The Ethiopian income tax system follows a scheduler approach as a result income from different sources shall be taxed and treated separately.  Accordingly the income tax proclamation has introduced four kinds of schedules :1. Schedule A
All incomes from employment shall be taxed based on this schedule . The proclamation has made it clear that only incomes of employees shall be taxed based on this schedule. Incomes of persons getting their economic benefits from activities akin to employment will be taxed based on other schedules. For instance a person working as an independent contractor will be taxed based on schedule C .(Arts.10-11 of the income tax proclamation)
2.Schedule B Income
All incomes from rental of buildings shall be taxed using this schedule(arts.14-16 of the proc.). In case of buildings the proclamation has not made a distinction among buildings made of different materials . In practice all buildings made of any kind of material are subject to the payment of the tax so long as the owner gets an income from the building.
This schedule makes a distinction between an income from rental of building by physical persons and bodies corporate . Accordingly all incomes by physical persons shall be taxed using this rate :

Schedule ‘B’

Taxable Income from Rental (per year)

Income Tax Payable

Over Birr

to Birr

 

0

1800

exempt threshold

1,801

7,801

10

7,801

16,800

15

16,801

28,000

20

28,201

42,600

25

42,601

60,000

30

Over 60,000

 

35

On the other hand incomes of bodies corporate from the same activity shall be tax at a flat rate of 30 % with no exemptions for smaller incomes .
Schedule C
Incomes from business shall be taxed based schedule C . Business according to the law is any

industrial, commercial professional or vocational activity or any other activity recognized as trade by the Commercial Code of Ethiopia and carried on by any person for profit . According to the definition any industrial ,commercial or vocational activity can be considered as a business and be subject to the payment of the tax so long as the person is carrying out this activity for profit.
This schedule also makes a distinction between the income derived by physical and juridical persons . Consequently incomes of physical persons shall be taxed using a schedule similar to the above one . Whereas incomes from bodies corporate shall be taxed at a flat rate of 30 %.
Schedule D
All incomes which cannot be subject to either schedule A,B or C shall be subject to this schedule . This scheule was intended to be used in order to impose a tax on incomes which cannot be subject to one of the sceduk















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    Tax Law Lecturer and a consultant on Ethiopian Tax laws 

    taxation of illegal incomes in Ethiopia 

    Who is required to pay an income tax in Ethiopia 

    November 2012

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