Revised Income Tax Bill Appears In Parliament

On Friday, Parliament referred a federal income tax bill that proposes to overhaul the tax system to its Finance and Budgetary Affairs Standing Committee for further scrutiny after it gained approval from the Council of Ministers earlier that day.

The proposed amendments to the Federal Income Tax Proclamation are part of a broader tax reform agenda initiated by the government’s medium-term revenue strategy, according to officials.

The government is undertaking a comprehensive overhaul of its tax regime in a bid to modernize its financial framework and with core focus on integrating the burgeoning digital economy into the tax system.

Officials say the overhaul is designed to enhance revenue collection and ensure fairness, adapting the existing framework to contemporary economic realities.

The strategy’s primary objective is to raise tax revenue over a three-year period and grow Ethiopia’s tax-to-GDP ratio, which, at less than 10 percent, falls below the Sub-Saharan average.

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Officials want to see it grow to 11 percent over the next four years.

Simultaneously, the strategy seeks to ensure the tax and customs system is modern and supportive of economic growth.

According to the draft, the amendment to the income tax law is based on seven core objectives, including easing the tax burden on low-income groups and promoting fairness within the tax system.

The amendment also introduces taxation for income derived from digital content creation, including revenue from platforms such as YouTube, podcasting, online sales, and sponsorships.

“If these activities are conducted regularly, the income will fall under business income and be subject to business income tax,” it reads. “If the activities do not meet the specified criteria, a 15 percent tax will be levied on the gross income under other incomes.”

The draft proclamation mandates that platforms facilitating payments to digital content creators must report the amounts paid to each creator to the tax authority.

“Digital content creators will be required to obtain a taxpayer identification number, declare their income, and fulfil other taxpayer obligations,” reads the draft.

Its authors argue that various governments have introduced separate laws to collect digital service tax. The draft also states that Ethiopia has implemented a new provision to tax similar types of business entities.

The draft proclamation further states that the Council of Ministers may issue a regulation to collect a tax not exceeding five percent on the gross income from digital services.

“The new tax system is aligned with global practices while considering Ethiopia’s economic conditions, particularly in the digital era,” it reads.