Small Business Taxation in Ethiopia: A Focus on Legal and Practical Issues in Income Tax Category
Keywords:
Small Business, Business Income Tax, Presumptive Income Tax Assessment, Tax Administration, Legal Framework, Tax PayerAbstract
The expenses which are incurred by the government in carrying out its inherent duties are covered by imposing tax to its citizens. Thus, a business, small or large, is obliged to contribute its share to cover the government expenses in the form of ‘tax’. This article analysis the legal and institutional framework of small business taxation in Ethiopia. It identifies and examines the types and mode of calculation of the different types of taxes imposed on small business entities; income tax, turn over tax and excise tax. Beyond that, it examines the taxThe expenses which are incurred by the government in carrying out its inherent duties are covered by imposing tax to its citizens. Thus, a business, small or large, is obliged to contribute its share to cover the government expenses in the form of ‘tax’. This article analysis the legal and institutional framework of small business taxation in Ethiopia. It identifies and examines the types and mode of calculation of the different types of taxes imposed on small business entities; income tax, turn over tax and excise tax. Beyond that, it examines the tax treatment of small business on termination, and post-cessation income tax. Moreover, it examines the tax administration issues of small business taxation in Ethiopia. In the end, the article forwards a recommendation to address the ongoing problems of small business taxation in Ethiopia. The authors employed empirical qualitative research methodology. treatment of small business on termination, and post-cessation income tax. Moreover, it examines the tax administration issues of small business taxation in Ethiopia. In the end, the article forwards a recommendation to address the ongoing problems of small business taxation in Ethiopia. The authors employed empirical qualitative research methodology.
References
1. http://www.businessdictionary.com/definit ion/small-business.html.
2. Federal Urban Job Creation and Food Security Agency Establishment Council of Ministers Regulation , 2016, Federal Negarit Gazeta, Reg. No. 374, 22nd year, No. 41, Article 2 (3) and (4). [Here in after Regulation No. 374/2016]
3. Federal Income Tax Proclamation, 2016, Federal Negarit Gazeta, Pro. No. 979, 22nd Year, No. 104. [Here in after Proclamation Number 979/2016].
4. Ibid, Article 3.
5. Ibid. Article 48.
6. Small Business tax review, https://www.gov.uk/government/publicati ons/making-tax-easier-quicker-and- simpler-for-small-business. (Last accessed, Jan 6, 12018).
7. Argentina, Bolivia, Brazil, Colombia, Costa Rica, Chile, Dominican Republic, Ecuador, Mexico, Nicaragua, Honduras, Paraguay, Peru, and Uruguay). Exceptions are El Salvador, Panama and Venezuela.
8. Ethiopia has adopted standard assessment for about 150 different business and professions as of 1960.
9. Supra note 11.
10. Federal Income Tax Regulation, 2017, Federal Negarit Gazeta, Reg. No. 410, 23rd Year, No. 82, Art 49(1)&(2) [Here in after Federal Income Tax Regulation No.410/2017], Art 59(1).
11. Cumulative reading of Art 59(1) of the Federal Income Tax Regulation and Art 82(2) of the Income Tax Proclamation.
12. Federal Income Tax Proclamation No. 979/2016, Art 82(4) (b) & 82(5)(b). JTRF (2020) 50–67 © Law Journals 2020. All Rights Reserved Page 66
13. Federal Income Tax Proclamation No. 979/2016, Art 49.
14. Ibid, Art 60(1)
15. Federal Income Tax Regulation, Reg. 410/2017, Art 49(1) & (2).
16. Ibid, Art 60(1)
17. Addis Ababa City Administration Category “C” Taxpayers Daily Revenue Estimation Information Collection Implementation ERCA Directive, 2017, No. 123. [Here in after, Category “C” Taxpayers Daily Revenue Estimation Directive].
18. ibid, Art. 3(1).
19. ibid, Art. 27.
20. Federal Income Tax Regulation No. 410/2017, Art 49(3).
21. Federal Income Tax Proclamation Proc. No.979/2016, Art 88.
22. Federal Income Tax Administration Proclamation, 2016, Federal Negarit Gazzeta, Proc. No. 983, 22nd year No. 103, Art 19(1). [Herein after, Income Tax Administration Proclamation Proc. No.983/2016].
23. ibid, Art 19(2).
24. ibid, Art 96.
25. ibid, Art 97(1).
26. Federal Income Tax Regulation No. 410/2017, Art 60(2).
27. Federal Income Tax Proclamation 979/2016, Art 21(1) (b).
28. Federal Income Tax Proclamation 979/2016, Art 60(4)
29. ibid, Art 60(1)
30. ibid, Art 60 (a-d).
31. ibid, Art 60(3)
32. Federal Income Tax Proclamation 979/2016, Art 99(1) & (2).
33. As cited by Taddesse Lencho Federal Court Cassation File No. 58620, Sene, 02, 2003E.C. unpublished, in Amaharic.
34. Activity is to mean any business or other activity giving rise to income subject to tax under the tax law but excludes withholding tax as a final tax (Art 23(6) ITAP).
35. Federal Income Tax Proclamation No.983/2016, Art 23(1).
36. Federal Income Tax Administration Proclamation No. 983/2016, Art 23(2).
37. ibid, Art 23(3) (a).
38. ibid, Art 23(3)(b)
39. ibid, Art 23(4).
40. ibid, Art 23(5).
41. Ibid, Art 51(2).
42. ibid, Art 51(3).
43. Federal Income Tax Regulation No 407/2017, Art 7.
44. Federal Income Tax Proclamation No. 979/2016, Art 71(1) (b).
45. Federal Income Tax Proclamation No. 979/2016, Art 74(1)(a))
46. ibid, Art 74(1) (b)).
47. ibid, Art 74(1) (b)).
48. ibid, Art 74(2).
49. Value Added Tax Proclamation, 2002, Federal Negarit Gazeta, Proc. No. 285, 8th Year, No. 33, Art 17. [Here in after VAT Proc. No.285/2002].
50. Turnover Tax Proclamation, 2002, Federal Negarit Gazeta, Proc. No. 308, 9th Year, No. 21, Art 2(3) [Here in after TOT Proc. No.308/2002].
51. Proc. No. 308/2002, Art 4 TOT.
52. Ibid, Art 5.
53. Ibid, Art 2(2)
54. Ibid, Art 11(3)
55. Turnover Tax (Amendment) Proclamation, 2008, Federal Negarit Gazeta, Proc. No. 611, 15th Year, No. 8, Art 2(2) [Here in after TOT Amendment Proc. No.611/2008].
56. Art 11(1) TOT Proc. No. 308/2002.
57. Proc. No. 308/2002, Art 11(6) TOT.
58. The preamble of the Excise Tax Proclamation.
59. Excise Tax Proclamation No. 307/2002. Excise Tax Proclamation, 2002, Federal Negarit Gazeta, Proc. No. 307, 9th Year, No. 20, Art 3&4 [Here in after Excise Tax Proc. No.307/2002].
60. Addis Ababa City Administration Category “C” Taxpayers Daily Revenue Estimation Information Collection Implementation ERCA Directive, 2017, No. 123. [Here in after, Category “C” Taxpayers Daily Revenue Estimation Directive].
61. Ibid,Article 15(7), 17(4), 21(3) and 23(4).
62. Interview with Ato Zemenu Abebe, Tax Education Officer of the Amahara Revenue Bureau, on the issue of small business tax administration, Tahisas 27, 2010E.C. JTRF (2020) 50–67 © Law Journals 2020. All Rights Reserved Page 67
63. Directive for the Establishment of Tax Decision Objection Review Department and Determination of working procedure, ERCA, 2017, No. 127. [Here in after, Directive for the Establishment of Tax Decision Objection Review Department.]
64. Category “C” Taxpayers Daily Revenue Estimation Directive, Art 23.
65. Directive for the Establishment of Tax Decision Objection Review Department Art 2(6)&(7).
66. Interview with Ato Minale Atalay, Customer Tax Education Officer of the ERCA Bahir Dar Branch, on the issue of small business tax administration, Tahisas 27, 2010E.C.
67. Interview with Ato Minale Atalay, Customer Tax Education Officer of the ERCA Bahir Dar Branch, on the issue of small business tax administration, Tahisas 27, 2010E.C. Cite this Article Israel Woldekidan. Small Business Taxation in Ethiopia: A Focus on Legal and Practical Issues in Income Tax Category. Journal of Taxation and Regulatory Framework. 2020; 3(1): 50–67p.
