Ethiopia Considers Income Tax Reform, Adjusting Top Threshold
Ethiopia is considering significant revisions to its income tax structure. A bill recently presented to the House of People’s Representatives proposes raising the threshold for the highest income tax rate. Specifically, the amendment suggests increasing the point at which the top tax rate of 35% applies, moving it from the current 10,900 birr to 14,000 birr. This potential change reflects the government’s broader economic strategy and aims to modernize the tax system.
Modernizing Tax for Economic Growth and Digital Adaptation
The existing tax legislation, originally enacted in 2008, currently imposes the 35% top income tax rate on monthly salaries exceeding 11,000 birr. The new proposal, presented to parliament during a special session on June 27, 2017, by the Ministry of Finance, seeks to update the tax base. The Ministry of Finance states the need to modernize the existing income tax laws to address identified “gaps” and to ensure alignment with the current economic landscape. The reforms are part of a larger plan to elevate tax and duty revenues to 11% of the GDP in the coming four years. The proposed amendment is intended to fit the burgeoning digital economy and help in curbing tax evasion. This move can benefit Ethiopia’s growing tech sector by providing better income prospects to highly skilled tech talent.
In conclusion, Ethiopia’s proposed income tax adjustments reflect a commitment to adapting its fiscal policies to evolving economic realities. By revising the threshold for the top tax bracket, the government aims to stimulate economic activity, modernize its tax system, and ultimately boost its revenue collection.
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