough 1952, p. Ethiopia is an ancient2 and the oldest continuously sovereign nation in the world3 with a recorded history of three thousand years.
So an individual foreigner, who lives in ethiopia for more than 183 days in a period of twelve calendar months, whether continuously or intermittently, is regarded as being resident for the entire tax period and is taxed in accordance with the provisions of income tax proclamation no. Economists who have studied taxation and development have tended to see the evolving economy as the driving force behind the governments approach to taxation. To align the ethiopian system with the inte rnational trend towards indirect taxes, the. Pdf taxes and tax reform in ethiopia, 19902003 researchgate. Chapter 16, taxation of income from business and investment 2 ii. Ethiopian tax administration download ebook pdf, epub. It is tax policy in action, not simply the wording of the statute, that determines how much the taxpayer must pay, and the effects of the payment. Feb 16, 2016 liberal delegations coupled with dearth of avenues to challenge the delegation of taxing power have continually put legality principle of taxation on the brink of porosity. Accordingly, this teaching material tries to address, even though briefly, the basic component of tax law, especially in ethiopia. The current fiscal system of ethiopia features some departures from the previous systems and striking continuities in the structure and essential elements of fiscal. Performance and prospects of tax collection in ethiopia undp. This article argues that the issue of legality principle of taxation is left ajar to derail in ethiopia. However, as part ii demonstrates, reforms in rwanda and ethiopia have achieved. Introducing modern taxation system oct 04, 2012, ethiopian press agencythe ethiopian revenue and customs authority erca announced friday that etax training and implementation for a number of taxpayers is well underway.
The direct and indirect taxes applicable in ethiopia fikadu. Because of a policy of encouraging new capital investment, the government exempted capital. This study is highly motivated by the recently adjusted rate of the daily presumed income on businesses is the cause of the dispute between the business community and the ethiopian revenue and customs authority erca. The ethiopian income tax system is schedular in structure and orientation, the. In ethiopia, employers can determine the tax to be withheld by following 3 key steps. Value added tax part of their tax system, and from 53 member of countries of african union 33 of them introduced value added tax as their tax system wotku, 2008. Taxation is the system by which a government takes money from people and spends it on. In order to impose a heavier tax burden on those employees who earn more, the government uses a progressive employment income tax system.
Ethiopia used income taxes as one of the principal sources of domestic government revenue since the beginning of modern taxation in the 1940s. In line with this change, a series of tariff and tax reform measures have been taken. Walter hellerstein abstract this paper gives an overview of the indian tax system and discusses the challenges in tax collection faced by developing economies using india as a model. Acknowledgements the customs guide is developed as part of the world bank groups wbg ethiopia investment climate program. Ethiopian customs guide ethiopian revenues and customs authority march 2017.
Vat replaces the old business tax system of commodity and service taxes including the sales tax and the withholding tax. A tax is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to. Tax is a compulsory payment made by an individual or a corporate establishment legal entity to the government. Official pdf, 80 pages world bank documents world bank group. The new income tax in ethiopia new income tax calculations. However, we will argue that this standard economic view needs to be augmented by an understanding of how political incentives shape the evolution of the tax system.
Tax on income from employment has 6 bands or groups of rates. Business income the characterization of an amount as business income is important in both schedular and global income tax systems. As of the new budget year, which starts at hamle 2008 e. Jun 19, 2019 in this article, we look at the ethiopian tax system, types of taxes in ethiopia applicable to everyone. In preparation of that, we present in the following some principles. Direct tax 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. A study on assessment of tax administration system on. The government undertook a significant reform on its income tax system in the year 2002 and. James otis the art of taxation consists in plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing. Taxation refers to compulsory or coercive money collection by a levying authority, usually a government. Import taxes included customs duties and a 19 percent general import transaction tax. Ethiopia is one of the fastest developing countries situated in the northeastern corner of africa.
Double taxation agreement between india and ethiopia. Ethiopia introduced value added tax vat in the year 2003 as a replacement to. The implementation of presumptive tax in ethiopia the. C the ministry of finance and economic cooperation mofec has announced this new tax proclamation. To determine the tax to be withheld, the employer may use a simple calculation method. A tax is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority. Taxation, imposition of compulsory levies on individuals or entities by governments. Ethiopian taxation system is very important for raising income of the government. Using the url or doi link below will ensure access to this page indefinitely. Jul 15, 20 the government levied taxes on exports and imports. Tax regulations in ethiopia details written by administrator published on 30 april 2008 category. Income taxation in ethiopia it has been in constant revision. The challenges of tax collection in developing economies with special reference to india by pramod kumar rai under the direction of prof. Taxation in ethiopia in ethiopia a company, based on its activities may be required to pat the following taxes.
The principal taxes currently in place are company profit tax, turn over tax valueadded tax vat, excise tax, customs duty, income tax from employment and income tax from business. In ethiopia, according to imf 2003, one of the focuses of the tax policy reforms is reforming indirect taxation. At the state of porosity or its nonexistent from inception. Taxation in ethiopia direct and indirect taxes categories of tax payers declaration of income and assessment of taxes tax incentives addis ababa 12005. Determinants of tax revenue of countries, as measured by tax to gdp ratio. A poorly designed tax system, where the rules and their application are nontransparent, overly complex or unpredictable, may discourage investment adding to. This paper investigated empirical evidence on contributions of tax revenue for economic growth of. This site is like a library, use search box in the widget to get ebook that you want. The term taxation applies to all types of involuntary levies, from income to capital. According to the above tax rate schedule, employees who earn up to 150 birr a month are below the threshold for paying employment income.
While a real system of business income taxation is based on actual income less expenses, presumptive tax regimes imply procedures under which the desired tax base is not itself measured but is inferred from some simple indicators turnover, assets, farm size, shop size, etc. Value added tax administration in ethiopia unsw business school. Chapter 6 direct and indirect taxes a tax may be defined as a pecuniary burden laid upon individuals or property owners to support the government, a payment exacted by legislative authority. At the contemporary periods, ethiopiaas economic growth transformed from single to double digit. College of business and economics, arba minch university, ethiopia abstract taxation is a system of raising money to finance government. The basic principles of taxation are nearly as old as human societythe history of taxes stretches thousands of years into the past. The main goal of introducing the presumptive tax system is to provide tax payers with equitable, efficient, quality services and bringing. This payment is usually a small percentage of a total earning, made to assist the government in offsetting its.
The easily earned income must be taxed more than the hard earned money. If the amount of tax shown on a declaration understates the amount of tax required to be shown, the taxpayer is liable for a penalty in the amount of 10% of the understatement or 50% if the understatement is considered substantial. This should be borne in mind when we undertake research in a more adequate and just taxation system as well for our three countries. No one has ever looked at the ethiopian tax system as a whole not as legal. C the ministry of finance and economic cooperation mofec has announced this new tax proclamation the new income tax proclamation has employees and low earners at its benefiters. The government undertook a significant reform on its income tax system in the year 2002 and issued income tax proclamation no. Taxation definition and meaning collins english dictionary. In a moment of dismissive hubris, the ethiopian tax system may be described as a loose. In the case of a business located and operating in ethiopia as the branch, subsidiary or associated company of a business located and operating abroad, no payment of any kind made to the holding or associated company of the business in ethiopia shall be accepted as deduction from gross income in calculating the taxable income unless. Does the presumptive taxation system fulfill the principles.
It is an important and most significant source of revenue of the government. Several ancient civilizations, including the greeks and romans, levied taxes on their citizens to pay for military expenses and other public services. Taxation papers are intended to increase awareness of the work being done by the staff and to seek comments and suggestions for further analyses. Currently, in ethiopia revenue collected from tax is increasing due to improvement in tax collection methods and decrease evasion.
Tax this page presents links to guide you on types of taxes, tax rates, exemptions, tax filing procedures and other information you need when you start up a business as a selfemployed person, a partnership or a limited company. The tax system of ethiopia by peter schwab in 1966 emperor haile selassie i of ethiopia promulgated by executive decree a new tax law. Taxation papers are written by the staff of the european commission s directorategeneral for taxation and customs union, or by experts working in association with them. The vat rate is 15 percent of the value of every taxable transaction by a registered person and all imports of goods and services other than those vat exempted items in ethiopia. System of division of revenue in ethiopia alefe abeje belay lecturer, bahir dar university, ethiopia abstract in addressing the issue of the allocation of revenue raising powers, the main question is the taxation power distributed between the tiers of government in a federal system.
Chapter two will introduce the students to the income tax in ethiopia. The employees income tax system divides taxable income into different tax bands. Public finance and taxation in ethiopia pdf in a moment of dismissive hubris, the ethiopian tax system may be. In this article, we look at the ethiopian tax system, types of taxes in ethiopia applicable to everyone.
Below is a schedule that specifies tax bands and their tax rates. The potential of property taxation in africa is something that governments in the region and their international development partners are increasingly aware of. These are a range of income bands with different tax rates. The principal taxes currently in place are company profit tax, turn over taxvalueadded tax vat, excise tax, customs duty, income tax from employment and income tax from business. Taxation is important mechanism that boosts countryas economic level.
Though there is no constitutional distinction between bills subject to parliamentary legislation and those subject to executive declaration, parliamentary ratification has been, and continues to be. Knowledge of the statute is only a start in knowing a tax system. The purpose of this article is to strike discussion on legality principle of taxation in ethiopian context taking jurisprudence sprout and historical emergence of the legality. Ethiopia is one of the poorest countries in the world, with a per capita gross national income. The agony of tenants under the traditional tax system of ethiopia is. A good tax system follows the principles of efficiency, fairness and easy to administer. The challenges of tax collection in developing economies. Apr 11, 2011 taxation in ethiopia in ethiopia a company, based on its activities may be required to pat the following taxes. Taxation in ethiopia download ebook pdf, epub, tuebl, mobi. Click download or read online button to get taxation in ethiopia book now. Chapter one introduces students to the basic concepts, principles and underlying assumptions of the many tax laws of ethiopia at present. Click download or read online button to get ethiopian tax administration book now. Alekaw dargie taxation without representation is tyranny.
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