Personal Income Tax in Ethiopia

We have compiled here the rates and exemptions on personal income tax or tax on income from employment in Ethiopia.

Payroll Tax Rate in Ethiopia and calculations

Every person having income from employment in any government or other private organization or non Governmental organization, such as NGOS, and if his/her is income from employment includes any payments or gain in cash or in kind which he/she receives from employers is supposed to pay income tax as per the following table.

 

No

Employment Income /Per-months/

Tax Rate (%)

Deduction In Birr

 

From Birr

To Birr

None

1

0

150

Exempted (Non-taxable)

2

151

650

10

15

3

651

1400

15

47.5

4

1401

2350

20

117.5

5

2351

3550

25

235

6

3551

5000

30

412.5

7

Over 5000

 

35

662.5

Examples of Calculation on Payroll Tax Rate in Ethiopia

Example 1

Gross Salary = Br. 500  
Tax: 500 x 10% – 15 = Br. 35
Net: 500-35 = Br. 465

Net Salary = Br. 465

Income Tax = Br. 35

Example 2 

Gross Salary = Br. 5200 
Tax: 5200 x 35% – 662.50 = Br. 1157.50
Net: 5200-1157.50 = Br. 4042.50

Net Salary = Br. 4042.50

Income Tax = Br. 1157.50

This part is adapted from the Ethiopian Revenues and Customs Authority website: http://www.erca.gov.et/

Exempted Tax of an Employee’s Transport Allowance

Transportation allowance of an employee is exempted from income tax when an employee and an employer have an agreement between them, which their agreement is clearly defined on the contract agreement that the allowance is applied only for transportation purpose.

The exempt transportation allowance from tax doesn’t include if the employer arrange or give a vehicle to employee when a person use the vehicle from house to work and from work to house.

The maximum Transportation Allowance Exempted from Tax

Tax exempted for transportation allowance to the employee shall be not more than 800 birr. Also the transportation allowance paid to the employee should be not more than ¼ of his /her salary.

Exempted Tax on an employee’s Per Diem and Weather Allowance

According to Directive No. 21/2001 (Download) issued by ERCA, Per Diem allowance and Weather allowance can be free from Income Tax subject to the following conditions:

  • Weather allowance paid for employees who work in places that are clearly marked as arid/desert.
  • Per Diem allowance can be exempted from income tax when the employee and the employer have an agreement between them, which their agreement is clearly defined on the contract agreement that the allowance is applied only for Per Diem purpose.
  • The Per Dime allowance doesn’t include expenses incurred when an employee commutes to and returns from office. It doesn’t include expenses incurred by those who have company vehicle or expenses incurred on transportation service provided by the company to employees.
  • The maximum Per Diem allowance – exempted from income tax – paid to an employee if he/she travels farther than 25km from his/her place of work  is Br. 150 per day and should not exceed 4% of the employee’s monthly salary.
  • The maximum Per Diem allowance – exempted from income tax – paid to an employee per month is Br. 1000 and should not exceed 1/4th or 25% of the employee’s monthly salary.
  • Transport expense incurred while an employee is on travel for work related purposes should be based on documents/evidences and should be in line with (should not exceed) the prevailing land or air transport fares.
  • Transport expense incurred when and expatriate worker leaves the country – having terminated his/her contract – should be as per the agreement specified in the contract and should be in line with (should not exceed) the prevailing land or air transport fares with his/her luggage not exceeding 300 kg.
Multilink Consulting