Ethiopia Proposes Raising Top Income Tax Threshold to 14,000 Birr











A new bill tabled in Ethiopia’s House of People’s Representatives aims to increase the threshold for the highest income tax rate, moving the point at which the 35 percent tax applies from 10,900 birr to 14,000 birr.

The current top rate and its threshold were established by the 2008 Income Tax Proclamation, which set the 35 percent rate for monthly salaries exceeding 11,000 birr. The draft amendment was formally submitted to parliament last Friday, June 27, 2017, during a special session.

The Ministry of Finance says the reform is part of a broader strategy to raise tax and duty revenue to 11 percent of GDP over the next four years.

The explanatory memorandum notes that the current tax law “has been in force for over nine years” and contains “gaps” that no longer reflect Ethiopia’s economic conditions or the complexity of its business environment. The proposed amendment seeks to modernize the tax base to better fit the digital economy and curb tax evasion.

Key Changes in the Draft Bill

The minimum monthly income exempt from tax would rise from 600 birr to 2,000 birr.

The threshold for the highest tax rate (35 percent) would move from 10,900 birr to 14,000 birr.

The overall income tax rates (ranging from 10 percent to 35 percent) would remain unchanged, but salary brackets would be slightly adjusted.

Under the existing law, monthly employment income is taxed progressively in six brackets, with the top rate of 35 percent applied to salaries above 10,900 birr. Income up to 600 birr is currently tax-free, while earnings from 601 to 1,650 birr are taxed at 10 percent.

The government says the adjustment aims to relieve some cost-of-living pressures without severely harming public revenue. The explanation highlights that “especially regional governments” rely heavily on payroll taxes to fund services.

During public consultations, some proposed significantly raising the tax-free threshold. However, the Ministry of Finance rejected those proposals, arguing they would result in revenue losses that cannot be offset elsewhere.

“Reducing the tax rate or dramatically increasing the exempt bracket would create unsustainable pressure on government finances, especially for regional governments,” the memorandum states.

Officials describe the proposed changes as a “balanced adjustment,” designed to account for employees’ increased living costs while minimizing harm to government services. The ministry also warns that any broader cuts would have “a significant negative impact” on service delivery, noting that the government could lose about 0.21 percent of GDP in revenue from these modest revisions alone.

The draft bill also proposes similar small-scale adjustments to the taxation of rental income and income from self-employment.

Parliament referred the draft proclamation to its Standing Committee on Planning, Budget and Finance for detailed review. Because the current parliamentary session ends on Monday, June 30, 2017, the bill is expected to be debated when the House reconvenes in September.