Income from employment (Schedule “A”)

Posted in Know How

Employment income tax is a tax on the earnings of an employee. Employees who earn birr 601 per month and above are liable to pay employment income tax.

Employer: meansa person who engages or remunerates an employee;

Employee: means an individual engaged whether on a permanent or temporary basis, to perform services under the direction and control of another person, other than as an independent contractor, and includes a director or other holder of an office in the management of a body and government appointees and elected persons holding public offices.

Employment Income means the following

Salary, wages, an allowance, bonus, commission, gratuity, or other remuneration received by an employee in respect of a past, current or future, employments ;

An amount received by an employee at termination of employment, whether paid voluntarily, under an agreement, or as a result of legal proceedings; includingany compensation for redundancy or loss of employment, or a golden handshake payment.

It does not include exempt income

 

Employment Income Tax Rates

No

Employment Income (per-month) birr

Employment income tax rates

Deduction in birr

1

0-600

0%

0

2

601-1650

10%

60

3

1,651-3,200

15%

142.50

4

3,201-5,250

20%

302.50

5

5,251-7,800

25%

235

6

7,801-10,900

30%

955

7

Over 10,900

35%

1,500

 

Example

If the monthly salary of Mr. Abebe is birr 4,500 .In accordance of employment Income Tax it computation would be ;

Employment income tax =monthly salary X Tax rate- deduction birr

Employment income tax = 4,500x 20% -302.50

Employment income tax =597.50

Net salary =gross salary- Employment income tax

Net salary = 4,500-597.50

Net salary = birr3,902.5 (excluding pension deduction) 

   Exemption from Employment  income

According to, income tax proclamation no 979/2016 the following categories of income shall be exempt from payment of tax.

An amount paid by an employment to cover the actual cost of medical treatment of an employee;

An allowance in liev instead of means of transportation granted under a contract of employment ,

A hardship allowance

Transport expenses and per diem payment to an employee travelling on a tour of duty.

Travelling expenses paid to an employee recruited from place other than the place of employment on joining or completion of employment, including in the case of a foreign employee , travel expenses from and to their country of origin, but only if the travel expenses have been paid pursuant to specific of provisions of the employee’s contract of employment, 

Food and beverages provided for free to an employee by an employer conducting a mining, manufacturing, or agricultural business.

Allowances paid by the government of the federal democratic republic of Ethiopia to employees engaged in public service in foreign country.

Allowances paid to members and secretaries of boards of public enterprises, public bodies or

Study groups established by the federal or state Government or city administration;

Contribution by an employer to pension, or other retirement fund for the benefit of an employee provided the monthly total of contributions does not exceed 15% of the monthly employment income of the employee;

A pension to the extent exempt from tax under the public servant pension proclamation or the private organization employees pension proclamation;

An amount derived by the federal, or a state or local government of Ethiopia, or the national bank of Ethiopia, from activities that are incidental to official operations;

An amount exempt from tax to the extent provided for under an international agreement;

An amount exempt from tax to the extent provided for   under a provision (referred to as an exemption provision”)in an Agreement entered in to by the government of the federal democratic republic of Ethiopia when the following conditions are satisfied

(a)  The agreement is for the provision of financial, technical, humanitarian, or administrative assistance to the Government: and

(b)The Minister has concurred, in writing, with the exemption provision;

A scholarship or bursary  for attendance at an educational institution;

Maintenance or child support payments:

The income of non-profit organization other than business income that is not directly related to the core function of the organization;

A cash indemnity allowance paid by an employer to an employee, but only to  the extent that the allowance compensates the employee for shortfalls on money counts

An amount that is specifically exempted from income under a law in force in Ethiopia;

Salaries paid to domestic servants;

Payment made by contractors engaged in petroleum operation to their sub contractors.

 

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