Tax Base Optimization of Personal income tax in Ethiopia

Course ID
Ethiopian Economics Association (EEA)
Fassil Tassew

The paper champions the need the concept of tax bas optimization in to Ethiopia’s system taxation. The paper makes this discovery through a through going search and research in to the area of budget legislation ad budget implementation, income tax laws [(“withholding tax”, PAYE) and schedule A], financial regulation and the practice of employment incomer tax accounting In Ethiopia. The process of budget calling and hearing, and budget legislation helps to define the tax base (an income of the individual) and the corresponding employment income tax. The employment income tax law (schedule A) divides the tax base in to an increasing unit tax base (income tax brackets) with its corresponding marginal tax rate. The financial rules, regulations, and directives declare procedures and ways of budget executions.

Furthermore, the paper dealt with other debatable issue such as the fiscal treatment of the month of pagume; this month’s income is proclaimed by law to be added to the income of the month of Nehase (August) and is considered as one month’s as one month’s revenue for taxation purposes. But for this month, of 5 days or 6 days once in a leap year, civil servants don’t receive any payment for the service they provide. Correspondingly the government hardly mobilizes revenue from tax.

This paper also addresses the problem of institutional setup in Ethiopia, in all regions income tax is administrated and collected by the traditional finance bureau at revenue department level. This is because Inland Revenue bureau don’t exist at the regional level.

Finally, the study recommends the replacement of a indirect PAYE system by a direct PAYE system in order to enhance institutional integration, exercise the rule of law, develop accountability , minimize corruption, expand employment creation, strengthen and widen income tax administration thereby improve income tax accounting calling for a schedule of optimal sequential action.

Corporate Author:Gebrehiwot Ageba, Jemal Mohammed and Solomon Tesfay (Editors) , Ethiopian Economic Association(EEA) , Department of Economics of AAU & Fredrich Ebert Stifung
Publisher:Ethiopian Economic Association (EEA)
Primary Descriptors:Taxation; PAYE System

Secondary Descriptor:Income tax

Geographic Descriptors:Ethiopia
Cataloge Date:02/27/2013
Broad Subject heading:Tax
Call Number:338.963 PRO 2002
Serial Key Title:Proceedings of the Eleventh Annual conference on the Ethiopian economy
Publication catagory: Annual conference
Content type: EEA Publication
Publication date: 2013-12-27 23:06:00
Forum or Discussion date: 2013-02-27 15:58:22
Conference Place: Nov. 2-4, 2001, Nazareth, Ethiopia
Place of publication: Addis Ababa, Ethiopia
Type of material: Book
Current frequency: Annualy
Thematic area: Policy Reform, Implementation and outcome in Ethiopia
Author: Fassil Tassew