On 4 June 2025, the Ethiopian Ministry of Finance published a draft Income Tax Amendment Proclamation. It aims to update the existing tax law (Proclamation No. 979/2016) to reflect the country’s current economic conditions. The draft is currently under parliamentary review, and a public consultation is ongoing.
The proposed amendment has drawn criticism due to the absence of clear income tax brackets, raising concerns around transparency, fairness, and limited parliamentary oversight. During the consultation, stakeholders, including civil society groups, tax professionals, and private sector representatives, have called for detailed income bands, clearer guidance on digital taxation, and timely supporting directives.
It remains unclear whether the draft will be passed as is or revised. If approved, the changes could affect individuals, businesses, and foreign service providers operating in Ethiopia.
Key Proposed Payroll-Related Changes
- New Employment Income Tax Rates (Article 11)
The current article on employment income tax will be replaced. A new progressive tax rate schedule is proposed for monthly employment income. The exact tax bands and rates are yet to be confirmed and published.
- Cash Payment Limit Introduced (Article 80)
Employers will be prohibited from paying more than ETB 10,000 in cash to any employee on a single day. All salary payments must be made via bank transfer, cheque, or an approved mobile money platform. Non-compliance may result in a penalty equal to twice the amount paid in cash.
- Reporting of Foreign Workers (Article 12)
New rules require the Ministry of Foreign Affairs and other government bodies to share data on foreign workers with the tax authority. Employers must ensure that expatriate employees are registered for tax and that PAYE is deducted where applicable.
- Income from Multiple Sources Must Be Reported (Article 8)
Employees who earn income from multiple sources (e.g. employment, rent, or business) will be required to file an annual tax return. PAYE deductions from salary will no longer be considered final. Employers may need to support compliance by maintaining accurate records and reporting all employee income.
Other Notable Proposed Changes
- Updated rules on Permanent Establishments
- Expanded definition of Ethiopian-source income
- Additional categories of exempt income
- Tax rules extended to cover digital content creation
Next Steps
The draft law is under review by parliament, and consultations with stakeholders are ongoing.
We will share an update once the final version is published in the Federal Gazette and keep you informed about its effective date and any changes affecting payroll.