There are two types of taxes in Ethiopia: direct and indirect taxes.

I. Direct taxes

According to Ordinance No. 286/94, any person permanently residing in Ethiopia must pay tax on the income that he receives in Ethiopia or from abroad. If a person is not a resident of Ethiopia receives income that is sourced from Ethiopia, the tax must also be paid. This is a direct tax that a person pays on any income earned. In article 5 of the proclamation, the resident is defined as follows:

A. Someone who has a permanent address in Ethiopia; or

B. If a person has a place in Ethiopia, in which he often resides; or

C. If the person is an Ethiopian citizen but resides abroad for an adviser, diplomatic, or any other similar purpose; as well as

D. If a person has been in Ethiopia for 183 days in 12 months, permanently or otherwise, the law treats him as a resident of Ethiopia and imposes a duty on him to pay tax on any income received.

According to article 8 of Proclamation No. 286/94, there are certain types of income that are subject to direct taxation. These:

A. Income from employment

B. Home rental income

C. Income from entrepreneurial (trading) activities

D. and others

What is meant by others:

• Income from the rent of patent and copyright

• Income from winning the lottery

• Income from a share in a company, etc.

Income tax is levied on taxable business income.

The taxable income of organizations is taxed at a rate of 30%. If the tax comes from an individual, it will be taxed following the proclamation. 286/02 Accordingly:

1. Income from royalties or rental income from copyright is taxed at a flat rate of five percent.

2. Gains from obstructing the provision of technical services will be taxed at a flat rate of ten percent.

3. Income from gambling (e.g. lottery) is taxed at a rate of 15%, except for winnings of less than 100 birr.

4. Any person who receives dividend income from a public limited company is taxed at the rate of 10%.

5. Income from the lease of property (land, building, or movable property) not related to the entrepreneurial activity is taxed on the annual gross income at the rate of 15%.

6. Each person who receives income from interest on deposits pays tax at the rate of 5%.

These are some of the sources of income that should be treated as direct tax.

II. Indirect taxes

Indirect taxes are the ones that the taxpayer collects indirectly from customers, rather than from their income. This means that the tax money comes from the clients. The taxpayer adds the sales price for the service or product it provides so that buyers can pay the tax indirectly. There are three types of indirect taxes:

• Value Added Tax (VAT)

• Sales tax

• Excise tax.

According to Decree No. 285/94, the following persons are payable: registered payers or persons who must be registered as VAT payers:

• Registered following Article 17 means a person who has voluntarily registered as a VAT payer;

• The person who must be registered is a person who carries out taxable activities and is not registered if that person: – at the end of any period of 12 calendar months performed during this period, a taxable transaction, the total value of which exceeds 500,000 BIRR;

• At the beginning of any period of 12 calendar months, it is reasonable to expect that the total amount of taxable transactions to be carried out by a person during this period will exceed BIR 500,000. The Ministry of Finance and Economic Development can give instructions to increase or decrease the threshold. The VAT rate is always 15% of the income.

When we proceed to pay the tax, the following persons are responsible for paying the TOT following article 3 of the proclamation. No. 308/95 for the goods and services that they sell in Ethiopia as value-added tax, the value-added tax is payable, except as provided in article 7. The exceptions are as follows.

• Sale or transfer of duels used for at least two years, or rent of duels;

• Provision of financial services;

• Offer of national or foreign currency and security;

• Provision of religious or other related services by religious organizations;

• Provision by religious organizations of religious or related serials;

• Supply of prescription drugs specified in the directives of the relevant government agency and provision of medical services;

• Provision of educational services by educational institutions, as well as childcare services in preschool institutions;

• Supply of goods and services in the form of humanitarian aid.

• Electricity supply, kerosene, and water;

• Provision of transport;

• Permits and license fees – supply of books; as well as

• Supply of goods or services by a store that employs people with disabilities if more than 60% of employees are disabled. the Minister of Finance and Economic Development may by his order exempt other goods and services from taxation, therefore income from all goods subject to turnover tax, if sold in Ethiopia, is taxed at 2%, and services rendered in Ethiopia, such as construction, miles, and tracker services are taxed at 2%, for any other services the tax will be 10%.