In a highly anticipated session marked by heated debate and strong opposition from labor unions, Ethiopia’s House of People’s Representatives has officially passed the amended Federal Income Tax Proclamation, a move expected to reshape the country’s wage taxation structure.
The bill was approved by a majority vote, with 5 lawmakers opposing and 12 abstaining, despite persistent calls from the Ethiopian Confederation of Trade Unions (CETU) to revise what they called an “unrealistic and burdensome” framework.
What the Amendment Changes
The newly passed proclamation raises the tax-free income threshold from 600 birr to 2,000 birr, a move the government says will reduce the tax burden on low-income earners, while also aiming to broaden the tax base and boost national revenue.
However, critics argue that the update fails to reflect the real cost of living in Ethiopia, where inflation has sharply eroded purchasing power over the past decade.
The new tax brackets start at 15%, eliminating the previous 10% entry rate. The top bracket of 35% now applies to anyone earning above 14,100 birr per month.
What the Government Says
Ato Desalegn Wedaje, Chairman of the Standing Committee on Planning, Budget and Finance, stated that the amendment was prepared after extensive stakeholder consultations, adding:
“This is a progressive step to ease burdens on the lowest earners while making the tax system more efficient and equitable.”
Dr. Eyob Tekalign, State Minister of Finance, echoed the sentiment:
“We studied other countries, weighed local realities, and found this reform to be both timely and necessary.”
What Critics Say
Despite official assurances, CETU and other labor representatives strongly opposed the version of the bill that passed. Ato Kassahun Follo, President of CETU, had lobbied for a much higher tax-free threshold of 8,324 birr, arguing that:
“You don’t collect taxes from someone who can’t live. You don’t collect taxes from someone who can’t eat.”
CETU also criticized the steep tax rates and the heavy combined financial burden workers face, including 15% price increases on food and goods, a 35% income tax, and a 7% pension deduction, leaving many with barely 43% of their salaries for daily expenses like rent, food, and education.
What This Means
With the proclamation now law, implementation will move forward—despite concerns that it disproportionately affects the middle- and lower-income workforce in a time of ongoing economic strain.
The political message is clear: fiscal consolidation and development take precedence, even as labor groups warn of the risks to productivity, well-being, and social cohesion.
Whether this reform helps stabilize the economy or ignites further tension remains to be seen. But for now, the amended Federal Income Tax Proclamation is official.
Source: Tikvah Ethiopia
