A trade union representing 150,000 workers in the finance sector says it is taking its grievances against new tax rules on employee loans to the Prime Minister after appeals to officials at the Ministry of Finance failed to yield any concessions.
The Industrial Federation of Ethiopian Financial Institution Trade Unions is lobbying against the freshly amended Federal Income Regulation, which its leaders argue levies an unfair tax on bank employees who are already struggling to make ends meet.
The point of contention is an amendment that levies income tax on loans granted to bank employees by their employers.
Financial institutions provide their employees credit at low interest rates, often equal to or near the average deposit interest rate of seven percent. Employees typically use the loans for housing or cars.
From The Reporter Magazine
A regulation approved by the Council of Ministers earlier this month, however, classifies the difference between the discounted employer loan rates and the National Bank of Ethiopia’s (NBE) benchmark lending interest rate (15 percent) as income and levies the full 35 percent income tax on it.
In a letter addressed to the Office of the Prime Minister, NBE, and the Finance and Revenue ministries, the Federation’s leaders argue the tax is unfair. They cite that their members already pay the 35 percent income tax on their salary, on top of seven percent for pensions and loan repayments.
“In total, we pay 85.33 percent of our salaries to the government, employers, or in the form of various contributions. We take home just 14.67 percent of our salaries. Employees are already in a desperate struggle to make ends meet in the face of inflation,” it reads.
From The Reporter Magazine
The Federation argues the low-interest credit employees receive for housing or purchasing vehicles should be considered a basic need, and calls for the new income tax rules to be scrapped.
Its leaders also urge officials to extend the 2,000 Birr income tax exemption threshold to gifts and benefits, including bonuses for new mothers and food assistance to low-income employees.
“All gifts and benefits from employers are taxed. This is unfair and very wrong. On top of all this, the government is going to tax our loans as income. That’s unacceptable,” Desta Berhe, Federation president, told The Reporter.
He says appeals to Finance officials before the regulation was approved went unheeded.
“The response from the Ministry of Finance was unsatisfactory. We’re appealing to the Prime Minister,” said Desta.
He argues the Federation is not seeking exceptional treatment.
“The employees of Ethiopian Airlines, Ethio telecom, Electric Electric Power, and others are exempt from this kind of tax. Their employees get loans, benefit packages, and other services tax free,” said Desta. “But the same things are taxed for employees in the financial sector. This is affecting employees and their productivity.”
Unions under the Federation represent close to 150,000 members (close to 90 percent of the workforce) across banks and insurance firms. Nearly half of them are employed by the state-owned Commercial Bank of Ethiopia (CBE).
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