Salary Income Tax Deductions /Ethiopian New Income Tax Pro/1395/2017/አዲሱ 1395/2017 የገቢ ግብር አዋጅ መሠረት
This video will introduce and describe how Ethiopian Salary Income Tax deductions are calculated in excel, what it means?
Ethiopia’s new Schedule A salary income tax brackets (based on Proclamation 1395/2017 E.C.)
1. Structure of the Tax Brackets
The table in your file shows:
• S/No. – The bracket number.
• Max Brackets – The maximum monthly taxable income in that bracket.
• D/F B/N Brackets – Difference between the upper limit of this bracket and the previous one (width of bracket).
• Rate (%) – Marginal tax rate applied to income in this bracket.
• Tax on Diff – Tax amount on just the income within this bracket.
• Tax on Marginal Brackets – Cumulative tax paid up to the upper limit of the bracket.
• Progressive Taxes – Step-by-step cumulative tax in a progressive manner.
• Tax Deductions – The amount to subtract when applying the shortcut tax formula.
2. Ethiopian New Monthly Salary Tax Brackets
Bracket Monthly Income Range (ETB) Tax Rate (%) Fixed Deduction (ETB)
1 0 – 2,000 0% 0
2 2,001 – 4,000 15% 300
3 4,001 – 7,000 20% 500
4 7,001 – 10,000 25% 850
5 10,001 – 14,000 30% 1,350
6 Above 14,000 35% 2,050
3. How the Tax Is Calculated
There are two main methods:
A) Progressive Step-by-Step Method
You calculate tax on each bracket’s portion separately:
1. First ETB 2,000 → 0% tax = 0
2. Next ETB 2,000 (2,001–4,000) → 15% = 300
3. Next ETB 3,000 (4,001–7,000) → 20% = 600
4. Next ETB 3,000 (7,001–10,000) → 25% = 750
5. Next ETB 4,000 (10,001–14,000) → 30% = 1,200
6. Remaining income above ETB 14,000 → 35%
B) Quick Formula Method (Using Deductions)
To speed up, Ethiopia’s tax law gives a deduction method:
Tax = (Income × Rate) – Deduction
Example: Monthly income = ETB 12,000
• Falls in Bracket 5 → Rate = 30%, Deduction = 1,350
• Tax = (12,000 × 0.30) – 1,350
• Tax = 3,600 – 1,350 = 2,250 ETB
4. Key Points About the New System
• The new brackets increased the tax-free threshold from ETB 600 (old law) to ETB 2,000, reducing tax for low-income earners.
• Top marginal rate remains 35% but applies only on income above ETB 14,000.
Deductions make quick tax calculation possible without breaking into multiple brackets.