6.

Activities for
Business Structure &
Taxation
6.1. Business Structure
Exercise in Business Structure
For the given title of business structures, discuss on
 Necessary documents, criteria, initial capital, number of persons… to
form the business structure.
 Advantage and disadvantage of business structures.
Exercise
Business Structure

For the given title of business structures, discuss on

 Necessary documents, criteria, initial capital, number of persons… to
form the business structure.
 Advantage and disadvantage of business structures.

Group 1: Sole proprietorship & Partnership (Ordinary Partnership)

Group 2: Joint Venture & General Partnership
Group 3: Limited Partnership & Share Company
Group 4: PLC & Cooperative Society
6.2. Taxation System in Ethiopia
Exercise in Taxation System
Discuss the given titles and what
type of taxes will be included in
them
 Group 5: Direct Tax & Indirect Tax
 Group 6: Category of Tax Payers
& Schedule for paying tax
 Group 7: Tax Excluded & Tax
Declarations and Payments

https://t.me/ASTPBO Telegram channel for Arada Small Taxation System

 Taxation is a term for when a taxing authority, usually
a government, levies or imposes a financial
obligation on its citizens or residents.

 The Ethiopian tax law provides for direct and indirect taxes.
The direct taxes are divided into five categories: personal
income tax, rental tax, withholding tax, business profit tax
and other taxes. The main types of indirect taxes applicable
are value added tax (VAT), customs duty, excise and turn
over taxes.
Businesses are required to pay: "business income tax, windfall income tax, other
income tax, turnover tax and excise tax." Over 20% of all tax revenue in Ethiopia
is derived from business profit tax, and 62% of all direct taxes consist of business
taxation.
Main Taxes in Ethiopia:

Types of taxes Rate

1: Corporate Income Tax 30%

2: Turn Over Tax 2% & 10%
3: Excise Tax 10% up to 100%
4: Customs Duties 0% up to 35%
5: Income Tax from Employment 0% up to 35
6: Withholding Tax 2%
7: Value Added Tax (VAT) 15%
8: Export Tax Nil (with exception of hides and skins-150%)
9: Dividend Tax 10%
10: Royalty Tax 5%
 Categories of Taxpayer
 (Article 3 of the Proclamation)For the purposes of the
Proclamation there are the following categories of
business taxpayers.
1. Category “A” taxpayer being a company or any other
person having an annual gross income of Birr 1,000,000
or more;
2. Category “B” taxpayer being a person, other than a
Company, having an annual gross income of Birr 500,000
or more but less than 1,000,000 and;
3. Category “C” taxpayer being a person other than a
Company, having an annual gross income of less than Birr
500,000.
 Schedules of Income
 (Article 8 of the Proclamation)The Proclamation provides for
the taxation of income in accordance with the following
schedules:
1. Schedule ‘A’, income from employment (Article 10-12 of the
Proclamation);
2. Schedule ‘B’, income from rental of buildings (Article 13-17 of
the Proclamation);
3. Schedule ‘C’, income from business (Article 18-27 of the
Proclamation);
4. Schedule ‘D’, other income (Article 51-58 of the Proclamation);
5. Schedule ‘E’, exempt income (Article 65 of the Proclamation).
 Tax Declarations and Payments
• (Article 83 and 84 of the Proclamation)An employee is
not required to file a tax declaration unless he has more
than one employer or has self-withholding obligation. An
employee with more than one employer is required to file for
declaration within 30 days from the end of every three
month. Such employees must pay the due taxes every 3
month.
 A Category “A” or “B” taxpayer should file a tax
declaration within 4 months or 2 months from the end of
the tax year, respectively. For a Category “A” taxpayer
the declaration shall include taxpayer’s profit and loss
statement and balance sheet for the year. On the
contrary a Category B tax payer should only attach the
taxpayer’s profit and loss statement for the year.
Category A or Category B tax payers should pay the due
tax when the period of tax declaration for the year is
due.
• A Category “C” tax payer is required to file for a tax
declaration and subsequently pay the due tax from 7th day
of July to 6th day of August each fiscal year.

• A tax payer who has Schedule “D” income for a tax year that
is not discharged by the withholding of tax from the income
shall file a tax declaration within 2 months after the date of
the transaction. The payment of the tax should also be
effected when such period is due.
 In a different manner importers under Schedule “C” are
required to make an advance payment of business
income tax equal to 3% of the CIF value of the goods.
The payment should be effected before the imported
goods are released from customs control. This payment is
credited against the taxpayer’s business income tax
liability for the year. Additionally, a tax payer falling under
Schedule “C” is allowed to pay tax on installment. (See
article 86 of the Proclamation.)
 Taxes
Tax Excluded
Medical treatment;
Transportation allowance;
Hardship allowance;
Reimbursement of travelling expenses incurred on duty;
Per Diem and travelling expenses;
Board members’ and board secretaries’ allowances;
The income of persons employed for domestic duties;
 Payments made to a person as compensation in relation to injuries suffered by
that person or the death of another person.
 Rental/Business Income Tax (Annually)
Ethiopian Personal Income Tax (Monthly)
No from to rate Deduction??
No. from to Rate Deduction
1 0 7200 0% 0
1 0 600 0% 0
2 7201 19800 10% 720
2 601 1650 10% 60
3 1651 3200 15% 142.5 3 19811 38400 15% 1710

4 3201 5250 20% 302.5 4 38401 63000 20% 3630

5 5251 7800 25% 565 5 63001 93600 25% 6780

6 7801 10900 30% 955 6 93601 130800 30% 11460
7 Over 10901 35% 1500 7 Over 130800 35% 18000