10 February 2018

Ethiopia: New Circular Obliges Expat Lecturers to Pay Income Tax

The rate they pay will be the same as Ethiopian nationals are taxed

All expat lecturers and researchers working in Ethiopia will be required to pay income tax starting from March 2018, according to a new circular issued by the Ministry of Finance & Economic Cooperation (MOFEC).

Issued mid-last week, the Circular obliges non-national academicians to pay income taxes at the same rate as the Ethiopian employees. Domestic employees with over 600 Br monthly salary are included in the income tax system which ranges between a minimum of 10pc to a maximum of a 35pc tax of the gross salary.

Non-national employees, regardless of the country they belong to, will pay taxes starting from their employment date, according to the new Circular. But, academicians from the countries in a Double Taxation Avoidance (DTA) agreement with Ethiopia will be exempted from income tax for two to three years as a grace period.

DTA is an arrangement made between nations to avoid double taxation by source countries as well as the country of residence.

Ethiopia signed the DTA agreement with 10 countries including China, Turkey, India, Egypt, Sudan and France. Except for Chinese expats, who are exempted for three years, the citizens of the remaining 9 countries will be exempted from tax for a couple of years .

The circular was distributed to 47 higher education institutions across the country to implement the directive as of next month. On average 16,000 non-nationals get work permits from the Ministry of Labour & Social Affairs (MoLSA) to engage in different fields including education. Before obtaining work permits, expat lecturers have to sign an agreement with the Ministry of Education (MoE) and the higher institution which brings them into the country.

Upon signing the contract, they receive the salary in foreign currency and get paid after converting it to local currency at the existing exchange rate.

Though these employees should have been taxed after the exemption period, educational institutions in the country did not deduct income tax from these employees. Hence, academicians have been leveraging tax-free income privileges and unlimited repatriation.

"We've been receiving complaints from different parties that these academicians were not subjected to income tax," said a source from the MoFEC.

Taxes from these academicians have not been collected in a country struggling to narrow the budget deficit, which is expected to be filled by domestic sources of revenues such as tax.

Of the total 334.8 million Br budget for the current fiscal year including the recently approved supplementary budget, 61pc is expected to be covered by tax revenues. For the current fiscal year, Ethiopian Customs & Revenues Authority (ERCA) plans to collect 230 billion Br. During the first half of the current fiscal year, the Authority succeeded in collecting 90.81 billion Br, almost 83pc of its target.

The current move of MoFEC in issuing the new circular attempts to fill the gaps in the tax revenue collection system, according to Yohannes Woldegebriel, who has worked in the tax and commercial law areas.

"Had this new procedure not come into effect, the burden on the country would be heavier coupled with the recent devaluation," he said.

Ethiopia

What's Behind U.S. Secretary Pompeo's Calls to African Leaders?

Less then a month after taking office as U.S. Secretary of State, Mike Pompeo spoke by telephone last week to four… Read more »

See What Everyone is Watching

Copyright © 2018 Addis Fortune. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 800 reports a day from more than 140 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.