The draft proclamation, submitted to the Parliament in a special session held on Friday, June 04, 2025, proposes amending the 2016 Income Tax Proclamation, which has remained in place for over nine years.
The current legislation imposes a 35pc tax rate on monthly salaries starting from 10,900 birr, an amount that, according to the government, no longer reflects the country’s evolving economic realities.
“The proclamation has been in effect for more than nine years and therefore has many gaps in light of the current economic climate and the complex nature of business,” the explanatory memorandum reads.
Officials argue that updating the salary tax brackets will support the federal government’s medium-term fiscal target of raising tax and duty revenues to 11pc of GDP. The bill is also part of a broader strategy to modernise the tax base and align it with the dynamics of the digital economy.
However, past efforts to raise the top tax threshold were shelved due to concerns over potential revenue shortfalls, especially for regional governments that heavily rely on personal income tax.
If approved, the revised bill is expected to ease the burden on middle-income earners while strengthening enforcement mechanisms to curb tax evasion.