Pandemic tax-remit scheme does not provide relief for all

Importers, retailers, and regional taxpayers are among those not covered by directive

Ethiopia reported its first COVID-19 case on 13 March. Since then, the government has taken measures to ease the economic and social impact of the pandemic. Regardless, it has still hit the economy hard.

It took the pandemic only a short time to demonstrate its dreadful impact on the construction, manufacturing, service, and export business. This was instigated by the global economic recession which has been exacerbated by travel bans. This has made exporters from Ethiopia lose market access.

Traders in the hospitality and transport sector have also suffered. For instance, according to Ethiopian Hotel Owners’ Association report, 88 percent of hotels in Addis Ababa either have well below-average occupancy rates, or fully closed their doors. Moreover, the daily transaction of Ethiopian Airlines declined from 300 million birr to 15 million birr. Due to this situation, many producers, manufacturers and contractors are forced either to operate below capacity, or temporarily close. These factors led the Ethiopian government to take various measures. One among them is the issuance of a new directive by the Ministry of Finance on 4 May: “A Directive Issued to Remit Tax Liability and Mitigate the Harm of the Corona Pandemic on Taxpayers No. 64/2020”.

As the title indicates, the directive is issued to waive tax liability. Accordingly, Article 4(1) exonerates taxpayers from liabilities that accrue directly to the federal government if they arise from income, value-added, turnover, excise, and mining income tax proclamations. In other words, even if the tax arises from the above lists of laws, the taxpayer will not benefit from the remission if the federal government’s claim is on a tax it collects and administer on behalf of regional governments, or city administrations. Moreover, as article 4(1) restricts the remission to an exhaustive list of taxes, tax liabilities that arise out of laws that are not covered in the directive are not allowed. A good example in this regard would be an unpaid customs duty under Customs Proclamation No. 859/2014.

The other peculiarity of the directive is that its scope is restricted to an exhaustive list of sectors: manufacturing, export, finance, service, and construction. In other words, the directive excluded importers and retailers from the remission scheme. Consequently, taxpayers that fall out of sectors that are listed under Article 4(2) of the directive may not claim a privilege for remission of tax liability.

The directive set two categories of remission schemes. These categories are set based on the accounting year a liability of a taxpayer accrues. The first category is labeled “Category A”. In this Category, the directive deals with tax liabilities that are defaulted on or before the accounting year 2014. The second category, “Category B”, deals with tax liabilities that fall between accounting years 2015 to 2018. The classification is there for a reason that the scope of remission and privilege differ in the two.

According to Articles 3(a) and 5(1)(a), taxpayers whose tax liability fall under Category A are totally exempted from tax liability provided that they fall in sectors under Article 4. As a result of this, taxpayers that defaulted tax payment, penalty and interest on or before the year 2014 are totally exonerated. If, however, a taxpayer that fall in this category partly paid any amount from what it is claimed by the authority with a view to take its claim to a court, or any other government authority which is entrusted to entertain the compliant in a way of appeal may forfeit what it partly paid, and benefit from the remission scheme.

Moreover, Article 5(6) stresses that a taxpayer that produces a court judgment that imposes a lesser tax liability than what they partly paid is entitled to get a refund from the Ministry of Revenue. Furthermore, Article 6 allows the discharge of attached properties of taxpayers that fall under Category A. The provision bound the Ministry of Revenues to discharge non-foreclosed attached properties of taxpayers against whom it has no tax-related claim after the 2014 accounting year provided that the taxpayer is in business operation. If in fact the attached property has an injunction order from a court for any reason other than tax liability, the ministry is not duty bound to discharge it. Such injunction order may be given as a result of pending litigation between the taxpayer and third parties.

On the other hand, the directive deals with tax liabilities that fall under Category B. Liabilities that fall under this category are those that accrue between accounting years 2015 to 2018. The directive grouped defaulting taxpayers in this category into three groups. In the first, it deals with taxpayers that received notice to pay defaulting tax liability. In the second group, it grants relief for taxpayers that are not given audit-based tax liability notice even though declared their income and pay their tax to the government. In the third place, the directive deals with taxpayers that do not declare their income and pay their taxes, if any.

Articles 7 sub-articles (2) and (7) deal with the first two groups of taxpayers that fall under Category B. The provisions waive the duty to pay penalty and interest to taxpayer that fall in these two groups provided that the taxpayer agreed to pay its unpaid tax liability in a year period. The provision provides that a taxpayer may pay 25 percent of the defaulted tax in a one-month period, and agree to pay the remaining 75 percent within a year. If the taxpayer enters into a written commitment with the Ministry of Revenues to this effect, and discharged its duty as agreed, interest will not accrue on its unpaid amount during the grace period as well. Neither, it will be required to pay penalty. What is more interesting is that the directive offered a 10 percent discount scheme for those who pay the total net tax liability in a month period.

Similarly, taxpayers that fall in the third group within Category B are granted tax relief. Taxpayers in this group are those that fail to declare their income. As a result of this, they failed to discharge their commitment to declare their transaction and pay their tax liability, if any. Article 7(8) of the directive exonerates taxpayers that fall under this category from payment of penalty and interest provided that a taxpayer declared its income in a month period, and pay any unpaid tax that fall within the period of exemption, if any. What differentiates taxpayers that fall in the third group from the other groups that fall in the same category is that they have a short period of only one month to discharge their liability. In addition, they are not entitled to a discount for paying in a short period.

What is more Article 8 contains rules that deal with the discharge of taxpayers’ properties that fall under Category B. The directive obliged the Ministry of Revenues to discharge properties of taxpayers that discharge their whole tax liability in accordance with what is provided in the directive. In addition, it opened a room for discharge for those who do not discharge their whole tax liability. It allowed taxpayers that entered into a commitment to discharge their tax liability in a year period to provide a bank guarantee and secure release of their attached properties. Note that the required bank guarantee should cover the unpaid tax liability, penalty and interest.

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This is the author’s viewpoint. However, Ethiopia Insight will correct clear factual errors.

Editor: William Davison

Main photo: Bella, Addis Ababa; 1 April; William Davison

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About the author

Bisrat Teklu

Bisrat is a Lecturer of Law at the Ethiopian Civil Service University. He is also a senior Consultant and Attorney-at-Law at Bisrat & Beliyu Law Office. He can be reached at

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