Capital Gain Tax/የካፒታል ሀብት በማስተላለፍ የሚገኝ ጥቅም ግብር/Ethiopian Tax Context
In Ethiopian Tax Context, A person is referred to as taxable in category A (immovable wealth); Category B (shares or bonds) is liable to pay a tax of 15% (fifteen percent) and 30% (thirty percent) on the income obtained by transferring the asset respectively.
According to the tax law, if business assets are subject to tax, in the income obtained from the transfer of business real assets, the cost of the business real asset that exceeds the book value of the business asset will be included in the business income, and the benefit obtained in excess of the cost of the business asset will be taxed.
If the taxable asset was fully used for rental purposes, the income from the transfer of the asset, which is greater than the asset's net book value, will be taxed on the profit above the cost of the asset.
When calculating the formula of taxable income included in business income or/or house rental income from the total benefit obtained by transferring capital assets.
f = a - ( b + d )
e = b - c
Where:
a) Selling Price of the Real Asset
b) The price at which the asset was acquired/purchased (including the cost incurred for the asset)
c) the book value of the asset
d) Inflation adjustment (calculated based on the annual average inflation rate data distributed by the Ministry of Finance)
e) Income or loss that is included in business income and/or rental income from gross profit or loss from the sale of the asset.
f) Taxable income from the transfer of capital resources from the profit from the sale of the asset
If a taxable asset is used for business and rental purposes, the cost of the asset that is greater than the book value of the asset shall be apportioned to the extent of the asset's use for business and rental purposes at the time of sale and shall be included in business income and rental income.
If the asset transferred is taxable category A, inflation adjustment is made to calculate the taxable income. However, the inflation adjustment is not applicable to calculate the taxable income of category B.
If the cost of capital asset is less than 20% (twenty percent) of the value of the asset, if it is held as an expense, this cost will not be considered when calculating the capital gains Income.
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