Tax Administration For 2nd Year 1st Semester

CHAPTER ONE:INTRODUCTION
 Tax is a pervasive element of economic life around the world. The principal objective of tax is to
provide revenue to finance government activities..
 The present day Federal Democratic Republic of Ethiopia is a country of different languages and
distinct ethnic cultures. The Republic consists of nine member states namely Tigray, Afar,
Amhara, Oromiya, Somali, Benishangul/ Gumuz, Southern Nations Nationalities, Gambela, and
Harare. The form of government is parliamentary having both Federal and state governments
with legislative, executive, and judicial powers.
 The political system of Ethiopia has undergone many changes from ancient history. After many
years of ruling by different emperors and 17 years of military ruling, in 1991, Ethiopia stepped
into democracy and federalism. The changes in political structure over these years necessitated
changes in policies and other structures. Consequently, tax policies have undergone many
changes overtime.
1.1. Historic Background of Tax
 The levy of tax has crossed over various stages to reach the present state. Prof. E.R.A. Seligman
has listed out the stages of development in this regard. We can understand the development in
the levy of taxation from the following diagram:
Taxation in Ancient Time
 In the ancient civilizations of Palestine, Egypt,Assyria, and Babylonia, individual property rights
did not exist.
 The king was the sole owner of everything in his domain, including the bodies of his subjects.
Thus, instead of taxing individuals to support the government, the king could simply force them
to work for him. Ancient kings earned income in the form of food from their lands and precious
metals from their mines. If this income did not meet the kings’ demands, they might lead their
armies into neighboring countries to confiscate their property. In societies that operated without
money, the rulers taxed farmers by requiring that they handed over some proportion of their
crops to the state. Poll taxeswere a major source of revenue in Egypt under the Ptolemaic
Dynasty (323-30Bc)
 The government of ancient Athens, Greece, relied on publicly owned silver mines, tribute from
conquered countries, a few customs duties, and voluntary contributions from citizens for
revenue. It levied poll taxes only on slaves and aliens (non citizens) and made failure to a capital
crime.

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 In early years of Roman republic, all Roman citizens paid a poll tax. However, Roman military
victories brought in so much foreign tribute that the government exempted citizen from this tax
in the 2nd century Bc, after the public wars between Rome and Cartage. More than 100 years
later, Emperor Augustus introduced land and inheritance taxes. Succeeding emperors raised rates
and found an increasing number of things to tax, including wheat and salt.
Taxation in the Medieval Time
 During the middle Ages, from about the 5 thcentury to 15 century AD, taxation varied from region
to region.
 Europeans were subject to many forms of taxation, including land taxes, poll taxes, inheritance
taxes, tolls (payments for the use of bridges, roads, or seaports), and miscellaneous fees and
fines.
 Many people paid taxes in the form of money or crops directly to the local lord, whose land they
farmed.
 Under the system of feudalism that dominated in Western Europe beginning; in about the 11 th
century, kings, nobles and church rulers all collected taxes. The Roman Catholic Church used to
collect taxes during the Middle Ages. One of the most important sources of church revenue was
the tithe. The church also collected various tees, fines and tolls, and required clergy members,
such as bishops and archbishops, to make payments to the papacy in Rome. An important
development towards the end of feudal period was the dramatic growth in the number and
population of towns and cities. These urban centers collected revenues using taxes on property as
well as sales taxes on certain items.
Taxation from the 16th Century to Modern Period

 Over a period of time, feudalism faded and strong centralized states emerged in Europe.

During 16th and 17th countries, these states relied heavily on revenues generated by the kings’
own estates and by taxes on land. In England, the power of parliament grew steadily because the
kings and queens had to convene it frequently to obtain money. In 1989 the English Bill of
Rights guaranteed that kings could not tax without parliament’s consent.

 By 18th century, England started imposing various taxes on transaction. Taxes on imported

goods (tariffs) assumed to be of great importance, as did taxes on a wide variety of commodities,
including sugar, meat, chocolate, alcohol, coffee, candies and soap. As times passed, people
became dissatisfied with this system of public finance for several reasons. In general, people
perceived that the burden of taxes fell mostly on the poor. In addition, tax systems did not
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generate as much revenue as the governing classes wanted. Finally, economists and political
leaders began realizing reducing trade and that tariffs created economic losses for society.

 In the late 19th century, concerns about both fairness and the ability of tax systems to

generate sufficient revenue led governments to enact income tax, to finance the Napoleonic War.
The government discontinued the tax when the War ended in 1815, but revived it in 1842. The
first progressive income tax, which imposed a greater tax burden on people with higher income,
was introduced in Prussia in 1853. Other countries introduced progressive income taxation in
subsequent decades, including Britain in 1906, the United States in 1913, and France1917.
Although income taxes generated little revenue at first, today they play a major role in all
modern tax systems.
 Taxation policies depend on the socio- economic and political structure of a country. Earlier
days, Ethiopian rulers established fiscal measures by force, because there was no legal or
institutional mechanism to control and administer the fiscal policy.
 The mechanism of revenue collection and distribution among the ruling class, thus, became the
absolute power of the King. Majority of the state revenue was spent for military purposes.
Overview on Ethiopian Taxation
Background: Political structure of Ethiopia
The form of government is parliamentary, with both the Federal and member States havinglegislative,
executive, and judicial powers. Responsible to the people, the Council of People's Representatives is the
highest authority of the Federal Government. Likewise, the State Council is the highest organ of State
authority, and is responsible to the people of the State.

This decentralized set-up, a far cry from the reign of kings and emperors, is a most welcome and
significant change for Ethiopia.After the 32-year reign of Emperor Haile Selassie (1942-1974), Ethiopia
was put under military rule that spanned for almost seventeen years (1974-1991). With the fall of the
military Derg regime in 1991, Transitional Government was established, aimed at paving the way for a
smooth transition to democracy and federalism. The Federal Republic was then put into place in 1995,
triggered mostly by the ratification of a new Constitution on that same year.

Changes in the political structure, most obviously, will provide impetus for corresponding changes in
policies and other structures. Such is the case for Ethiopia, whereby the ebb and flow of its "politics"

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effected accompanying changes in its economy, and subsequently, resulted to a gradual overhauling of
its tax system.

Tax Changes from the Haile Selassie Regime to The Present-Day Federal Democratic Republic Of
Ethiopia
 Ethiopia's tax system, from the Haile Selassie Regime which started in 1942 to the present-day
Federal Democratic Republic, has undergone a long period of change that has encompassed both
policy and structural changes.
 Such changes also reflected the prevailing political mood, so to speak, of the period, from high
tax rates during the Derg Regime (aimed to raise more revenues to finance war efforts) and to the
current private sector-friendly and market economy-oriented tax policies.
During these years that spanned four distinct political periods, Ethiopia witnessed a series of changes in
its tax system, characterized mostly by a streamlining of tax structure and changing of tax rates to reflect
the prevailing "government's" aims and purposes. From a seemingly narrow income tax base, it has
expanded to now include income from mining activities and capital gains.
Computation of some taxable income has also become less crude and more in keeping with reality. For
example, taxable rental income is now computed by allowing certain deductions, quite a change from
simply taking in the gross rental income.
Most significant too is the sharing of revenue between the Federal and Regional Governments mandated
by Ethiopia's Constitution to reflect a move towards decentralization. This mandate bears great impact
on Ethiopia's tax administration policies.
However, even amidst these changes, Ethiopia's tax system still maintains non-allowance for personal
exemptions and allowances to reflect personal circumstances (i.e., single, married, etc). Income taxes are
also being computed separately, for business income, for employment income, etc., which is a deviation
from current tax practice of most countries.
As for the indirect taxes, changes were mostly geared towards widening of tax bases, changing rates,
and revising lists of exempt items, etc.
Policies on the declaration, assessment, and payment of tax have generally been maintained during the
four political periods. However, during the Transitional Government, assessment has become less crude
with the provision that some businesses (depending on the Category it belongs to) maintain books of
accounts, etc..Too, decrees, proclamations, legal notices are still being published at the Negarit Gazeta, a
practice that has been observed even as far back as the reign of Emperor Haile Selassie.

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The Ministry of Finance also continues, with some additions to its duties, to play the same critical and
most important role in matters related to tax such as ensuring that tax laws were properly enforced,
assessed, collected and accounted for.

The Haile Selassie Regime 1942 - 1974

Income Tax
Tax base. At one period or another, during this regime, some types of income were exempted from tax
(e.g., income from agricultural activities, income from interest received by persons on bank accounts,
etc.), but were later subject to tax.

 income tax during this regime was levied on only a few types of income, under four different
schedules:
 income from employment (which included salaries, wages, allowances, etc.);
 income from rent of land and buildings used for purposes other than for agriculture;
 income from businesses, professional and vocational occupations, from interest, and from the
exploitation of woods and forests for lumbering purposes; and
 Income from agricultural activities.

Tax rates. Tax structures and tax rates for the above tax bases underwent varying changes in accordance
with changes in policies.
For employment income tax, the lowest and highest tax brackets for most proclamations ranged from a
taxable income of a mere Br 30 to Br 5,000, respectively. Tax rates were seemingly progressive, ranging
from roughly 1.8 % for the "lowest" bracket to 25% for the "highest" bracket. In most of the
proclamations too, there existed a tax-free bracket covering a taxable income of about Br 30.

Surtaxes were also charged at varying rates on varying limits. For example, in 1961, per Proclamation
No.173, a surtax of 10% was charged on taxable employment income exceeding Br 30,000. It is
interesting to note that the number of brackets for employment income tax totaled to an unwieldy 35 in
most, if not all, proclamations.

For tax on business and other profits , the tax rates were originally levied according to category (i.e.,
traders, retailers, etc.) or grades (i.e., Grades I, II, III, etc.) 1. Subsequent proclamations revised the tax

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rates and schedule, and mandated that tax due be calculated based on a person's or body's tax bracket
and corresponding tax rate. A tax-free bracket of Br 360 for persons earning business profit and the like
was included in the revised schedule. Taxable income of incorporated bodies was levied at 15 to 16
percent. Surtaxes were also charged on this kind of income. Similar to the employment income tax, the
number of tax brackets was unwieldy, totaling to almost 30.
For rental income, the tax rates ranged from 2% to almost 16% for taxable incomes of roughly above
Br 360 and Br 15,000, respectively. Taxable income of Br 360 and below was generally free of charge.
For income from agricultural activities, tax was levied on bodies at 20% of taxable income, and on
persons, at varying rates per the mandated schedule. Tax rates ranged from 1.5 to 20 percent.
Calculation, collection, and payment of income tax: Income tax was calculated separately for the four
schedules, and subsequently levied, charged, collected and paid on the total amount of taxable income
chargeable under each separate schedule.
Other notes:
It is worth noting that the income tax structure under this regime did not provide for any personal
exemption and/or allowances to address one's marital status (i.e., single, married, divorced, etc) and/or
presence of dependents (i.e., children whether natural or legally adopted, etc.).

Other Taxes
 Other taxes levied by the Haile Selassie Regime included
(1) Land tax,which waslevied on each "gasha" of measured land and unmeasured "gabbar" lands
according to the province where the land was located;
(2) Education tax, which was levied on all lands in view of promoting education and providing it
for all people;
(3) Health tax, which was paid at 30% of the land tax or 30% of the municipal tax on land, with the
objective of raising financial resource to facilitate health services;
(4) Road Tax, which was paid per 100 km or less at varying rates depending on the nature of the
vehicle and its loading capacity, and with the objective of raising funds for the construction and
maintenance of roads;
(5) Cattle tax, which was imposed on all persons engaged in cattle breeding activity;
(6) Salt tax, tobacco tax and excise taxes on alcohol, jewelry, etc.;
(7) Transaction tax, which was levied on goods imported or exported, goods manufactured locally,
etc.

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(8) Stamp duty, which was chargeable on some instruments such as articles of association of a
company, etc.
(9) Customs and export duty, which was levied on goods imported into and exported from
Ethiopia, with rates that vary depending on the class (i.e., Class I, II, etc.) such goods belong to.
The Derg Regime 1975 - 1991
 Except for some modifications in terms of wider tax bases and increased tax rates, the taxes imposed
by the Derg Regime were similar to those of Haile Selassie's.
 The modifications, in the form of amendments to previous proclamations, were adopted to raise
more revenues to support war efforts and finance the ever-growing needs of the public.
Modifications undertaken are
Income Tax
 For employment income tax ;-The new tax rates ranged from 10% to an almost whopping 85%.
 For tax on business and other profits,
The tax rate though for organizations increased from 20% to 50%. For unincorporated
businesses, the tax-free bracket was maintained at Br 300, but rates for the highest bracket
increased to 89%, then subsequently lowered to 59%.
 Rental Income Tax increased, with the highest rate pegged at 89%.
New tax base introduced during this regime
 It was during this regime that rural land use fee was first imposed, on top of the now increased
tax on income from agricultural activities (with the highest rate at 89% of annual taxable
income).
 The rural land use fee varied depending on individual and communal basis.
 For example, every farmer who was a member of an agricultural producers' cooperative had to
pay Br 5; an individual peasant who was not a member of such cooperative paid a higher fee of
Br 10; and every state farm paid Br 2 per hectare under its possession.

 The Derg Regime also introduced a new tax in the form of urban land rent and urban house
tax.
 For the urban land rent, the assessment of rent depended on the grade of the land, area of land
per square meter and the purpose for which the land was used (i.e., for residence or for
business?). On the other hand, the urban house tax was based on the estimated rental value of the
house. The rental tax ranged from 1% (for the annual rental value of the house of up to Br 600)
to 4.5 % (for the annual rental value of the house above Br 6,000). Public roads, places of

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worship, dwelling houses whose annual rental value is less than Br 300, among others, were
exempted from these taxes.
Other Taxes
 During the Derg Regime new items, like tobacco leaf and ordinary wooden matches, were subjected
to excise taxes, and higher tax rates were levied on some of the existing items (e.g., sugar and soft
drink
The Transitional Government of Ethiopia 1991 - 1995
The overthrow of the military dictatorship that has ruled Ethiopia for seventeen years had usher/guide /
in a new era for Ethiopia, in which democracy and a market-oriented economy were categorical
imperatives. Such historical event also ushered in corresponding changes in Ethiopia's political structure,
foremost of which was the establishment of Regional Governments. These governments, per
Proclamation No.7/1992, were accorded legislative, executive and judicial powers with respect to all
matters within their geographical areas (except such matters as defense, foreign affairs, and the like),
including levying of certain duties and taxes.

The major tax change in this period, therefore, was the sharing of revenue between the Central and
Regional Governments (such sharing or allocation will be discussed in detail in the next section). Other
changes included modifications in tax brackets and tax rates for some taxes, widening of the income tax
base (i.e., to include mining income tax), levying of tax on capital gains, provision of duty incentive
schemes, etc.

Income Taxes
Amendments to the previous Income Tax Proclamation were mostly geared towards lowering tax rates
and decreasing the number of tax brackets.
For employment income tax, per the 1992 Proclamation, the tax rates decreased to the 10%-50% range
(from a 10%-85% range during the Derg Regime), and income tax brackets were almost "halved" to 9.
In the ensuing year, the rates were further reduced to the 10%-40% range, and tax brackets further
decreased to 5.
For business income taxpaid by unincorporated bodies, tax rates were lowered to the 10%-40% range,
with income tax brackets reduced to almost a third (from 17 to 5). Likewise, the rate applicable to
incorporated bodies decreased to 40%.

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Under this government, the income tax base was widened with the provision of tax on income from
mining operations. Rates for this tax base were pegged at 45% (for large-scale mining) or 35% (for
small-scale mining) of taxable income. It was also during this period that a tax on capital gains was
first imposed. Such tax was levied on realization of gain from the increase of value of shares or bonds
and urban houses at a rate of 30%, though annual capital gains of less than Br 10,000 were exempted.
For rental income, the tax structure was streamlined to reflect decreases in rates and tax brackets.
Further, the Transitional Government allowed for certain expenses to be deducted from annual rental
income to arrive at taxable income. Further, exemptions from rental income tax was increased to the first
Br 1,200 of annual taxable income.
Other Taxes
As for sales taxes, the government listed several items which were exempt from such tax (e.g., food
items like bread and injera, fertilizers, works of art, etc.). For customs duty, some of the adjustments, to
mention a few, were the conversion of most specific duties to ad-valorem, reduction of duty rates to the
5%-80% range, and cancellation of taxes and duties on export goods except coffee.

Taxes from 1991 to 1995 (The period of Transitional Government)

 With the establishment of regional government (pursuant to Proclamation No 7/1992), major
changes took place in the tax policy of the country.
 Tax brackets and tax rates were modified and new tax bases such as tax on mining activities and
on capital gains were introduced in this period.

The major modifications and introductions are as given below.

Employment income tax
- Tax rate decreased to 10%-40% range (from 10%-85% range)
- Tax brackets reduced
Business income tax
- Tax rates lowered to 10%- 40% range
- Tax rate of incorporated bodies reduced to 45%
Mining income tax (newly introduced)
- Rates for large scale mining fixed at 45% and small scale operation at 35%
Capital gains tax (newly introduced)
- Gains on sale of shares, bonds, and urban houses taxed at 30%
- Gain of less than Birr 1000 was exempted from tax

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Rental income tax

- Tax brackets and rates lowered
- Income up to Birr 1200 was made tax free
Other income
- Food items such as injera and bread; and fertilizers were exempted from payment
of tax
- Most of the duties were made adulthood
- Duty range reduced to 5%- 80%
- Duty on export (except coffee) cancelled.
Taxes from 1995 Onwards
 The Constitution of Ethiopia, approved in 1995, gave powers to Federal and Regional
Government to levy and collect taxes from the sources allocated to them.
 A number of changes have been made in the tax policy of the country pursuant to the structural
changes. The following are the most relevant changes that are incorporated in tax laws.
1. Reduction in the rate of business income tax from 40% to 30%
2. Equalization of tax rate at 35% for both small scale and large scale mining activities.
3. Assignment of collection of revenue from agricultural income tax to regional government
4. Exemption of capital gains from houses used for residential purposes
5. Introduction of Taxpayer Identification Number.
6. Introduction of tax withholding system. (At 3% and 2% respectively for import and for certain
types of payments)
7. Replacement of sales tax by VAT and turnover tax
A detailed study of the various changes requires an understanding of revenue sharing between the
Federal and Regional Government.
 The basis of this sharing is the assignment of service responsibility among different levels of
government. Collection of internal revenue (through the sharing process) helps to administer
their own affairs by regional government without fully resorting to external sources (For e.g.
grant, subsidy etc from central government).
1.2. The Sources of Taxes in Ethiopia
 Any government does not collect money without the permission of the law. Those who do not
pay taxes are forced by law to fulfill this obligation.
 Hence, currently, the Ethiopian Tax Law provides for imposing tax on income and other sources.

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According to Proclamation 286/2002. Per Article 6 of the proclamation, the following are the sources of
taxable income.
1. Income from employment exercised in the country.
2. Income from business activities
3. Income derived by an entertainer, musician, or sportsman
4. Income from an entrepreneurial activity of a non resident through a permanent establishment in
the country
5. Income from transferring the ownership of movable property of a permanent establishment in the
country
6. Income from immovable property, livestock, inventory in agriculture and forestry, right received
from immovable property in the country
7. Income from the transfer of property
8. Dividend of resident company and profit shares of registered partnership
9. License fee and royalty and income from chance winning
10. Interest paid by government units, residents, or non residents through their permanent
establishment in the country
11. Income obtained from a foreign country. (Taxpayers will be permitted for foreign tax credit).
12. License fee and royalties paid by a resident or a nonresident having a permanent establishment
1.3. Revenue Allocation of the Government of Ethiopia
 The Government of Ethiopia issued a proclamation (No 33/ 1992) that shows the allocation of
revenue between Federal and Regional governments.
 This allocation is based on the following objectives.
 To carry out the duties and responsibilities effectively and efficiently by both the levels
of government.
 To develop their own region by taking initiatives by themselves.
 To eliminate the gap between regions in various development activities.
 To encourage those activities for which the regions have common interest.
Revenue of the Federal Government includes:
 Foreign trade tax
 Tax from employees of central government and international organizations
 Personal income tax and sales tax from the enterprises owned by federal government
 Taxes on lottery and other chance winning

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 Tax from air, rail and marine transportation

 Tax on rent of houses and properties owned by central government
 Fee for services rendered and licenses issued by Federal government
Revenue of Regional government includes:
 Employment income tax from employees of region and from private employees
 Personal income tax and sales tax of enterprises owned by regional government
 Agricultural income tax from farmers and rural land use fee
 Profit and sales tax of traders
 Tax on income from inland water transport
 Rent of land and royalty
 Income tax from small-scale mining operations
 Fee for services rendered and for license issued by regional government.
Sl.No
The Typesare
following of the
Joint Revenue
revenue Revenue
items shared bySharing
both theFormula
Federal and Regional Governments: Federal Regional
Government States
1. Personal income tax and sales
Jointly Established Companies tax of enterprises owned jointly
 Profit,
1.1. Profit
salesTax As per Capital
tax and dividend of organizations As per Capital
Share Share
 Rent of land, royalty, and profit tax of large-scale mining operations
1.2. Employee Income Tax 50% 50%
 Petroleum and gas
1.3. Indirect Taxes operations 70% 30%
2.Private
 ForestCompanies
royalty
2.1. Profit Tax 50% 50%
Joint Revenue between theFederalGovernment and Regional States\
2.2. Indirect Taxes 70% 30%
2.3. Dividends 50% 50%
3. Minerals and Petroleum
3.1. Profit Tax 50% 50%
1.4. Tax Authorities and their Structure in Ethiopia
Federal Inland Revenue and custom Authority is the sole authority in designing and implementing tax
policy in the country.
 The Authority is formed through Proclamation 61/1997. It has the following objectives.
1. Enforcement and implementation of tax laws, regulations and directives.
2. Assessment, collection and execution of legally specified federal laws.
 Per the proclamation, the Authority has the following powers and duties.
a) Collection, compilation and dissemination of information necessary for tax
assessment.
b) Assessment and collection of federal taxes.
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c) Devising systems and working methods for assessment etc and ensuring the
implementation of activities.
d) Taking appropriate measures for the exercise of rights and obligations of taxpayers
e) Undertaking revision of tax laws
f) Delegating the tax assessment, collection and execution powers to the revenue
collection organs of regional government.
g) Provision of training etc to the personnel in tax administration area.
h) Carrying out any other activity for the attainment of the objectives.
 The most important duty of the office is to implement and enforce tax law. In exercising the
power, the Authority can investigate any document or account of taxpayer or employer.
 FIRA’s main office is located in Addis Ababa. Its branches are located in Bahir Dar, Awassa,
Nazareth, Dire Dawa and Jimma. Opening of two more branches was also under consideration.
 In addition to FIRA, the Regional Finance Offices, Zonal Finance Offices and Woreda Finance
Offices are empowered to assess and collect taxes in regional states.
The various measures taken by the tax authority for the smooth functioning of tax administration can be
summarized as follows (as provided in Income Tax Proclamation 286/2002)
1. Confidentiality of tax information (Article 39)
The Tax Authority and all persons (agents or employees) are required to keep the secrecy of the
taxpayer information. Such information may be disclosed only to the following parties.
a) Employees of tax authority, for the purpose of carrying out their official duties.
b) Law enforcement agencies, for the purpose of the prosecution of a person for tax
violation
c) Courts, in legal proceedings
d) Tax authorities of a foreign country, (if required)
2. Code of conduct for tax authority employees (Article 40)
Each employee of the tax authority shall:
a) Be honest and fair, and treat taxpayers with courtesy and respect.
b) Apply the law on the basis of objective facts
c) Refrain from participating in any determination of the tax liability of him/her or of his/her
spouse
d) Inform about the relationship (or friendship) with any person, when the tax liability of
such a person is determined.
e) Protect the confidentiality of taxpayer information

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f) Not solicit or accept any bribe or perform any improper act while determining or
collecting tax
g) Not act as a tax accountant or accept employment from any person preparing tax
declaration.
3. Cooperation of other entities (Article 41)
All Federal, and Regional government authorities, their agencies, bodies, kebele administrations and
associations have the duty to cooperate with the Tax Authority in the enforcement of the tax law. No
agency shall issue or renew a license to the applicant unless it produces a certificate issued by the tax
authority stating that he has paid all amounts of tax due.
4. Tax Identification Number (TIN) for taxpayers
Introduction of tax identification number for taxpayers helps to keep detailed information about
taxpayers and thereby increases the efficiency of tax administration. (Computerizing the administrative
procedures makes the system more efficient and less costly).
5. Introduction of tax withholding system
The current income tax proclamation provides for collecting tax through withholding system.
Withholding tax from importers, withholding by certain specified agencies on making payment for
purchases, and withholding some of the ‘Schedule D’ income tax can be cited as examples in this
respect.
6. Record keeping requirements of taxpayers
The law made it compulsory to keep records by category ‘A’ and ‘B’ taxpayers for the purpose of
determining the tax liability. This makes the administration easy and efficient.

7. Penalty for non-compliance

In addition to the administrative penalties imposed for late declaration, late payment, etc, the following
provisions are also included in the income tax proclamation 286/2002 for violation of criminal law in the
country.
a) TIN Violation: Fine between Birr 20000 and Birr 50000 for getting more than one TIN and
imprisonment for five years per additional TIN
b) Tax Evasion: Penalty for understatement with imprisonment for a period not less than five years
c) Giving false and misleading information:
I. Without reasonable excuse, and resulted in underpayment of tax less than Birr 1000: Fine
between Birr 10000 and 20000 with imprisonment of one to three years

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II. Without reasonable excuse, and resulted in underpayment of tax more than Birr 1000: Fine
between Birr 20000 and 100000 with imprisonment three to five years
III. Misstatement given knowingly and resulted in underpayment of tax less than Birr 1000: Fine
between Birr 50000 and 100000 with imprisonment five to ten years
IV. Misstatement given knowingly and resulted in underpayment of tax more than Birr 1000:
Fine between Birr 75000 and 200000 with imprisonment 10 to 15 years.
d) Obstruction of tax administration: Fine between Birr 10000 and 100000 with imprisonment for two
years
e) Offences by tax office employees: Fine not more than Birr 50000 and imprisonment for a period 10 to
20 years for accepting monitory benefit from taxpayers or for making agreement with them or for
misusing the powers.
f) Unauthorized tax collection: Fine not less than Birr 50000 with imprisonment five to ten years
g) Offences by entities: When an entity commits an offence, the manager or managers will be liable for
fine of Birr 5000 to 10000 with imprisonment for one to two years.
8. Establishment of review committee
In order to examine the applications submitted by the taxpayers, such as for compromise of penalty,
interest, and waiver of tax liability, review committees are appointed at different levels. The committee
will gather information regarding the matter and find solution with the approval of the head of the tax
authority.
9. Provision for appeal
A taxpayer, if not satisfied with the assessment made by the tax office, may give appeal to Appeal
Commission against the assessment. Tax Appeal Commission is formed at Federal level, Regional level,
Zonal level, and Woreda level. Appeals against the decision of Appeal Commission may be given at the
lower court by the taxpayer within 30 days after the decision of Appeal Commission (and also after
paying the tax assessed). Within 30 days after the decision of lower court, appeals may also be given at
the higher court by the taxpayer.
10. Seizure of property
The tax authority is given powers to seize the property of defaulting taxpayer after the decision of the
higher court of appeal. Seizure is made after giving 30 days notice.

11. Reward for verifiable information and outstanding performance

Those who provide verifiable information about tax evasion, concealment of facts, etc will be provided
with reward according to article 84 of the Proclamation. Likewise, those taxpayers and tax officers, who

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render outstanding performance and discharge of duties will also be provided with reward according to
the Proclamation (Article 85).
12. Provision for relief.
The Ministry of Finance and Economic Development shall have the following powers.
a) Enter into agreement with other governments for the avoidance of double taxation
b) Waive tax up to Birr 100000 in cases of hardship due to natural calamity or disaster.
Waiving taxes exceeding Birr 100000 shall be done only with the approval of the Council of Ministers.
Power and Duties of Authority
T h e E R C A s h a l l h a v e t h e p o w e r s a n d d u t i e s t o :
1. establish and implement modern revenue assessment and collection system;
2. provide, based on rules of transparency and accountability, efficient, equitable and quality
service within the sector; properly enforce incentives of tax exemptions given to investors and
ensure that such incentives are used for the intended purposes;
3. implement awareness creation programs to promote a culture of voluntary compliance of
taxpayers in the discharge of their tax obligations;
4. carry out valuation of goods for the purpose of tax assessment and determine and collect the
taxes;
5. conduct study and research activities with greater emphasis to improve the enforcement of
customs and tax laws, regulations and directives and the collection of other revenues; and based
on the result of the study and research initiate laws and policies and implement the same up on
approval;
6. collect and analyze information necessary for the control of import and export goods and the
assessment and determination of taxes; compile statistical data on criminal offences relating to
the sector, and disseminate the information to others as may be necessary;
Power to Issue Directives
The ERCAis hereby empowered to issue directives to provide procedures for TIN registration of
taxpayers. In accordance with those directives, the Tax Authority shall prepare a schedule of
registration for a TIN, which shall inter alia contain specific dates for registration of a given class
of taxpayers, and shall distribute copies of the timetable to all licensing authorities.
1.5. Code of Conduct for Tax Authority Employees
The various measures taken by the tax authority for the smooth functioning of tax administration can be
summarized as follows (as provided in Income Tax Proclamation 286/2002)
Confidentiality of tax information (Article 39)

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The Tax Authority and all persons (agents or employees) are required to keep the secrecy of the
taxpayer information. Such information may be disclosed only to the following parties.
a) Employees of tax authority, for the purpose of carrying out their official duties.
b) Law enforcement agencies, for the purpose of the prosecution of a person for tax violation
c) Courts, in legal proceedings
d) Tax authorities of a foreign country, (if required)
Code of conduct for tax authority employees (Article 40)
Each employee of the tax authority shall:
a) Be honest and fair, and treat taxpayers with courtesy and respect.
b) Apply the law on the basis of objective facts
c) Refrain from participating in any determination of the tax liability of him/her or of his/her
spouse
d) Inform about the relationship (or friendship) with any person, when the tax liability of such
a person is determined.
e) Protect the confidentiality of taxpayer information
f) Not solicit or accept any bribe or perform any improper act while determining or collecting
tax
g) Not act as a tax accountant or accept employment from any person preparing tax
declaration.

Chapter 2. Tax Administration

2.1. Definition of a Tax Administration
The core tasks of a Tax Administration are centered on the implementation and enforcement of tax
legislation and regulations. These activities include identification and registration of taxpayers,
processing of tax returns and third-party information, examination of the completeness and correctness
of tax returns, assessment of tax obligations, and (enforced) collection of taxes and provision of services
to taxpayers.
Tax Administrations operate in societies that are rapidly changing and have to fulfill increasing demands
and growing expectations from their stakeholders, including new demands from taxpayers for

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sophisticated government services. Tax Administrations must develop a contemporary vision. Rapid
economic developments and ever-higher expectations on the part of taxpayers make it necessary for a
Tax Administration to redefine its strategic course. Its relationship with taxpayers must be laid down in
a system of rights and obligations.
 By definition, Tax Administrations administer taxes. They implement and enforce tax laws, and
receive their mandates by law.
 Tax Administrations, like private companies and other organizations, have a core business. The
core business of Tax Administrations is the levying and collection of taxes imposed by law.
 It is important that Tax Administrations establish a clear definition of their core business from
the outset and make it known to their stakeholders.

2.2. The Need of Tax Administration

The core functions of a Tax Administration include:
 Registration of taxpayers, including detection of non-registration and false registration;
 processing of tax returns, withholdings and third-party information;
 Verification or examination of the correctness and completeness of received information
(including audit activities);
 process of enforced debt collection;
 handling of administrative appeals and complaints;
 provision of service and assistance to taxpayers; and
 Detection and prosecution of tax fraud.
The core business of a Tax and Customs Administration usually consists of one or more of the following
activities:
 assessing, collecting and auditing government-imposed taxes, as well as preventing fraud;
 surveillance by customs of goods imported and exported (in order to assess, collect and monitor
the various duties linked with import and export, but also to protect the quality of society, i.e. the
quality of food, health, cultural inheritance, protection against falsity, etc.);
 assessing and collecting social security contributions; and
 Other assessment and collection activities on behalf of other governmental agencies.
The definition of the core business of a Tax Administration or its mandate is the answer to the question,
what should a Tax (and Customs) Administration do? Another question relates to how the
Administration performs the responsibilities assigned to it. This is the field of organizational philosophy,
strategic planning, risk management and control of critical success factors.

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 Tax policy and tax administration interact at three levels:

 the formation of tax policy and drafting the legislation;
 the administrative procedures to implement the legislation; and
 The actual implementation of the tax system.
 Tax administrative procedures in developing countries (also in transitional countries) are facing
with problems such as large irregular or informal sectors, lack of public acceptance of taxation
measures, lack of information among citizens about their obligations under tax laws, non
availability of accurate accounts from taxpayers, and the like.
 Economists and tax experts, throughout the world, suggest a number of requirements for an
effective and efficient tax administration. These requirements include:
 simplification of tax procedures, including the forms,
 establishment of separate unit to support and develop new tax proposals and to analyze
the revenue and economic aspects of the changes,
 provision of training to employees who engage in assessment and estimation,
 development of a good accounting system,
 numbering taxpayers,
 monitoring closely the behavior of taxpayers such as non filing and late filing and other
non compliances, provision of relief etc to industries facing financial difficulty,
 viewing taxpayers more as clients than as enemies,
 Encouraging self assessment,
 Educating taxpayers by distributing booklets and through public notices,
 Encouraging tax withholding and record keeping, and
 Decentralization of duties of employees.
 No matter how a good tax policy may be in theory, or a tax administration in practice, both require
an appropriate environment in order to produce good results. The tax administration of a country will
be dependent on, among others, the specific conditions of the country, the taxes in use, and the
general pattern of the public administration of which it forms a part.
 Tax administration plays a crucial role in determining the real or effective tax system. There is a
growing conviction among tax policy specialist in developing countries that policy change without
administrative is nothing, in a very real sense tax administration is tax policy in developing
countries.

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 A tax administration, whether it is in developing or developed economic environment mainly consists

of, at a varied degree:
 taxpayer's registration,
 collection enforcement,
 audit and assessment,
 taxpayer's education,
 revenue accounting and
 Dispute resolution components.
All these reinforce each other and facilitate revenue-raising capacity of any tax services. They require
their mode and framework of functionality for the administration to be successful. Irrespective of the
shape of organization that tax office has, these components are the basic necessity for the tax machinery
to operate properly.
Integration:
Tax integration is the constitution of one process, system or resource to be applied in different tax
applications, instead of every application having its own. This definition also includes the constitution of
cross-reference links, which connect processes with different objectives, but with identical source data.
For example:
 one appeal process and procedure for all tax assessments;
 one invoicing system for different taxes; and
 One information desk for all sorts of tax clients.
To illustrate this, assume that a message is included in the Excise Duty file of a taxpayer indicating that
a certain event might also influence the VAT and income tax situations of that taxpayer. Cross-reference
links to that message are also included in the taxpayer’s VAT and Income Tax files.
Many Tax Administrations have built in certain tax integration facilities in their operations. These are
often the result of incidental improvements of their organization and seldom the result of an orchestrated
search for integration possibilities.
Preconditions for integration
Preconditions for tax integration are based on cultural, economical and organizational circumstances.
There is a strong interrelationship between these three. A society’s social behavior and values or culture
are the fundament of any organization in that society. Indissolubly connected with culture is the stage of
development of a society.
Different cultures may lead to different organization models and management styles. On the other hand
different stages of economic, demographic and technology development in a country lead to different
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taxation policies and different organizational needs for the Tax Administration. Influences, culture and
development stage, result in different tax organization models and thus in different needs for tax
integration.
This method stems from the notion that operational processes often slice through the functional layers of
an organization, this layering thus being an obstacle for optimal operations. BPR provides the
opportunity to detect identical steps in different processes, which can be developed and operated once
for all of these, instead of repeating the same step for every process.
This is what we defined earlier as integration.
The responsibility for the development and implementation of integration possibilities depends on the
level of these possibilities. They may be at strategic, tactical or operational level. However, the impact
of integration may very well exceed the borders of its implementation area. Managerial attention to any
integration effort is therefore essential.
There are several aspects or areas to take into consideration when dealing with tax integration:
 Legislation and regulation: Bringing together or linking to each other tax regulations
and/or other regulations such as social laws. The incentive to this is mostly the
government policy to cover public issues by looking at them from the outside, namely
from the citizen’s point of view rather than from the administration’s point of view.
 Processes: Integration of (sub-) processes of different taxes and duties within the Tax
Administration, but also process integration of processes with external organizations such
as the Ministry of Social Affairs.
 Management: The (integrated) way how to organize the execution of the main and
primary tasks of the Tax Administration.
 Systems: Developing and operating (mainly information and communication) systems,
both of hardware and software, so that they function for multiple purposes.

 Resources: Integrating facilitating business components like offices, canteens and

maintenance can be easily foreseen. More challenging is integrating support functions
such as training and development services, planning, control and finance activities and,
probably the most important, human resources management.
2.3.3 Tax Assessment
Assessment
The determination of the amount subject to taxation under a particular statute requires an analysis of the
taxpayer's situation and of legal provisions that apply to them.

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An assessment is basically the initial review by tax officials of the tax declarations and information
provided by taxpayers and verification of the arithmetical and technical accuracy of the declared tax
liability shortly after the submission of the declaration. In other words, assessment is a tax review by a
tax official of the tax declaration and information provided by a taxpayer and a verification of the
arithmetical and financial accuracy of the declared tax liability. The initial review also includes the
application of various risk criteria to determine possible tax underpayments and the subsequent selection
for audit.
Purpose of Tax Assessment
You have gained knowledge on what tax assessment is. And also it is better to you to get familiar with
why tax is assessed by the Taxing Authority.
Tax assessment in Federal Inland Revenue Authority (FIRA) has an important role in trying to ensure
that taxpayers pay the correct amount of tax under the law. Assessment is one of the most four key
functions in FIRA branch offices, and has an important role in maintaining compliance by the taxpayers
and has a vital role in gathering data about taxpayers behavior.
If thetaxpayer doesn’t comply with the requirements of law in furnishing full information, the tax office
get the information from different sources such as government offices, private firms, and individuals for
the purpose of assessment. In assessment, the tax authority shall initially assess the amount of taxable
income and then impose the tax at the rate corresponding to this amount. When sending the assessment
to the taxpayer, the tax office notifies the following:
a) amount of gross income,
b) amount of deductions thereon,
c) amount of taxable income,
d) rate applied,
e) amount of taxes paid and due,
f) amount of any penalties chargeable as per the proclamation as well as amount of interest,
if any,
g) the name, address as well as TIN of the taxpayer, and
h) Explanation concerning taxable income, tax payable, and penalty.
 The starting point in the assessment of taxable income is the net income disclosed by the income
statement.
 Adjustments are made to it if it is not determined as per the provisions of the law.
 Those expenses, which are included in the income statement but are not allowed, are
added back to the declared income.

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 Any expense, which is allowed for tax deduction, but not included in income statement,
will be included or deducted in the determination of taxable income.
 The taxable income obtained is multiplied by the tax rate to compute tax from business
activities.

Assessment of Tax for Different Categories of Tax Payer

 Tax Year- Unless otherwise provided, the period for tax assessment ( “tax year”) shall be the
fiscal year, that is, the one-year period from 1st Hamle to 30th Sene.
 The tax year of a person is, in the case of an individual or an association of individuals,
 the fiscal year,
 Whereas in the case of a body, the accounting year of the body.
 A body shall not change its accounting year unless it obtains prior approval, in writing, from
the Tax Authority and complies with any condition that may be attached to the approval.
 The Tax Authority may, by notice in writing, cancel an approval granted to a company if the
body fails to comply with any of the conditions attached to the approval.
 Where the tax year of a person changes the period between the last full tax year prior to the
change and the date on which the new tax year commences shall be treated as a separate tax
year, to be known as the “transitional Year.”

Assessment of Schedule A Income (Article-65)-

 The tax-withholding certificate issued by an employer to an employee shall be proof that tax in
the amount stated was withheld on the employee’s Schedule “A” income of the amount stated.
 The amount of tax withheld on an employee’s Schedule A income, paid to the Tax Authority and
accompanied by the employer’s statement (as required by Article 51) shall be the amount
assessed by the Tax Authority effective on the date the tax is paid, and subject to later
amendment if the Tax Authority determines that an error or omission has been made. In the case
of an employee whose taxable income for a tax year consists exclusively of Schedule “A”
income, no declaration of income is required.
 Notwithstanding the preceding, an employee working for more than one employer or an
employee of international organization having diplomatic immunity or working in embassies,
missions and other consular establishments of a foreign government shall himself declare and
pay taxes on his schedule “A” income with the time prescribed under Article 51(3).

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 If an employer finds out that his employee has more than one employment income and if he
ascertains that the other employer(s) have not aggregated said income, he shall aggregate and
withhold the tax thereon.
Declaration and Assessment of Schedule B and C Income (Article-66)-
 Every taxpayer who has Schedule B or Schedule C income shall prepare a declaration of his
income in a form prescribed by the Tax Authority. Taxpayers shall submit the tax declaration to
the Tax Authority at the time of submitting the balance sheet, and the profit and loss account for
that tax year within the time prescribed below:
 Category A taxpayers within 4 months from the end of the taxpayer’s tax year.
 Category B taxpayers within 2 months from the taxpayers tax year.
 The amount of tax due for the year, as stated in the declaration, shall be the amount assessed by
the Tax Authority although the Tax Authority may determine that an error or omission has been
made and therefore may issue an amended assessment.
Declaration and Assessment of Schedule D Income (Article-67)-
 Every taxpayer who has Schedule D income, not subject to withholding at source constituting a
final tax, shall prepare a declaration of that income in a form prescribed by the Tax Authority.
Taxpayers shall submit this declaration to the Tax Authority within two (2) months from the end
of the Ethiopian Fiscal Year. The tax calculated in accordance with the declaration, after the
amounts provided by Article 7 (foreign tax credit) paid during the year with respect to the
Schedule D income subject to declaration having been reduced, shall be transferred by the
taxpayer to the Tax Authority simultaneously with the declaration. The amount of tax due for the
year, as stated in the declaration, shall be the amount assessed by the tax Authority unless the
Tax Authority determines that an error or omission has been made.

Standard Assessment for Category C Taxpayers (Article-68)-

 A standard assessment method shall be used to determine the income tax liability of Category C
taxpayers.
 The standard assessment shall be a fixed amount of tax determined in accordance with a Council
of Ministers Regulations establishing a schedule of standard assessment amounts that reflect
variations in the type of business, business size, and business location.

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 The taxpayer shall pay the tax determined in accordance with standard assessment on the 7 th day
of July to the 6th day of August every year, unless, the taxpayer requested and is allowed to make
installment payments in accordance with Council of Ministers Regulations.
 The period during which the standard assessment amount will be used and the basis for the
revised amount shall be determined by a directive to be issued by the Minister. The Minister
shall distribute the revised standard assessment to the tax Authorities.
Tax Assessment Methods or Procedures
The methods procedures for the assessment of business income tax take two approaches or forms:
A. Assessment by books of accounts; and
B. Assessment by estimation.
Assessment by books of accounts-
 Assessment by books will be done for those who maintain books of accounts (Business
Categories A and B).
 The revenue authority makes assessment by estimation when the taxpayers do not maintain the
books or when the submitted books are not acceptable.
 This is also done if the taxpayer fails to declare his/her taxable income within the time required.
Tax, of those taxpayers who have different sources of income, will be assessed on the aggregate
of all incomes.
 If thetaxpayer doesn’t comply with the requirements of law in furnishing full information, the tax
office can have access to get information from different offices such as government offices,
private firms, and individuals for the purpose of assessment. In assessment, the tax authority
shall initially assess the amount of taxable income and then impose at the rate corresponding to
this amount.
 Assessment by estimation-
Assessment by Estimation is used
 If the taxpayers keep no records, or
 If the income tax authority does not accept the submitted books, or
 If the taxpayer fails to declare tax within the time specified, the income tax authority estimates tax
by the use of certain indicators.
 Category ‘C’ tax payer use estimation assessment to pay their tax
 Such taxation, based on the same estimation may continue from year to year until revised by the
authority.
 Estimation is made using their daily sales, (using presumptive methods).

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 Tax assessors will be assigned by the tax office to estimate the daily sales of the taxpayers.
 The estimates will be done using the best of their judgment and objectivity. The estimated daily sales
will be converted to annual income using the number of working days.
 Tax on annual sales is determined on the basis of presumptive value assigned to each activity
Tax Accounting Principles
Method of Accounting (Article-58)- Subject to this Proclamation, for the purposes of ascertaining a
person’s income accruing or derived during a tax period, the timing inclusions and deductions shall be
made according to generally accepted accounting principles.
A person may apply, in writing, for a change in that person’s method of accounting and the Tax office
may, by notice in writing, approve the application but only if satisfied that the change is necessary to
clearly reflect that person’s income. If the person’s method of accounting is changed, adjustments to
items of income, deduction, or credit shall be made in the tax period following the change, so that an
item is not omitted or taken in account more than once.
Cash-Basis Accounting (Article-59)- A person who is accounting for tax purposes on a cash basis shall
account for amounts to be included in calculating that person’s income when they are received by, or
made available to that person. An outgoing or expense is incurred for tax purposes, on a cash basis when
that person pays it.
Accrual-Basis Accounting (Article-60)- A person who is accounting for tax purposes on an accrual
basis shall account for amounts to be included in ascertaining that person’s income when they are
receivable by that person. An outgoing or expense is incurred by a person who is accounting for tax
purposes on an accrual basis when it is payable by the person. Subject to this Proclamation, and amount
is receivable by a person when that person becomes entitled to receive it, even if the time for discharge
of the entitlement is postponed or the entitlement is payable by installments. Subject to this
Proclamation, an amount is treated as payable by a person when all the events that determine liability
have occurred and the amount of the liability can be determined with reasonable accuracy, but not
before economic performance with respect to that amount occurs. For the purposes of Sub-Article (4),
economic performance occurs with respect to the acquisition of services or property, at the time the
services or properties are provided; with respect to the use of property, at the time the property is used;
or in any other case, at the time that person makes payment in full satisfaction of the liability.
2.3.6. Tax Auditing
 Tax Audits are an inquiry that seeks to understand and verify the information contained in
taxpayers tax return.

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 Being the subject of a tax audit can be a stressful and nerve wracking experience; however, with
the proper preparation and diligence in maintain and gathering records, the process is
manageable.
 While an audit is not necessarily an accusation of any wrongdoing on the part of the taxpayer,
the individual being audited does have a burden on demonstrating to the IRS auditors that the
information on their tax returns was accurate, that income was properly reported, and that tax
credits and deductions were properly and legally taken.
 A tax audit can happen at any time, and within its rights to go back to review or coordinate an
income tax audit for a give tax return.
Types of Tax Audits
There are different types of audits: correspondence audits, office audits and field audits.
Correspondence Audit
 A correspondence audit is the most mild audit and generally occurs as a result of some minor
mistakes on your tax returns.
 Generally, a correspondence audit can be completed by the taxpayer mailing required forms and
documentation .
 Once the taxpayer has submitted all of the requested information, the tax auditor will review the
material and close the audit once all issues have been properly addressed.
Office Audit
 An office audit typically involves the taxpayer being required to physically bring documentation
to tax office for review by tax examiners.
 Examples of office audits include situations where individuals have claimed abnormally high
deductions (i.e. medical expenses) and the tax office wants to see the corresponding medical bills
to verify that the information is accurate.
Field Audit
 In a field audit, an auditor will come to your home or office (depending on the type of audit) and
verify that your tax returns were accurate. The main difference between an office audit and a
field audit is that field audits happen on the property of the taxpayer, where office audits happen
in the tax office. In some cases, individuals may request that the audit be done at the office of
their accountant,
Presumptive Assessment
 Presumptive taxation involves the use of indirect means to ascertain tax liability, which differ
from the usual rules based on the taxpayer's accounts.1

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 The term "presumptive" is used to indicate that there is a legal presumption that the taxpayer's
income is no less than the amount resulting from application of the indirect method. As discussed
below, this presumption may or may not be rebuttable.
 The concept covers a wide variety of alternative means of determining the tax base, ranging from
methods of reconstructing income based on administrative practice, which can be rebutted by the
taxpayer, to true minimum taxes with tax bases specified in legislation.2
 This concept does not cover all instances of the use of legal presumptions in taxation. More
generally, a presumption can be said to be involved anytime a mechanical definition is used in
place of a more open-ended rule based on the facts and circumstances of each case.
 Presumptive techniques may be employed for a variety of reasons.3
 One is simplification, particularly in relation to the compliance burden on taxpayers with
very low turnover (and the corresponding administrative burden of auditing such taxpayers).
 A second is to combat tax avoidance or evasion (which works only if the indicators on which
the resumption is based are more difficult to hide than those forming the basis for accounting
records).
 Third, by providing objective indicators for tax assessment, presumptive methods may lead
to a more equitable distribution of the tax burden, when normal accounts-based methods are
unreliable because of problems of taxpayer compliance or administrative corruption.
 Fourth, rebuttable presumptions can encourage taxpayers to keep proper accounts, because
they subject taxpayers to a possibly higher tax burden in the absence of such accounts.
 Fifth, presumptions of the exclusive type (see below) can be considered desirable because of
their incentive effects—a taxpayer who earns more income will not have to pay more tax.
 Finally, presumptions that serve as minimum taxes may be justified by a combination of
reasons (revenue need, fairness concerns, and political or technical difficulty in addressing
certain problems directly as opposed to doing so through a minimum tax).
 Presumptive taxation can be
 Used for any tax that is normally based on accounting records—income tax, turnover tax,
and value-added tax (VAT) or sales tax—Although it is most commonly used for the
income tax. A number of different types of presumptive methods exist in different
countries.
 The discussion below first considers some general characteristics of presumptive methods
and then discusses particular cases. It is apparent from this discussion that different types
of presumptive methods can have quite different incentive effects, revenue effects,

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distributional consequences, levels of complexity, and legal and administrative

implications. This makes it dangerous to generalize about presumptive taxation.
 The extent to which presumptive taxes are used varies greatly from country to country. Some
countries (e.g., the United States) employ almost no presumptive taxation,4 while others (e.g.,
France5) use presumptive taxes extensively
Characteristics of Presumptive Methods
Rebuttable vs. Irrebuttable
 Presumptive methods can be rebuttable or irrebuttable. Rebuttable methods include
administrative approaches to reconstructing the taxpayer's income, and may or may not be
specifically described in the statute. If the taxpayer disagrees with the result reached, the
taxpayer can appeal by proving that his or her actual income, calculated under the normal tax
accounting rules, was less than that calculated under the presumptive method.
 By contrast, irrebuttable presumptive assessments should be specified in the statute or in
delegated legislation. Because they are legally binding, they must be defined precisely.
 Rebuttable presumptive assessments are a universal feature of tax assessment procedure,
required in order to deal with cases where taxpayers either do not fully disclose their financial
situations on their returns or fail to file a return. In these cases, the law normally authorizes the
tax authority to use indirect methods to determine the taxpayer's income, based perhaps on
arbitrary criteria or on whatever data are available.
 Because presumptive assessment is intended as a means of ascertaining the taxpayer's income in
the face of inadequate data, the taxpayer should be allowed to present better data to refute the
determination of the tax authorities.
 This type of presumptive assessment therefore does not represent a fundamental departure from
the normal rules for determining tax liability, but is a fallback when these rules do not work
because of noncompliance by the taxpayer.
Minimum Tax vs. Exclusive
 Irrebuttable presumptions can be divided into two types:
 Minimum tax, where tax liability is no less than that determined under the presumptive
rules, and
 Exclusive, where tax liability is determined under the presumption alone, even if the
regular rules might lead to a higher liability. An example of the latter would be a tax on
agricultural income based on the value of the land, with no reference to actual crop
experience for the year.

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 The incentive effects of exclusive presumptions differ substantially from those of the
income tax.
 Exclusive presumptions create no disincentive to earn income. Rather, the incentive
effects of the tax will depend on the factors used to determine presumptive income. These
incentive effects will be minimal when the factors on which the presumption is based are
in inelastic supply, land being the quintessential case.
 An exclusive presumption is in fact not an income tax at all, but is a tax on whatever is
used to determine the presumption.
 Depending on the factors used, it may be more like a tax on potential income (if based on
factors of production) or on consumption (if based on lifestyle).
 Exclusive presumptions are administratively simpler than presumptions of the minimum
tax type, because minimum tax presumptions require two tax bases to be calculated and
compared.
 While exclusive presumptions have the advantage of simplicity and minimal
disincentive effects, they suffer from a lack of equity. Taxpayers with substantially
differing amounts of actual income must pay the same amount of tax if their
presumptive tax base is the same
Mechanical vs. Discretionary
 Presumptive methods can also be distinguished according to the degree of discretion that they
allow tax officials.
 Some presumptive methods are quite mechanical, allowing no discretion, for example,
methods based on a percentage of gross receipts or of a firm's assets. Other methods,
such as the net worth method,9 involve a large degree of discretion for the agent
applying them.
 Methods involving a large measure of discretion will generally be rebuttable, because otherwise
too much power, and potential for arbitrary action, would be given to the revenue authorities.
 Mechanical methods may or may not be rebuttable. In some cases, a method will be mechanical
(and irrebuttable) if applied, but the tax authorities have discretion as to whether to apply it. This
was the case, for example, with the presumption based on signs of lifestyle in France, which was
irrebuttable (although it has subsequently been changed to a rebuttable presumption). Tax agents
were directed not to apply the presumption when its application would be harsh, although they
were not legally bound to refrain from applying the method.

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 A taxpayer could perhaps in rare cases successfully argue that being subjected to the
presumption constituted an abuse of discretion if the presumption were being applied under
circumstances where the tax authorities were instructed generally not to apply it.
 As in other areas of tax law, the choice between mechanical and discretionary rules will involve
factors such as the following:
 the potential for corruption in the case of discretionary rules,
 the potential harshness of mechanical rules,
 the reduced administrative resources needed to apply mechanical rules, and
 The potential for expressing the particular matter as a mechanical rule.

Chapter Three
Tax Evasion, Avoidance and Double Taxation
3.1. Tax avoidance and Evasion-
3.1.1. Tax avoidance
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Tax avoidance means that taxpayer may resort to a device within the domain of law to divert the income
before it accrues or arises to him.
 Tax avoidance has to be recognized that the person whether poor or wealthy has the legal right to
dispose of his income so as to attract the least amount of tax.
 The tax avoidance can also be defined as escaping from the tax liability by using the available
loopholes of the tax laws.
 Tax avoidance means legal minimization of tax burden by the taxpayers.
 Tax avoidance is the legal exploitation of the tax regime to one's own advantage, to attempt to
reduce the amount of tax that is payable by means that are within the law whilst making a full
disclosure of the material information to the tax authorities.
 Tax avoidance may be considered as either the moral dodging of one's duties to society or the
right of every citizen to find all the legal ways to avoid paying too much tax. .
The following are the examples for tax avoidance:
 Suppose a taxpayer’s total income exceeds the maximum tax-free amount, then he has to pay the
tax on such excess amount. But if he invests the excess amount in any of the approved schemes
for which there is a relief in the tax law, he can save on tax altogether.
 An individual sells his let out house property (long-term capital asset) for Birr 2,00,000 making a
capital gain of Birr 60,000. This capital gain would normally be taxed. But, if he invests the sale
proceeds in a particular manner stipulated by law, he needs not pay any tax.
 Divorcing the wife on paper so that her income is not added together with husband’s income is
also a common device for tax avoidance.

3.1.2. Tax Evasion

 Tax avoidance and evasions constitute a problem in almost all the countries of the world. Tax
avoidance is different from tax evasion.
 Tax evasion is means fraudulent action on the part of the taxpayer with a view to violate civil
and criminal provisions of the tax laws.
 It is implies the activities involving an element of dishonesty, misrepresentation of
facts, falsification of accounts including down right fraud.
 It may be said that the tax evasion is tax avoidance by illegal means, i.e., tax evasion
is against the law and is an unsocial act. Human intelligence devices new methods of
evasion and the governments are constantly trying to remove the loopholes in the tax
laws.

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 It is the general term for efforts by individuals, firms, trusts and other entities to
evade the payment of taxes by breaking the law.
 it is a crime in almost all countries and subjects the guilty party to fines or even
imprisonment
 it is usually entails taxpayers deliberately misrepresenting or concealing the true state
of their affairs to the tax authorities to reduce their tax liability, and includes,
 Tax evasion includes dishonest tax reporting, such as
 Under declaring income, profits or gains; or
 Overstating deductions.
There are two forms of tax evasion:
 Suppression of revenue or income, and
 Inflation of expenditure.
The following are the examples for tax evasion:
 A trader makes a sale for Birr 20, 000 and does not account it in his books under sales. He is
evading tax.
 An individual lends his money of Birr 50, 000 to another person at 20% interest per annum and
does not include this interest income in his total personal income.
 Under-invoicing of sales and inflation of purchases.
 A manufacturing business employs 30 workers but include 2 more additional names workers (not
in actual) in the muster roles. The sum shown as paid to such additional names workers will
amount to evasion.
3.3. Causes of Tax Evasion
The following are the basic causes for tax evasion:
 Multiplicity of Tax Laws- A number of laws enacted for the recovery of a variety of taxes often
leads to widespread tax evasion.
 Complicated Tax Laws- Complicated tax laws are another reason for tax evasion. The tax laws
contain a number of exemptions, deductions, rebates, relief, surcharges and so on. For example:
the Income Tax Act has 28 chapters and 298 sections including sub-sections. So, such
complication in tax-laws is also a root-cause for the tax evasion.
 High Rates of Taxation- High rates of taxes cause widespread tax evasion, because the greater
the risk undertaken for the purpose of tax evasion, the greater is the reward.

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 Inadequate Information as to Sources of Tax Revenue- Lack of adequate information as to

the sources of revenue also contributes to tax evasions. In Ethiopia, small businessmen and
farmers rarely maintain any accounts of their income.
 Investment in Real Property- Investment in real property, both movable and immovable, and
concealment of its true ownership have also been a major cause for tax evasion. All these
facilitate the channel sing of black money into profitable ways.
 Ineffective Tax Enforcement- Lack of proper training and efficiency for the authorities
enforcing the tax laws is also a major cause for widespread tax evasion.
 Deterioration of Moral Standards- If the values, which formed the basis of society, are shown
little respect among the people, which is generally true in this modern competitive world, it
results in the deterioration of moral standards and it leads to falsification of accounts,
misrepresentation of facts and fraudulent behavior.

Evasion of Income Tax-

When we talk of evasion of income tax, it could mean both personal income tax and corporation income
tax. Income tax can be evaded by the following ways:
 Suppressing True Income: It is well known that a large part of black income comes through
illegitimate sources, whether it is bribes, smuggling, black marketing or other such sources.
Professionals like lawyers, doctors, architects, businessmen and even film stars and film
producers are examples where the sources are legitimate but income is suppressed to evade tax.
 Manipulating Business Expenditures and Profits: The corporate sector indulges in under-
reporting of profits, overstating expenditures, non-reporting of production and excise, raising
fictitious bills on companies. While under-reporting of profits helps evade tax, non-reporting
production helps generate black income in cash and generally increases the promoters’ wealth.
 Misuse of Tax Exemptions and Deductions: For example, if agricultural income is exempted
from tax, many people divert their income to purchase of agricultural land, show high
agricultural profits and avail tax exemptions. It is possible that the profits come from non-
agricultural operations and are taxable but misuse of a facility helps evade tax and create black
income.

Evasion of Excise Tax- Excise taxes are duties or taxes on certain domestic manufacture of
commodities. Excise duty evasion is both widespread and large in many countries. The most common
methods of evasion are:
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 Suppression of Production: This is especially true of small-scale industries such as electrical

goods, steel furniture and utensils, plastics and art silk fabrics. It also takes place in medium-
scale and large-scale industries. This can be done either by not fully accounting for raw
materials or not keeping statutory records fully up-to-date.
 Under Valuation: This is quite true of the organized sector and can be done with the help of
under-invoicing the product or even showing certain expenses as technical expenses. Floating of
byname agencies that either raise supplementary invoices or collect the differential in value from
dealers is another method.
 Misclassification of Goods: Tariff rates provide numerous classifications and sub-classifications
carrying different rates of duty. Thus people indulge in misclassification as well as wrong
declaration of goods. High-duty excisable goods often get billed as non-taxable items and then
the difference in the market values of two kinds of items gets recovered in black.

Evasion of Customs Duties:

 Methods of evasion of customs duties are broadly the same as those for excise duties (taxes) on
the flow of goods traded both imports and exports of a country.
 Customs duties are levied and collected by the Central Government.
 Methods of custom duty evasion are:
 Under Valuation: This is done by under-invoicing of imports, usually by arrangement
with the foreign supplier of goods who, mostly, willingly obliges the importer, pays in
foreign currency the full difference between the actual price and the lower invoiced price
of the goods imported.
 Misclassification/Wrong Declaration of Goods: False declarations about goods
imported in the documents submitted to the customs are made and higher-duty goods are
cleared on payment of lower duty charged on the wrongly declared goods.
3.4. Double Taxation
Rationale behind Double Taxation
 Today, with enormous range of expenditure outlays, the Governments cannot depend upon a
single tax. Because it will not provide sufficient revenue to meet their financial needs.
 Moreover, with the single tax, the Government cannot achieve the principles of equality, ability
to pay and equitable distribution of income and wealth among the people.
 Thus, the principle of multiple taxations is recommended whereby the Government may resort to
various direct and indirect taxes to attain their fiscal and social objectives.
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 But such multiple taxations should not lead to double taxation

Definition of Double Taxation
 Double taxation can be defined as, “taxation of the same tax base twice either by one authority
or by different authorities”.
 Double taxation occurs when the Government levies taxes on the same base in more than one
way. Hence,. Here, the two taxes should be levied with reference to the same period.
 Double taxation means, taxing the same tax twice and it may be of international or federal
double taxation.
Examples of double taxation are included next:
 Mr. X earns his income in Ethiopia and U.S.A. If both the Governments levy taxes on his entire
income, it is considered as double taxation, i.e., international double taxation, because he has to
pay tax in two countries on the same income.
 The Government levies taxes on the profits of a company before the distribution of dividends.
Thereafter, it taxes the individual shareholders on the dividends received by them. Then it
becomes a double taxation. Here the company and shareholders are taxed on the same income.
3.4.1. Kinds of Double Taxation:
 Double taxation can be classified on the following ways:
o 1. Double Taxation by different authorities.
o 2. Double Taxation by the same authority.
 Double Taxation by different authorities.
 When two different taxing authorities either international or federal levy tax on the same
tax base, it becomes a case of double taxation.
a. International double taxation is type of double taxation occurs when the Governments
of different countries levy tax on the same tax base.
 The scope of a tax determines the incidence of its burden. It includes both direct and
indirect taxes. Generally the income tax, wealth tax and customs duty expose to such
international double taxation.
b. Federal Double Taxation is a kind of double taxation that occurs when the Governments
within a country levy tax on the same base.
Example: - When the Federal Government and Regional Governments of a country levy
tax on any one-tax base, it is called federal double taxation.
 Double Taxation by the same authority.

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 Such a double taxation occurs when a Government either federal or regional levies on the
same tax base twice.
 The tax on capital and income, debtors and creditors on the amount of loan, on the profits
before and after distribution and the like are the notable examples in this regard.
3.4.2. Effect of Double Taxation
Double taxation affects the economy of the country directly and indirectly. The main effects of double
taxation are:
 Injustice to the Taxpayers: Double taxation causes injustice to the taxpayers. It discriminates
among the different taxpayers.
 Does not Conform to the Principle of Ability to Pay: In case of double taxation, the tax system
does not conform to the principle of ability to pay. Because when both the Central and Regional
Governments tax the same group on the same tax base, the principle of ability to pay is violated.
 Does not Ensure the Principle of Equity: When the Federal and State Governments levy taxes
on the same commodities especially on the necessities, it will broaden the gap between the rich
and the poor. Thus, the double taxation violates the principle of equity also.
 Discourages the Ability to Work, Save and Invest: Double taxation increases the price of the
commodities and leaves the people with lower disposable income. This in turn affects the
standard of living of the people and thereby reduces their ability to work, save and invest.
 Discourages the Small-Scale Industries: When the taxes are uniformly levied without any
exemption to small-scale sector, the competitive efficiency of them will be affected. Because of a
rise in their prices, they cannot compete with the large-scale industries in the market.
 Discourages Exports: When the same commodities are taxed both by Federal and State
Governments, their price will automatically be increased which in turn affects the export market.
 Affects the Overall Economic Development of the Country: Since double taxation affects the
individual economic activities, the whole economic development will be affected. In such a
situation, the Government cannot use the taxation as a weapon, boost the sick industries and to
curb the effects of trade cycles in the economy.
3.4.3. Remedies for Double Taxation
To remove the effects of double taxation, the following remedial measures can be adopted. They can be
classified on the following two categories:
Remedies for the Problem of International Double Taxation
 Agreement for Mutual Exemption: The countries may enter into an agreement to exempt the
income of non-residents when they take the income outside.
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 Basis for Incidence: The double taxation can be avoided when the taxes are levied either on
residential status or on citizenship and not on the both.
 Special Measures: Some special measures should be devised so that the Governments of two
countries may tax different parts of the income earned by a person.
Remedies for Internal or Federal Double Taxation
 Separate List: There should be a separate list of taxes that can be levied by the Federal
Government and State Governments.
 Co-ordination between the Fiscal Policies: There should be a perfect co-ordination between the
fiscal policies of the Federal and the State Governments. And the problem of double taxation can
be solved through the centralization of finance. Getting the final approval from the Central
Finance Minister for the State budgets can do this.
 Avoiding Overlapping of Taxes: There should not be any overlapping of taxes. The problems
of double taxation can be solved to a considerable extent if due consideration is given in this
regard. For example, to avoid the double taxation caused by overlapping of sales tax and excise
duties, they may be replaced by a centrally administered value added tax.
 In Ethiopia, the problem of double taxation is considerably reduced because of the provisions
made in the Ethiopian Constitution. In Articles 96, 97, 98, 99, 100, 101, and 102 of the
Constitution, there are specific revenue sharing lists of Federal and Regional Governments.

3.4.4. Methods of Elimination of Double Taxation:

 Many times situation arises whereby same income is taxed twice; i.e. in the State of Residence as
well as in the State of Source.
 In order to eliminate double taxation two methods are used. They are:
1. Exemption Method, and
2. Credit Method.
Exemption Method:
The exemption methods include the following:
(a). Full Exemption Method:
Under this method, income earned in the State of Source is fully exempt in the State of Residence.
(b). Exemption with Progression:
Under this method, income from State of Source is considered by the State of Residence only for the
rate purpose.
Credit Method:

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The credit methods include the following

(a). Full Credit:
Total tax paid in the State of Source is allowed as Credit against the tax payable in the State of
Residence.
(b). Ordinary Credit:
State of residence allows credit of tax paid in the State of Source only to that part of income tax, which
is attributable to the income taxable in the State of Residence.
(c). Method of Tax Sparing:
State of Residence allows credit for deemed tax paid on income, which are otherwise exempt from tax in
the State of Source.
d. Double Tax Avoidance Agreements:
 Article on elimination of Double Taxation assumes great significance, as it is the central point of
any Treaty.
 Treaties generally use combination of various methods for granting relief from double taxation.
It is also a powerful tool for the purpose of Tax Planning. In fact, it serves well the ultimate
objective of Treaty namely overall minimization of tax burden or avoidance of same income
being taxed by two countries.
 This brings in harmony and equity in tax legislation and bids good-bye to the famous dictum in
the taxation statutes that Tax and Equity are strangers.
Present Day Scenario and Need for Tax Treaties:
 Due to advances in communication and technology, the world has become a global village. No
nation can afford to remain in isolation. For survival in a competitive environment, one has to
view the entire world as market and create a niche for one's products in the international market.
 The need of the hour is to integrate the national economy with the international economy. This
gives rise to full-fledged joint ventures in place of limited participation, creating production and
marketing bases in different countries with diverse political systems and tax regimes.
 Movement of capital and cross border transactions becomes common place. The transnational
corporations are the vehicles used for the purpose.
 Every nation has sovereign right to tax its residents on their worldwide incomes. As a result, the
income of an organization can get taxed both in the home country (country of its origin) as well
the host country (country where it has its operations). In such an environment, cost of operating
worldwide would become prohibitive and the benefits of international trade, and competitive

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cost advantages would be lost. Double taxation is harmful for movement of capital, technology
and people.
 In civilized society, in home country tax is an obligation and in host country tax is a cost. There
is need to achieve tax efficiency. The Double Tax Avoidance Agreements come into play to
mitigate the hardships caused by taxing the same income twice, in a home country as well as in
the host country.
 Tax Treaties remove the obstacles and try to achieve balance and equity. They aim at sharing of
tax revenues by the concerned states on a rational basis without causing undue hardships to the
taxpayers operating internationally. Tax Treaties do not altogether eliminate double taxation, but
reduce the incidence to tolerable extent.
Advantages of Tax Treaty:
 Tax Treaties clearly lay down the provisions for taxing of income under various heads. There is
less room for ambiguity. For instance, business profits are taxable in the host country only if
there is “Permanent Establishment” as defined in the Treaty.

Chapter Four
Tax Administration Procedural Provision of Ethiopia
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4.1. Withholding Procedure Articles

 Withholding tax is the process of retaining or reserving the tax in advance or the process of
paying the tax in advance to the tax office.
 It is part of income tax .in some transaction the amount of tax withheld is treated as a final tax
liability.
 For certain payment, which may attract and benefit of withholding tax, the amount of tax
withheld is treated as a tax payment of the payee to be offset later against his final tax liability.
 One of the primary goals of the tax administration reform is to collect more revenue with
minimum cost. To achieve this using withholding tax system is popular in many countries. For
example collecting income tax through with holding is popular in many countries. Such tax is
collected through withholding at the source with minimum cost of administration.
 Employment income tax is another tax system that collected through withholding system. The
employers are withholding agent for personal income tax.
 In top of the promoting compliance, the systems shift the responsibility from the person or
organization which the incidence is failing to another or tax payer.
Rate of With Holding Tax
According to the proclamation, withholding tax is undertaken in the following rate:
 On imported goods at 3% the sum of cost, insurance and fright .i.e.
Withholding Amount =3 %( Cost +Insurance Cost +Fright cost)
 On payment made to taxpayer at 2% on cost of supplies or good involving more than birr 10,000 in
any one transaction or contract and service involving more than br 500in one transaction or service.
For example ato Aboma sold computer accessories for birr 40000 to Oromia public service college.
In the above transaction Ato Aboma is the seller and has the right to collect birr from the public
service college. On the other hand Oromia Public Service College has an obligation to make
payment for the total stock collected. When the college makes payment, full amount is not paid. It
should deduct 2% of the gross sale, which is 800(2% of 40000) and make payment for birr39200 and
receipt showing 2% payment. The Br 800 retained in the treasury of the college is the withheld
amount and it is forwarded to the tax office. This makes the government to collect tax in advance
and solve shortage of finance; also it makes the taxpayer to pay the tax with out filling ill or pain.
When the with holding tax is due?
Withholding tax is collected
 On imported good at customs clearing time
 During payment made for good or service

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What is withholding agent?

With holding agent is any person with a tax collection obligation as provided in the income tax
proclamation?
Who are with holding agent?
Organization or any company government owned enterprise share company private limited company,
etc
Which types of services are subject to withholding tax?
The following are subject to withholding tax
 Consultancy service
 Design ,written material, lecture and disseminations of information
 Lawyers accountant ,auditor ,and other service of similar nature
 Sale person ,art ,and sports profession and brokers including insurance brokers and other
commission agent
 Advertisement and entertainment program for television and radio broadcast
 Construction service
 Maintenance service
Withholding Income Tax on Payments
 Withholding income tax refers to the current payment of income tax at the time goods are
imported and payments are made on account of supply of goods and certain services.
 The income tax proclamation provides for withholding tax on imports and on certain specific
payments made by some organizations. The taxpayers are required to pay tax at the end of
the fiscal year after subtracting tax withholdings, if any, made on their receipts. The
following are the provisions for withholding income tax
(A) Withholding income tax on Imports: - Those taxpayers who import goods for commercial use are
required to pay 3% of CIF (Cost, Insurance and Freight) value of goods as tax withholding to the
Ethiopian Revenues and Customs Authority. If the tax withheld is less than the tax due on
declaration, the taxpayer is required to pay the difference on declaration. Likewise, if the withheld
tax is more than the tax due at the end of the tax period, the tax authority shall make a refund within
3 months of declaration. The amount collected as withhold tax is accounted for using the name,
address, and TIN of the taxpayer.
(B) Withholding income tax on other payments:- According to the Council of Ministers Regulation, the
following persons, who are called withholding agents, are required to withhold tax of 2% of the
gross payment that they make to the taxpayers:

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 Organizations having legal personality.

 Private non-profit organizations,
 Non-governmental organizations, and
 Government agencies
 The entities (called the withholding agents) shall transfer the amount withheld to the government
within 10 days from the last day of each month, in aggregate, indicating the TIN of the taxpayers
from whom the tax is withheld.
 If, at the time of declaration, the tax withheld is less than the declared tax, the taxpayer has to make
the remaining payment.
 On the other hand, if the declared tax is more than the tax due, the tax authority will refund the
excess within 2 months.
 Failure to pay the refund will result in payment of interest by the tax authority at the market rate.
 Withholding income tax will be applicable to the payment for:
a) Supply of Goods for more than Birr 10000in any one transaction or contract
b) Rendering of certain services involving more than Birr 500 in any one transaction or service.
The following are the services, the payment on which withholding income tax is required to be made.
 Consultancy services
 Designs, written materials, lectures and dissemination of information
 Lawyers, accountants, auditors, and other services of similar nature
 Sales persons, arts and sports professional, and brokers including insurance brokers and other
commission agents
 Advertisement and entertainment programs for television and radio broadcasts
 Construction services
 Advertisements services
 Patents for scientific and intellectual works
 Rent for lease of machines, building, and other goods including computers
 Maintenance services
 Tailoring
 Printing, and
 Insurance
 The withholding agent has the obligation to issue serially numbered receipts to persons from
whom the tax is withheld.

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 The agent shall supply the name and TIN of the taxpayer, the amount withheld and the total
amount of payment made.
 For this purpose, the withholding agent should keep the records showing the payment made and
tax withheld in his office. It is also required that such records should be kept for a period of 5
years and should be submitted to the tax authority as and when instructed by them.

4.2. Declaration and Assessment

Tax Year (Article-64):
The tax year for the Income tax purposes is as follows:
 Unless otherwise provided, the period for tax assessment ( “tax year”) shall be the fiscal year,
that is, the one-year period from 1st Hamle to 30th Sene.
 The tax year of a person is:
 in the case of an individual or an association of individuals, the fiscal year;
 in the case of a body, the accounting year of the body.
 A body shall not change its accounting year unless it obtains prior approval, in writing, from the
Tax Authority and complies with any condition that may be attached to the approval.
 The Tax Authority may, by notice in writing, revoke an approval granted to a company under
Sub-Article (3) if the body fails to comply with any of the conditions attached to the approval.
 Where the tax year of a person changes as a result of Sub-Article (3) or (4), the period between
the last full tax year prior to the change and the date on which the new tax year commences shall
be treated as a separate tax year, to be known as the “transitional Year.”
Certificate and Assessment of Schedule A Income (Article-65):
The tax-withholding certificate issued by an employer to an employee shall be proof that tax in the
amount stated was withheld on the employee’s Schedule “A” income of the amount stated.
 The amount of tax withheld on an employee’s Schedule A income, paid to the Tax Authority and
accompanied by the employer’s statement (as required by Article 51) shall be the amount
assessed by the Tax Authority effective on the date the tax is paid, and subject to later
amendment if the Tax Authority determines that an error or omission has been made.
 In the case of an employee whose taxable income for a tax year consists exclusively of Schedule
“A” income, no declaration of income is required.
 Notwithstanding the preceding, an employee working for more than one employer or an
employee of international organization having diplomatic immunity or working in embassies,

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missions and other consular establishments of a foreign government shall himself declare and
pay taxes on his schedule “A” income with the time prescribed under Article 51(3).
 If an employer finds out that his employee has more than one employment income and if he
ascertains that the other employer(s) have not aggregated said income, he shall aggregate and
withhold the tax thereon.
Declaration and Assessment of Schedule B and C Income (Article-66):
 Every taxpayer who has Schedule B or Schedule C income shall prepare a declaration of his
income in a form prescribed by the Tax Authority. Taxpayers shall submit the tax declaration to
the Tax Authority at the time of submitting the balance sheet, and the profit and loss account for
that tax year within the time prescribed below:
 Category A taxpayers within 4 months from the end of the taxpayers tax year.
 Category B taxpayers within 2 months from the taxpayers tax year.
 The type of records to be submitted to the Tax Authority in accordance with Sub-Article (1)
above shall be determined by Regulations to be issued by the Council of Ministers.
 The tax calculated in accordance with the tax declaration reduced by the tax with held in
accordance with Articles 52 and 53 of this Proclamation and the amounts provided by Article 7
(foreign tax credit) of this Proclamation during the tax year, shall be transferred by the taxpayer
to the Tax Authority simultaneously with the tax declaration.
 Any excess payments over the tax calculated according to Sub-Article (3) of this Article shall be
refunded by the Tax Authority to the taxpayer within ninety (90) days of becoming satisfied on
the tax declaration.
 The amount of tax due for the year, as stated in the declaration, shall be the amount assessed by
the Tax Authority although the Tax Authority may determine that an error or omission has been
made and therefore may issue an amended assessment.
Declaration and Assessment of Schedule D Income (Article-67):
 Every taxpayer who has Schedule D income, not subject to withholding at source constituting a
final tax, shall prepare a declaration of that income in a form prescribed by the Tax Authority.
Taxpayers shall submit this declaration to the Tax Authority within two (2) months from the end
of the Ethiopian Fiscal Year.
 The tax calculated in accordance with the declaration, after the amounts provided by Article 7
(foreign tax credit) paid during the year with respect to the Schedule D income subject to
declaration having been reduced, shall be transferred by the taxpayer to the Tax Authority
simultaneously with the declaration.

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 The amount of tax due for the year, as stated in the declaration, shall be the amount assessed by
the tax Authority unless the Tax Authority determines that an error or omission has been made.
Standard Assessment for Category C Taxpayers (Article-68):
 A standard assessment method shall be used to determine the income tax liability of Category C
taxpayers.
 The standard assessment shall be a fixed amount of tax determined in accordance with a Council
of Ministers Regulations establishing a schedule of standard assessment amounts that reflect
variations in the type of business, business size, and business location. The taxpayer shall pay the
tax determined in accordance with standard assessment on the 7 th day of July to the 6th day of
August every year, unless, the taxpayer requested and is allowed to make installment payments
in accordance with Council of Ministers Regulations.
 The period during which the standard assessment amount will be used and the basis for the
revised amount shall be determined by a directive to be issued by the Minister. The Minister
shall distribute the revised standard assessment to the tax Authorities.
Assessment by Estimation (Article-69):
 If no records and books of accounts are maintained by the taxpayer, or if, for anyreason, the
records and books of accounts are unacceptable to the Tax Authority, or if the taxpayer fails to
declare his or its income within the time prescribed by this Proclamation, the Tax Authority may
assess the tax by estimation.
 The manner of assessing tax by estimation shall determined by directives to be issued by the
Minister of Revenue.
Aggregation (Article-70):
A taxpayer who derives income from different sources subject to the same schedule shall be assessed on
the aggregate of such income.
Limitations (Article-71):
 if a taxpayer has submitted a declaration of income within the time limit and manner as
prescribed in this Proclamation, the Tax Authority has five (5) years to amend the assessment.
The five-year assessment period runs from the due date of the declaration.
 If a taxpayer has submitted a declaration in the manner required by this Proclamation, but after
the due date for making a declaration, the Tax Authority has five (5) years to amend the
assessment. The five years assessment period runs from the date the declaration was received by
the Tax Authority.

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 In case where the taxpayer has not declared his income or has submitted a fraudulent declaration,
not time limit provided in any other law shall bar the assessment of the tax by the Tax authority.
4.3. Assessment Notification
Contents of Assessment Notification (Article-72):
Every assessment notification shall contain the following elements:
 gross income and deductions applicable under this Proclamation;
 taxable income;
 rates applicable or percentage;
 taxes paid and due;
 any penalty or interest;
 the taxpayer’s name, address, and TIN; and
 a brief explanation of the assessment and a statement of the taxpayer’s rights.
Service of Tax Notices (Article-73):
 Income tax assessment notices or other notices issued by the Tax Authority to any taxpayer shall
be communicated in writing as follows:
 In the case of a resident individual, by registered letter or by delivery to the taxpayer in
person, or if he is absent, to any adult member of his family or any person employed by him
at his residence, or place of business or professional practice, provided that, if, no person can
be found to accept such service, then, the same may be effected by affixing the notice to the
door or other available part of the said residence or place of business.
 In the case of a resident body, by registered letter to the registered address of the body or by
delivery to any director or employee of the body at any of its places of business.
 In the case of non-resident persons, to their agent or agents in Ethiopia, or by affixing to the
door or other available part of the residence or place of business of such agent if he could
not be
 served in person; provided that, if in any case none of these measures are effective, service
may be discharged by the publication in any newspaper in which Court notice may be
advertised. The cost of such publication shall be charged to the taxpayer.
 Any assessment of income tax duly served on the taxpayer shall become final when:
 the taxpayer fails to pay the tax due or to lodge his or its appeal with the tax Appeal
Commission within thirty (30) days from the date of receipt of an assessment notice or
 from the date of receipt of an assessment notice or form the date of decision of the review
committee,

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 the time for appealing the decision of the Tax appeal Commission has expired; or
 the Court of Appeal renders its final decision.
 A taxpayer who does not pay the final assessment as provided under Sub-article (2) of this Article is
in default.
4.4. Payment of Tax
Tax payable when Due (Article-74):
 Any tax (including withheld or collected tax) that is to be paid to the Tax Authority by a stated
date shall be payable on that date. Failure to make a timely payment shall result in the imposition
of interest and the late payment penalty.
Interest (Article-75):
 If any amount of tax is not paid by the due date, the taxpayer is obliged to pay interest on such
amount for the period from the date the tax is due to the date it is paid.
 The interest rate is set at 25% (twenty five Percent) over and above the highest commercial
lending interest rate that prevailed during the preceding quarter.
 Interest shall be collected in the same manner as the tax to which it relates.
Credit and refund (Article-76): 1. [[

 Where the Tax Authority is satisfied that tax has been paid by a person, whether by withholding,
installments, or otherwise, in excess of the person’s tax liability to which the payment or
payments relate, the Tax Authority shall:
(a) Credit the overpaid tax against any liability of that person in respect of:
(i) Other taxes under this Proclamation;
(ii) Withholding of tax under this proclamation;
(iii) Any other amount due to the tax Authority under this Proclamation; or any other tax law;
and
(b) Refund the remainder to that person within 90 days of becoming satisfied.
 The Tax payer shall be entitled to an interest set at the highest commercial lending interest rate
increased by 25% (twenty five percent) that prevailed during the preceding quarter if he/it has
not received the refund within the time prescribed .
 Without limiting a person may apply for a refund under this Article. A refund application shall
be made to the Tax Authority in writing within three (3) years of the later of :
 The date on which the Tax Authority has served the notice of assessment to which the refund
application relates, or the date on which the tax or interest was paid.

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 The Tax Authority shall, within forty-five (45) days of making a decision on a refund application
under Sub-Article 2, serve on the person applying for the refund a notice in writing of the
decision.
A person dissatisfied with a decision referred to in Sub-Article 4 may challenge the decision only
through, the appeal procedure as though the decision were that of an assessment
4.5. Collection Enforcement
Seizure of Property to Collect Tax (Article-72):
 subject to Sub-Article (4) of this Article if any person liable to pay any tax imposed by this
proclamation is in default under Article 73(3), it shall be lawful for the Tax Authority to collect such
tax ‘and such further amount as shall be sufficient to cover the expenses of the seizure’ by seizing
any property belonging to such person.
 Seizure may be made on the accrued salary or wages of any employee, including a government
employee, by serving a notice of seizure on the officer who has the duty of paying the salary or
wages.
 For purposes of this Section; the team “Seizure” includes seizure by any means, aswell as, collection
from a person who owes money or property to the taxpayer.
 Whenever any property on which seizure had been made is not sufficient to satisfy the claim for
which seizure is made, the Tax authority may, proceed to seize other property,
 Seizure may be made under Sub-Article (1) of this Article on employee’s remuneration. or other
property of any person with respect or any unpaid tax only after the Tax Authority has notified such
person in writing of its intention to make such seizure. The notice shall be delivered not less than
thirty (30) days before the day of the seizure.
 If the Tax Authority makes a finding that the collection of the tax is in jeopardy, a demand for
immediate payment of such tax may be made by the Tax Authority and, on failure or refusal to pay
the tax, collection thereof by seizure shall be lawful without regard to the 30-days period provided in
Sub-Article (1) and the days provided in sub-Article (4).
 The effect of a seizure on employee remuneration payable to a taxpayer shall be continuous from the
date such seizure is first made until the liability out of which such seizure arose is satisfied or
becomes unenforceable by reason of lapse of time.
 The following shall be exempt from seizure:
 such amount of employee remuneration or other periodic income payable to an individual
as does not exceed the exempt amount according to Schedule A; and
 all other income and property that are not liable to attachment .

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Enforcement of Seizure (Article-78):

 Any person in possession of (or obligated with respect to ) property subject to seizure on which a
seizure has been made shall, unless such property is, at the time of such demand, subject to an
attachment or execution under any judicial process or is encumbered by law with the preferred right
of other creditors as stipulated under Article 30, on the demand of the Tax authority surrender such
property (or discharge such obligation)
 Any person who fails or refuses to surrender any property subject to seizure, on demand of the Tax
Authority, shall be personally liable to the government in a sum equal to the value of the property
not so surrendered, but not exceeding the amount of taxes for the collection of which seizure has
been made (together with costs and interest on such sum).
 In addition to the personal liability imposed by Sub-article (2), if the failure or refusal to surrender
is without reasonable cause, such person shall be liable for an additional charge equal to fifty percent
(50%) of the amount recoverable under Sub-Article (2).
 Any person in possession of property who surrenders or makes payment in accordance with this
Article shall be discharged from any obligation or liability to the delinquent taxpayer or to any other
person arising from such surrender or payment.
Production of Books (Article-79):
 If a seizure has been made or is about to be made on any property, any person having custody or
control of any books or records containing evidence or statements relating to the property subject to
seizure shall, on demand of the Tax Authority, exhibit such books or records to the Tax Authority.
Preferential claim to Assets (Article-80):
 From the date on which tax becomes due and payable under this Proclamation, subject to the prior
secured claims of creditors, the Authority has a preferential claim over all other claims upon the
assets of the person liable to pay the tax until the tax is paid.
 Where a person is in default of paying tax, the Authority may, by notice in writing, inform that
person of the Authority’s intention to apply to the Registering Authority to register a security interest
in any asset situated in Ethiopia which is owned by that person, to cover any unpaid tax in default,
together with any expense incurred in recovery proceedings.
 If the person on whom a notice has been served fails to pay the amount specified in the notice
within 30 days after the date of service of the notice, the Authority may, by notice in writing, direct
the Registering Authority that the asset, to the extent of the defaulter’s interest therein, shall be the
subject of security for the total amount of unpaid tax.

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 Where the Authority has served a notice on the Registering Authority under Sub- Article (3), the
Registering Authority shall, without fee, register the notice of security as if the notice were an
instrument of mortgage over or charge on such asset, as the case may be, and such registration shall,
subject to any prior mortgage or charge, operate while it subsists in all respects as a legal mortgage
over or charge on the land or building to secure the amount due.
Jeopardy Assessment (Article-81):
 In exceptional cases where the Tax Authority has reasonable grounds to believe that the collection of
tax is in jeopardy, and where a state of urgency exists, the Tax Authority may issue an administrative
order to the Bank with a statement of justification supplementing its order to block the accounts of
the taxpayer and secure information thereon, and may make an immediate assessment of tax for the
current period; provided,
 the Tax Authority shall obtain court authorization within ten (10) days from the date
of issuance of its administrative order
Priority of claim on Tax Withheld (Article-82):
1) Tax withheld by a withholding agent under this Proclamation:
I. is held by the withholding agent in trust for the Tax Authority:
II. is not subject to attachment in respect of a debt or liability of the withholding agent; and
III. in the event of liquidation or bankruptcy of the withholdingagent, does not form part of
the estate in liquidation, assignment, or bankruptcy and the Tax Authority has a first
claim before any distribution of property is made.
2 ) An amount that a withholding agent is required under this Proclamation to withhold from a payment
is:
(a). a first charge on that payment; and
(b). withheld prior to any other deduction which the withholding agent may be required to make
by virtue of an order of any court or any other law.
Taxpayer Safeguards (Article-83):
 Any property seized under this Section shall be seized, held, and accounted for only by the Tax
Authority No other agency of the government may require the property seized under this section
to be transferred or given over to it for any cause whatsoever.
 If any property seized under this Section is sold, any portion of the proceeds in excess of the
taxpayer’s liabilities under this section shall be returned promptly to the owner of the property.
Duties of Receivers (Article-36): In this Article, "receiver" means a person with respect to an asset in
Ethiopia and includes:

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 A liquidator of a company;
 A receiver appointee out of court or by a court;
 A trustee for un rehabilitated insolvent;
 A mortgage in possession:
 An executor of a deceased estate
 Any other person conduction a business on behalf of a person legally incapacitated.
A receiver shall, in writing, notify the Authority within 14 days after being appointed to the position or
taking possession of an asset in Ethiopia, whichever first occurs. The Authority may, in writing, notify a
receiver, of the amount which appears to the Authority to be sufficient to provide for tax which is or will
become payable by person whose assets are in the possession of the receiver.
A receiver:
 shall aside, out of the proceeds of sale of an asset, the amount specified by the Authority under
this Article or such lesser amount as is subsequently agreed on by the Authority;
 Is liable to the extent of the amount set aside for the tax of the person who owned the asset; and
 May pay any debt that has priority over the tax referred to in this Article notwithstanding any
provision of this Article.
A receiver is personally liable to the extent of any amount required to be set aside under this Article for
the tax referred to and to the extent that the receiver fails to comply with the requirements of this Article.
Record keeping (Article-37): A registered person or any other person liable for tax under this
proclamation shall maintain for 10 years in Ethiopia:
a) Original tax invoices received by the person,
b) A copy of all tax invoices issued by the person,
c) Customs documentation relating to imports and exports by the person,
d) Accounting records; and
e) Any other records as may be prescribed by the Minister of Inland Revenue.
For these purposes, records means accounting records, accounts, books, computer-stored information, or
any other documents.
Notification of Changes (Article-38): Every registered person shall notify the Authority, in writing, of:
 any change in the name, address, place of business, constitution, or nature of the principal
taxable activity or activity or activities of the person; and any change of address from which, or
name in which, a taxable activity is carried on by the registered person, within 21 days of the
change occurring
4.6. Rewards and Administrative Penalties
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Rewards for Verifiable Information (Article-84):

 Where a person provides verifiable and objective information of tax evasion through concealment,
under reporting, fraud or any other improper means, the informer shall be granted up to twenty
percent (20) of the amount of tax evaded at the time of collection of the said tax.
 The informer shall not be entitled to such a reward where:
(a) he/she has participated in the tax evasion; or
(b) Where such reporting is part of his/her employment duty.
Reward for Outstanding Performance (Article-85):
 The Tax Authority shall reward tax payers and tax officers for outstanding performance and
discharge of duties.
Penalty for Late Filing or Non-Filing (Article-86): [

 A taxpayer who fails to file a timely tax declaration is liable fro 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):
 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).
 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.
 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 penalty of 5%(five percent) of the amount of unpaid tax on the first day after the due date
has passed: and
 An additional 2% (two percent) of the amount of the tax that remains unpaid on the first day
of each month thereafter.

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Penalty for Failure to keep Proper Records (Article-89):

 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.
 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:
 the licensing authority shall forthwith suspend the taxpayer’s license on notification by
the Tax Authority;
 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;
 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):
 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.
 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.
 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.
 A penalty of Birr 1,000 is imposed on the following individuals:
 a manager who knew or should have known of the failure
 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.
Penalty for Failure to Meet TIN Requirements (Article-91):
Taxpayers failing to meet the requirements for TIN are subject to the following penalties:
 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.

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 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.

Collection of and Appeal against Penalties (Article-92):

 Administrative penalties shall be paid on notice and demand by the Tax Authority and shall be
assessed and collected in the same manner as taxes. Any references, in this Proclamation, to “tax
imposed” shall be deemed to include administrative penalties imposed.
Exoneration of Taxpayer from Liability (Article-93):
 In the event that errors that led to incorrect determination and execution of tax obligations are
corrected independently before commencement of a tax examination, the taxpayer shall be
released from liability, with the exception of paying the tax and interest.
4.7. Criminal Offences
Procedure in Tax Offence Cases (Article-94):
 A tax offence is a violation of the criminal law of Ethiopia and shall be charged, prosecuted, and
appealed in accordance with the Ethiopian criminal procedure law.
TIN Violations (Article-95):
 If a person subject to tax is convicted of obtaining more than one TIN, that person shall be liable
to pay a fine of not less than 20,000 Birr and not more than 50,000 Birr and to imprisonment of
five (5) years per additional TIN obtained.
Tax Evasion (Article-96):
 A taxpayer who evades the declaration or payment of tax commits an offense and, in addition to
the penalty for the understatement of income referred to in Article 86, may be prosecuted and, on
conviction, be subject to imprisonment for a term of not less than five (5) years.
Making False or Misleading Statements (Article-97):
 A tax payer who:
 makes a statement, to an officer of the Tax Authority, that is false or misleading in a material
particular; or
 omits from a statement made to an officer of the Tax Authority any matter or thing without
which the statement is misleading in a material particular; commits an offence and is liable
on conviction.
 Where the statement or omission is made without reasonable excuse,

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 and if the inaccuracy of the statement undetected may result in the underpayment of tax by an
amount not exceeding 1,000 Birr, the tax payer shall be liable to a fine of not less than
10,000 Birr and not more than 20,000 Birr, and imprisonment for a term of not less than one
(1) year and not more than three (3) years, and
 If the underpayment of tax is in an amount exceeding Birr 1,000, he shall be liable to a fine
of not less than twenty thousand Birr and not more than 100,000 Birr and imprisonment for a
term of not less than three(3) years and not more than five (5) years.
 Where the statement or omission is made knowingly or recklessly,
 and if the inaccuracy of the statement undetected may result in an underpayment of tax by an
amount not exceeding 1,000 Birr, to a fine of not less than 50,000 Birr and not more than
100,000 Birr, or imprisonment for a term of not less than five (5) years and not more than ten
(10) years; and
 If the underpayment of tax is in an amount exceeding Birr 1,000, to a fine of not less than 75,000
Birr and not more than 200,000 Birr, or imprisonment for a term of not less than ten (10) years
and not more than fifteen (15) years.
Obstruction of Tax Administration (Article-98):
 A person who,
(a) obstructs or attempts top obstruct an officer of the Tax Authority in the performance of duties under
this Proclamation, or
(b) otherwise impedes or attempts to impede the administration of the Proclamation, commits an offence
and is liable on conviction to a fine of not less than 10,000 Birr and not more than 100,000 Birr, and
imprisonment for a term of two (2) years.
3) The following and similar other actions are considered to constitute obstruction:
(a) Refusal to satisfy a request of the Tax Authority for inspection of documents, reports, or other
information related to a taxpayer’s income producing activities;
(b) Non-compliance with a Tax Authority request to report for an interview;
(c) Interference with a tax officer’s right to enter the taxpayer’s business premises.
Offences by Tax Authority Employee (Article-99):
 Any person employed for carrying out the provisions of this Proclamation who:
 Directly or indirectly, asks for or receives in connection with any of the officer’s duties, a
payment or reward, whether pecuniary or otherwise, or promise or security for that payment or
reward, not being a payment or reward to which the officer is lawfully entitled to receive, or

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 enters into or acquiesces in an agreement to do or to abstain from doing permit ,conceal, or

connive at any act or thing whereby the tax revenue is or may be defrauded, or which is contrary
to the provisions of this Proclamation or to the proper execution of the officer’s duty;
 exceeds the authority conferred upon the Tax Authority or misuses such authority; commits an
offence and is liable, on conviction, to a fine of not more than 50,000 Birr and to imprisonment
for a term of not less than ten (10) years and not more than twenty (20) years.
Unauthorized Tax Collection (Article-100):
 Any person who is not authorized to collect tax under this Proclamation collects or attempts to
collect tax (or an amount the person describes as tax) commits an offence and is liable, on
conviction, to a fine of not less than 50,000 Birr and to imprisonment for a term of not less than
five (5) years and not more than ten (10) years.
Aiding or Abetting (Article-101):
 A person who aids, abets, incites, or conspires with another person to commit a violation against
this Proclamation also commit s an offence under this proclamation and shall be subject to
prosecution, and shall on conviction be liable to a fine and imprisonment not in excess of the
amount of fine or period of imprisonment provided for the offence aided or a betted.
Offences by Entities (Article-102):
 Subject to the provisions of Sub-Article (3) of this Article, where an entity commits an offence,
the manager of that entity at the time of the Commission of the offence is treated as having
committed the same offence and is liable to a fine and imprisonment under this Proclamation.
 Subject to the provisions of Sub-Article (3) of this Article, where an entity commits an offence
by failing to pay an amount of tax, including an amount treated by this Proclamation as though it
were tax, every person who is the
 manager of that entity at that time, or was a manager within six (6) months prior to the date of
commission shall jointly and severally, be liable with that entity and that other person to the Tax
Authority for the amount.
 Sub-Articles (1) and (2) do not apply where:
(a) the offence is committed without such person’s knowledge or consent; and
(b) such person has exercised the degree of care, diligence and skill that a reasonably prudent person
would have exercised in comparable circumstances to prevent the commission of the offence.
 4) Any person who refuses to supply goods or render services to a withholding agent, by reason
of him withholding an amount of tax from the payment to that person, shall personally be liable

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to a fine of not less than Birr 5,000 and not exceeding Birr 10,000 and to imprisonment for a
term of not less than one year and not more than two years.
 5) In Sub-Articles (1) and (2), “manager” means,
(a) in the case of a partnership, a partner or manager of the partnership or a person purporting to act in
either of those capacities;
(b) in the case of a body, a director, manager, or officer of the company or a person purporting to act in
any of those capacities; and
(c) in the case of an association of persons, a manager or a person purporting to act in that capacity.
Publication of Names (Article-103):
 The Authority shall from time to time publish by notice in daily Gazettes a list of persons who
have been convicted of offences under Articles 93 to
 Every list published in terms of Sub-Article (1) shall specify:
(a) the name and address, of the enterprise or of the person;
(b) such particulars of the offence as the Authority may think fit:
(c) the tax period or tax periods in which the offence occurred;
(d) the amount or estimated amount of the tax evaded; and
(e) the amount, if any, of the additional tax imposed.
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):
[

 The Review Committee shall be accountable to the head of the Tax Authority and shall have the
following duties:
 to examine and decide on all applications submitted by tax payers for compromise of penalty,
interest, and waiver of tax liability;
 to gather any written evidence or information relevant to the matter submitted;
 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
 to review determination made by the Tax Authority for accuracy, completeness, and compliance
with this Proclamation.

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 The Committee shall only review applications submitted to it within 10 days of receipt of tax
assessment notification
 The Head of the Tax Authority may approve the recommendations or remand the case, with his
observations, to the committee for further review.
Waiver of Penalty (Article-106):
The Review Committee may waive administrative penalties in accordance with the directives issued by
the Minister of Revenue.
Right of Appeal against Assessment of Income (Article-107):
 Any taxpayer who objects to an assessment may appeal to the Tax Appeal Commission
(hereinafter referred to as the “Appeal Commission”)upon the fulfillment of the requirements
hereunder.
 No appeal shall be accepted by the Appeal Commission, unless:
 a deposit of thirty-five percent (35%) of the disputed amount is made to the Tax Authority; and
 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.
Date of Lodging Appeal (Article-108):
The date on which an appeal is submitted shall be the date of:
(a) its registration by the archives of the Appeal Commission if it is delivered other than by registered
mail; or
(b) Registration by the post office if sent by registered mail.
Contents of Memorandum of Appeal (Article-109):
 The memorandum of appeal shall be submitted in duplicate and shall include:
 a statement of the specific subject matter of the appeal and the reason for the appeal:
 the taxpayer’s name, address and TIN, and
 as attachments, any relevant supporting documents and a photocopy of the receipt for the appeal
deposit.
 Where any one of the first three conditions under Sub-Article (1) is missing, the Appeal
Committee shall require the appellant to correct the deficiency within five (5) days, failing of:
which the appeal shall be rejected.
Service of Documents (Article-110):
 Prior to the first hearing of any appeal:
 a copy of the memorandum of appeal shall be served on the Tax Authority by the Appeal
Commission; and

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 the Tax Authority shall submit its reply to the Appeal Commission while at the same time
giving a copy thereof to the appellant.
 The appellant shall have the burden of proof with a view of establishing his or its claim.
Decision of Appeal Commission (Article-111): [

 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 thepanel members and the panel’s
chair person, and a statement of the decision.
 The statement of the Commissions decision shall include:
 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);
 the factual findings, citation to the applicable law, legal interpretation, a conclusion on each
relevant issue presented; and any dissenting opinion.
 A summary of the appellant’s appeal rights.
 The decision shall be signed by the panel members present, and the Seal of the Appeal
Commission shall be affixed thereon.
 The Appeal Commission may decide ex-part where:
 any appellant fails to give counter reply when necessary, or to appear before it on two
occasions, after lodging appeal; or
 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):
 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.
 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.
 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):
 The following Tax Appeal Commissions shall be established:

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 Federal Appeal Commission, at the Federal level;

 Regional Appeal Commission, in each Regional Government town;
 Zonal Appeal Commission, in each Zonal town; and
 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) :
 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.
 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.
 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.
 The Appeal Commission’s President shall be appointed by appropriate entities listed under
Article 113(3) above.
 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.
 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.
 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):

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 The Appeal Commission shall have the authority:

 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;
 to instruct the Tax Authority or the taxpayer to submit new facts, if any; and
 to order the Tax Authority or the taxpayer or any other person or governmental department or
agency, to produce supporting evidence relevant to the taxpayer’s allegation.
 An Appeal Commission’s Chairperson shall:
 make preliminary examination of memoranda of appeal;
 prepare the agenda for the panel;
 preside over and guide the proceedings;
 ensure that the arguments are properly recorded in the minutes and that the decision
conforms to the prescribed form; and
 Submit an annual repot about the accomplishment (performance) of the commission he
presides over.
Burden of Proof (Article-116):
 The burden of proving that an assessment is excessive or that a decision of the Authority is
wrong lies on the person objecting to the assessment or decision.
Power to Issue Regulations and Directives (Article-117):
 The Council of Ministers shall issue regulations for the proper implementation of this
Proclamation.
 The Minister of Finance and Economic Development shall issue directives for the carrying out of
any power delegated to him under this Proclamation.

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