Ethiopian Parliament Approves Major Amendment to Federal Income Tax Law to Align with Digital Economy

Ethiopian Parliament Approves Major Amendment to Federal Income Tax Law to Align with Digital Economy Addis Ababa, Ethiopia — July 17, 2025In a significant legislative development, the House of Peoples’ Representatives has approved a draft amendment to the longstanding Federal Income Tax Proclamation. The decision was made during the House’s second emergency session held today, signaling the government’s push toward modernizing its fiscal framework to reflect evolving economic realities. The revised proclamation aims to establish a more responsive and inclusive tax system, with particular emphasis on the integration of the digital economy and enhanced revenue mobilization mechanisms. Modernizing for the Digital EraPresenting the draft to parliament, Desalegn Wedaje, Chair of the Standing Committee on Planning, Budget, and Finance, emphasized that the previous proclamation, in place for many years, had become outdated and ill-equipped to regulate the growing digital and platform-based economic activities. “This amendment introduces a modern tax framework that reflects the realities of a digital economy,” Desalegn stated. “It will broaden the tax base, reduce loopholes, and curb tax fraud, ultimately enhancing the government’s capacity to collect domestic revenues more effectively.” Economic Relevance and Investment ClimateMinister of Finance Dr. Job Tekaleng highlighted the broader economic significance of the amendment, explaining that it is part of a broader strategy to adapt fiscal policy to Ethiopia’s rapidly changing economic environment. “The proclamation reflects our commitment to building a fairer and more efficient tax system. It will support our national growth objectives by ensuring that both traditional and emerging economic sectors are equitably taxed,” Dr. Tekaleng noted. He also reassured the public that income tax reforms would not place an additional burden on low-income earners, adding that the government continues to take steps to improve their living conditions. The minister further stated that the updated tax legislation is expected to boost investor confidence by increasing transparency and predictability in Ethiopia’s fiscal regime. “Creating a tax environment that is both investor-friendly and resilient to abuse is essential for attracting sustainable foreign and domestic investment,” he added. Tackling Tax Evasion and Ensuring EquityThe amendment includes provisions designed to minimize tax evasion, strengthen enforcement mechanisms, and ensure more equitable contribution across income brackets and sectors. Analysts suggest that the law will help formalize parts of the informal economy and bring digital enterprises, including e-commerce platforms and gig workers, into the tax net. Startup Proclamation Also Unanimously PassedIn a related development, the House also reviewed and unanimously passed the long-awaited Startup Proclamation. The legislation aims to create an enabling environment for early-stage companies, streamline regulatory processes, and promote innovation-driven entrepreneurship in Ethiopia. Together, the two proclamations represent a strategic shift in the government’s economic policy framework—prioritizing modernization, inclusivity, and revenue sustainability in the face of a rapidly evolving domestic and global economy.

IMF Warns Structural Challenges May Sustain Ethiopia’s Parallel Market Premium Despite Forex Reform

IMF Warns Structural Challenges May Sustain Ethiopia’s Parallel Market Premium Despite Forex Reform Addis Ababa, July 2025 – Ethiopia’s ambitious reform to unify its foreign exchange market is showing results but faces stubborn structural hurdles that could keep the parallel market premium alive in the medium term, the International Monetary Fund has warned. According to the IMF’s Country Report No. 25/189, Ethiopia eliminated most official FX rationing in mid-2024, moving to a market-determined exchange rate that initially slashed the parallel market premium from over 100 percent to near zero. However, by May 2025 the premium had widened again to around 17 percent. IMF analysts attribute this resurgence to three main factors: Remaining exchange restrictions, such as a 2.5% commission on foreign exchange sales via the National Bank of Ethiopia. Strict capital account controls and unattractive real returns on Birr-denominated assets, pushing investors to seek foreign currency. An underdeveloped, concentrated financial sector that limits competition and hedging options, leaving importers and savers exposed to depreciation fears. “Ethiopia’s situation resembles Angola’s experience during its own FX liberalization,” the report notes. In contrast, Egypt and Nigeria saw their parallel market premiums collapse and remain low following reform. The IMF stresses that while Ethiopia has boosted FX reserves to about US$4 billion (covering nearly two months of imports), real reforms are needed to reduce residual demand for unofficial currency channels. Key policy recommendations include: Phased removal of remaining current account restrictions. Positive real interest rates to make holding Birr-denominated assets more attractive. Gradual, well-sequenced financial account liberalization, supported by improved regulation. Deepening the domestic financial market, including developing hedging instruments and strengthening interbank liquidity. Enhancing competition in the banking sector, possibly via foreign bank participation. The report also highlights Ethiopia’s broader monetary policy transition. In July 2024, the National Bank of Ethiopia abandoned strict monetary targeting and adopted an interest-rate-based framework. Supported by new policy tools like open market operations and an interbank market, the central bank aims to better control inflation, which has exceeded double digits since 2018. While Treasury bill and interbank rates have risen above inflation—a sign of early success—the IMF warns Ethiopia’s monetary transmission remains weak. Challenges include: Shallow money and bond markets. Limited financial sector depth and competition. High food price volatility and supply shocks. A legacy of financial repression and credit rationing. “The transition will take time,” the IMF writes, urging further reforms to ensure consistent policy signaling, develop a credible interest rate corridor, strengthen bank competition, and reinforce the central bank’s independence and analytical capacity. The report also examines Ethiopia’s fiscal federalism, noting significant decentralization but persistent vertical imbalances. While regions’ share of national spending has grown to over 55%, many remain dependent on federal grants. Recent reforms have improved revenue sharing formulas, but challenges remain in aligning spending responsibilities and revenue collection capacities. Overall, the IMF’s message is clear: Ethiopia’s reforms have delivered initial successes but will require sustained, careful policy efforts to address deep-rooted structural constraints, ensure macroeconomic stability, and support private-sector-led growth.

Ethiopia Proposes Major Income Tax Reforms, Including Quarterly Prepayments for Large Businesses

Ethiopia Proposes Major Income Tax Reforms, Including Quarterly Prepayments for Large Businesses Addis Ababa, Ethiopia – Ethiopia’s new draft Income Tax Proclamation proposes a significant shift for Category “A” taxpayers, requiring businesses with annual income exceeding 2 million birr to pre-pay 25% of the previous fiscal year’s profit tax liability each quarter. Instead of settling the entire tax due after submitting the annual report, companies will make these advance payments throughout the year. The final tax liability will be calculated at year-end, with any balance settled or refunded after closing accounts. The Ministry of Finance says the change is aimed at improving revenue predictability and strengthening fiscal management, but it will require businesses to carefully plan their cash flow to meet quarterly obligations. Beyond this major adjustment, the draft proclamation introduces several other important reforms: New Taxpayer Categories Category “A”: Annual income over 2 million birr. Category “B”: Annual income below 2 million birr.This simplified classification is intended to clarify compliance obligations. Category “A”: Annual income over 2 million birr. Category “B”: Annual income below 2 million birr.This simplified classification is intended to clarify compliance obligations. Revised Income Tax Brackets Updated income tax brackets for both employees and businesses aim to better reflect economic realities and promote fairness. Updated income tax brackets for both employees and businesses aim to better reflect economic realities and promote fairness. Dividend Tax Clarification The long-standing debate over dividend taxation is resolved: dividends will not be taxed at the corporate level to encourage reinvestment and expansion. However, a 15% dividend tax rate will apply to distributed profits received by shareholders. The long-standing debate over dividend taxation is resolved: dividends will not be taxed at the corporate level to encourage reinvestment and expansion. However, a 15% dividend tax rate will apply to distributed profits received by shareholders. Lower Withholding Tax Rate The withholding tax rate is reduced to 3%, easing the burden on qualifying payments. The withholding tax rate is reduced to 3%, easing the burden on qualifying payments. Restrictions on Large Cash Transactions Payments or receipts of cash exceeding 30,000 birr will now trigger fines. The measure is designed to reduce informal cash transactions and promote formal banking channels. Payments or receipts of cash exceeding 30,000 birr will now trigger fines. The measure is designed to reduce informal cash transactions and promote formal banking channels. The Ministry is encouraging public and industry feedback on the draft before it is finalized and submitted to Parliament, describing the reforms as part of efforts to modernize the tax system, boost compliance, and support sustainable economic growth. 1 COMMENT Hussen Ali Seid July 16, 2025 At 3:41 pm Ask me Payment immediately send me coin ask you the last chance b/c My work space Electronic marketing systems all would look my coin cap marketing look BTC coin ETH coin BNB coin Solano coin XRP coin Doge coin my Ton of them Learn so more Tanks second would Cryptographically digital assets our support help me my community but my community support funds more Tanks second would Cryptographically digital assets our support help me my community but my community support funds more Tanks second would Cryptographically digital assets our support help me my community Ask me Payment immediately send me coin ask you the last chance b/c My work space Electronic marketing systems all would look my coin cap marketing look BTC coin ETH coin BNB coin Solano coin XRP coin Doge coin my Ton of them Learn so more Tanks second would Cryptographically digital assets our support help me my community but my community support funds more Tanks second would Cryptographically digital assets our support help me my community but my community support funds more Tanks second would Cryptographically digital assets our support help me my community Comments are closed.

Ethiopia’s First Securities Exchange Begins Trading

Ethiopia’s First Securities Exchange Begins Trading Ethiopia’s long-awaited securities exchange has officially launched trading, introducing a secondary market for government treasury bills (T-bills) in electronic form. The milestone event was held at the Sheraton Addis Hotel, organized in collaboration with the National Bank of Ethiopia (NBE), the Ethiopian Capital Market Authority (ECMA), and the Ethiopian Securities Exchange (ESX). It brought together senior financial policymakers, bankers, and market participants, who marked the launch by ringing the ceremonial opening bell. The new platform enables T-bills—previously issued and settled in physical certificates—to be traded electronically, representing a major step toward modernizing Ethiopia’s financial infrastructure. “This is a historic shift in how Ethiopia mobilizes domestic capital,” Finance Minister Ahmed Shide said at the event. He emphasized that electronic T-bill trading will offer investors better yield opportunities while equipping the government with more efficient tools for managing public finances. National Bank Governor Mamo Mihretu highlighted that traditional funding sources such as taxes, loans, and grants have been inadequate to meet the country’s long-term development needs, underscoring the importance of deepening local capital markets. Gadda Bank and Wegagen Bank, the first two institutions registered as ESX trading members, jointly rang the opening bell to mark the start of trading. Their involvement signals the central role commercial banks are expected to play in developing Ethiopia’s emerging securities market.

AfDB Spotlights Startling Scale of Illicit Financial Flows in Ethiopia

Up to 30 percent of government revenue lost each year Ethiopia is losing up to 2.2 percent of its annual GDP growth and between 10 and 30 percent of government revenue to illicit financial flows (IFF), according to data highlighted in the African Development Bank’s (AfDB) 2025 Country Focus Report on Ethiopia. The staggering figures pose a major obstacle to economic stability and resource mobilization in a country already struggling with foreign exchange shortages, debt stress, tax collection, and conflict-induced development setbacks. The AfDB report identifies trade mis-invoicing, particularly import over-invoicing and export under-invoicing as the dominant channels of IFF, accounting for 55 to 80 percent of the total illicit outflows from Ethiopia. These illegal practices, largely tied to cross-border commerce and financial crime networks, result in the loss of billions of Birr in taxable revenue and cripple Ethiopia’s public investment capacity. “Currently, these deep financial movements are not formally documented,” a financial intelligence expert told The Reporter. “There’s no reliable registration process. The routes used may or may not be lawful—but we simply can’t be sure. That’s the nature of these crimes—they’re hidden, sophisticated, and deeply embedded in international networks.” Despite legal reforms such as the 2013 Money Laundering and Terrorism Financing Proclamation, implementation challenges persist. Ethiopia’s efforts to curtail IFF remain constrained by weak enforcement, poor inter-agency coordination, and inadequate financial intelligence frameworks, according to sources familiar with the sector. While institutions like the Ministry of Revenues and the Addis Ababa Revenues Bureau are stepping up collaboration, critics say this is not enough. “We need sector-specific studies, deeper investigations, and stronger international collaboration,” the expert added. “Right now, Ethiopia doesn’t even have a comprehensive integrity index specific to financial crimes in Ethiopia.” However, the African Development Bank country report noted that Ethiopia’s revenue shortfalls are not due to IFF alone. AfDB also cited inefficient tax law enforcement, unchecked tax incentives, and logistical constraints as barriers to domestic resource mobilization. While the government has introduced reforms such as the digitization of tax collection, autonomy for the Ministry of Revenues and Customs Commission, and revised VAT policies, these efforts have not been enough to close revenue leaks. “The legal framework exists, but the capacity to enforce and trace violations needs improvement,” said an official close to the National Financial Intelligence Committee, which is chaired by the Prime Minister. “Trade-based money laundering, in particular, is now being recognized as a standalone criminal methodology. It requires systemic, multi-stakeholder responses.” Ethiopia’s mining sector, for instance, has long been vulnerable to informal transactions and unregulated exports. Although it contributes 14 percent of exports, its share in GDP and government revenue has still yet to reach one percent. Reports indicate that this is as a result of widespread illegal mining, institutional gaps, and regulatory inconsistencies. The country’s ambitious goal to boost the mining sector’s GDP share to ten percent by 2030 remains out of reach without major reforms in transparency and investment governance, analysts warn. On the other hand, the bank’s report also indicated that illicit financial flows and policy weaknesses have compounded Ethiopia’s difficult business climate. It states that between 2021 and 2023, business registrations dropped by nearly 20 percent, from over 3.8 million to 3.1 million. In Addis Ababa alone, new license registrations fell by 39 percent, while license renewals declined by 28 percent over a three-year period, it noted. In a report last year, officials at the Addis Ababa City Administration Trade Bureau stated they had issued close to 81,000 new business licenses over a nine-month period, while more than 27,000 traders had voluntarily canceled their business permits. Trade officials also conceded that a similar number of licenses had been withdrawn over the preceding year. Still, the AfDB notes promising developments: the government is pushing for a market-determined exchange rate, expanding digital financial services, and preparing to launch the Ethiopian Securities Exchange (ESX)—a move that could diversify business capital and reduce dependence on informal financing. Investigations into suspicious financial flows, including one case involving large sums of undeclared cash at Bole International Airport, are ongoing—but fragmented, sources told The Reporter. “There are red flags everywhere,” the financial intelligence expert stressed. “But we lack a full picture. There’s no definitive data on how widespread these activities are, who is involved, or the actual volume of capital loss. More work—much more—is needed.” International frameworks such as the Financial Action Task Force (FATF) are aiding Ethiopia’s intelligence-sharing efforts. However, enforcement remains mostly reactive, triggered only when illicit flows pass through formal banking systems. Analysts caution that until systemic monitoring and real-time financial intelligence become standard practice, the Ethiopian economy will remain vulnerable to external leakages and internal inefficiencies. With annual GDP and revenue losses running into tens of billions of birr, experts warn that unless comprehensive reforms are implemented, these “hidden drains” will continue to stunt Ethiopia’s fiscal growth and social progress. “Illicit finance is no longer a shadow issue—it’s a structural one,” the official said. “It’s time Ethiopia treated it as such.”

Ethiopia Risks Jeopardizing Foreign Financing after World Bank Classification Suspension

WB Ethiopia office points to incongruences in parallel and official forex rates Difficulties in determining average foreign exchange rates have led the World Bank to temporarily omit Ethiopia from this year’s edition of its annual update on gross national income per capita classification, potentially affecting the country’s ability to access foreign finance. Venezuela is the only other country under a “classification suspension”, which also marks Ethiopia’s first absence from the report since the World Bank Group began publishing national GNI data in 1987. Each year, the World Bank classifies world’s economies into four income groups (low, lower-middle, upper-middle, and high) based on the previous year’s Gross National Income per capita, expressed in US dollars. In an email interview, the World Bank Ethiopia office told The Reporter that Ethiopia’s suspension is rooted in the disparity between official and parallel foreign exchange market rates and the tremendous shifts the forex market has undergone over the past year as part of the administration’s economic reforms. “The WB generally uses the official exchange rate as reported to the IMF to convert local currency units into US dollars. However, this exchange rate is not always reflective of the economic reality. Certain countries maintain dual or multiple official rates, often accompanied by active parallel market segments. To ensure accurate representation in underlying statistics, a composite exchange rate should be used. This approach provides a more accurate reflection of actual market transactions and improves the comparability across countries,” reads the response. “In the case of Ethiopia, there has been an active parallel market for several years and the spread between the official and parallel market rates was significant and had reached above 100 percent prior to the launch of the economic reform program in July 2024,” the WB Ethiopia office told The Reporter. The World Bank notes the official exchange rate has largely converged with the parallel rate since the currency was floated a year ago, and says using the official exchange rate that prevailed before July 2024 could be potentially misleading. “Thus, to allow more time to determine a suitable exchange rate and to carefully examine the implications of the reforms on the exchange rate, Ethiopia has been temporarily suspended from the income classification,” reads the response. A country’s income classification not only reflects its level of development, but it also has the potential to influence its development trajectory. It affects eligibility for official development assistance and concessional financing, reads a WB Group blog. “Since the late 1980s, the classification of countries into income categories has transformed. The number of low-income countries has steadily declined, while the number of high-income countries has increased,” reads the intro to the bank’s classification for the year 2026. “This shift reflects broader global economic developments, including sustained growth in many developing countries, greater integration into the global economy, and the effects of policy reforms and international organizations’ support.” In 1987, nearly a third of reporting countries were classified as low-income and a quarter as high-income countries. By 2024, these ratios shifted to 12 percent low-income and 40 percent high-income, according to the update. Nearly half of all countries in Sub-Saharan Africa are classified as low-income, down from 75 percent four decades ago.

Government Plans to Raise 173 Billion Birr through T-Bill Sales

The National Bank of Ethiopia (NBE), the Ethiopian Capital Market Authority (ECMA), and the Ethiopian Securities Exchange (ESX) have officially launched the sale of treasury bills for the first time ever in the history of the nation. Finance Minister Ahmed Shide announced during the launch on Friday, July 11 that the government is offering treasury bills to investors to help bridge a budget deficit of 188 billion birr, out of the total 1.9 trillion birr budget allocated for the 2018 fiscal year. He stated that 173 billion birr of this deficit will be offset by raising capital through treasury bills. According to the Minister, the domestic borrowing will be conducted in a way that avoids increasing inflation and maintains macroeconomic stability. He also noted that existing treasury bills are being transitioned to electronic transactions, and new issuances will follow via a digital format. Tilahun Ismail (PhD), CEO of the Ethiopian Securities Exchange, announced that government treasury bills with a 182-day maturity, as well as shares of Wegagen and Geda banks, have started trading. He explained that Ethiopian individuals and institutions can now buy and sell bills and shares through investment banks. He added that government debt securities can be purchased from a minimum amount of 4,700 birr upward, while bank shares are available from a floor price of 1,000 birr. Technological infrastructure has been developed to support these transactions. Tilahun also mentioned that all banks—except for commercial bank of Ethiopia and development bank—and one state-owned insurance company are preparing to list their shares. The Ethiopian Securities Exchange aims to list 50 companies within the next three years and 90 companies over the next decade. Government development enterprises may also be introduced to the market in the future. Mamo Mehiretu, Governor of the National Bank of Ethiopia, emphasized that the organization of the capital market will play a key role in enhancing the effectiveness of monetary policy, reducing inflation, and supporting overall macroeconomic stability. He underscored the importance of supporting the growth and strengthening of the securities market, highlighting the necessity of treasury bill sales to address the budget deficit.

U.S. Embassy Limits Ethiopian Nonimmigrant Visas to Three Months, Single Entry

U.S. Embassy Limits Ethiopian Nonimmigrant Visas to Three Months, Single Entry The U.S. Embassy in Addis Ababa has announced a new restriction on the validity of most nonimmigrant visas for Ethiopian citizens, reducing them to single-entry visas valid for only three months. Effective July 8, 2025, this change applies to all newly issued nonimmigrant visas. The Embassy confirmed the update in an official statement released on X (formerly known as Twitter), explaining that the new rule reflects updated guidelines from the U.S. Department of State. “Most nonimmigrant visas for Ethiopian citizens will be limited to single entry and a three-month validity period,” the Embassy’s statement read. Visas issued before July 8 will remain valid under their existing terms and conditions. The new policy is part of broader efforts by the U.S. to tighten visa regulations. Recent reports suggest that U.S. authorities are weighing additional travel restrictions for citizens of 36 countries—including Ethiopia—over concerns about passport security standards and cooperation on deportations. Under these proposals, countries that fail to address U.S. security requirements within 60 days could face a partial or complete suspension of visa services. Enhanced screening measures are already in effect. Since June 18, 2025, applicants for student (F and M) and exchange visitor (J) visas have been required to make their social media profiles public for more thorough security vetting. The Embassy did not provide further details on how long the new visa restrictions would remain in place.

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

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.