If you have wondered what things are exempted from payment of vat value added tax in ethiopia, i have the list for you below. Value added tax refund practices and revenue performance in ethiopia. Tax has been replaced by value added tax, and the overall taxation. The value of a taxable import is the customs value of the goods, determined in accordance with the customs legislation of ethiopia, plus the sum of duties and taxes payable upon the import of the goods into ethiopia, excluding vat and income tax withholding. Posted by the ethiopia observatory teo by addis fortune. Chapter eight valueadded tax the panel developed and analyzed a proposal to adopt a valueadded tax vat that would replace a portion of both the individual and corporate income taxes. Advantages and disadvantages of value added tax vat advantages of value added tax vat following are the advantages of vat. Ethiopian tax system strikes one as random, disorganized, and incoherent in places. Businesses collect and account for the tax on behalf of the government. Assessment on the implementation of valueadded tax vat in. As compared to other taxes, there is a less chance of tax evasion. Tax laws affecting ngos in ethiopia fall under a broad category of taxes such as income tax profit tax on incoming generating activities, income from employment or payroll tax, property, real state and land tax, customs duty import duty, stamp duty and consumption tax or value added tax vat.
Vat calculator ethiopia free online math calculator and. Pdf assessments of value added tax vat administration in. Tax reform discourse and its implication on development. Difference between value added tax vat and sales tax. By the tax authority, we mean the ethiopian revenues and customs authority erca head office or any of its branch offices established in any part of ethiopia and the tax. Thus, in the developed world taxes on income and value added do the heavy lifting in raising su. Vat minimizes tax evasion due to its catchup effect. Tax on partially produced skin for export tax on coffee exchange promotion of foreign exchange accelerated refund of taxes paid of foreign exchange valueadded tax goods temporarily imported free of tax and customs. The vat is a type of consumption tax that is similar to a retail sales tax but is collected in smaller increments throughout the production process.
For unincorporated or individual businesses the business income tax ranges from 10% 35%. While a vat is not currently used in this country, it is employed by many u. Tax regulations in ethiopia get quick facts on ethiopia s tax regulations now. Accordingly, there are six duty tax rates 0 %, 5 %, 10 %, 20 %, 30 %, and 35 % which are applicable based on the type of the good imported. We are more accustomed to talking if ever about income taxes even then, of specific income taxes, the value added tax, or customs duties than of the ethiopian tax system as a whole. Value added tax vat as one of the important sources of government revenue, its implementation in ethiopia is at its infant stage. The vat regime under ethiopian law with special emphasis on. As most of the developing countries do, ethiopia was highly dependent on external financial resources to finance its development activities. To answer this question, lets outline some of the similarities and differences. Value added tax registration, rates, and exemptions in.
Ethiopia introduced value added tax vat in the year 2003 as a replacement to sales tax. The article sums up scholars of different scientists, dealing with the impact of vat efficiency determinants. Ethiopian ministry of revenues mor is the body responsible for collecting revenue from customs duties and domestic taxes. For instance, in the 200607 fiscal year, federal vat revenue on domestic transactions accounted for about 41 per cent of total federal revenues from domestic sources efira 2007. The study also emphasises the need to strengthen the administration capacity in general and the tax audit program in particular. Value added is the difference between business sales and purchase of goods and services from other businesses. Pdf value added tax collection challenges in ethiopia. Valuedadded tax vat was introduced in january 2003 and may mean a shift from ethiopia s dependence on foreign to domestic trade, but it is too early to evaluate its impact. It is a modified sale tax based on the net value added at each stage rather than gross receipts it is principle means of indirect taxation.
This is the tax imposed on the taxable business income net profit realized from entrepreneurial activity. Valueadded tax vat vat is charged, under the value added tax proclamation on the supply of goods and services by registered persons, and on the importation of goods and services into ethiopia and services performed by a nonresident person who performs services for a resident in ethiopia. The cost of the tax is borne by vat exempt institutions and. Value added tax registration, rates, and exemptions in ethiopia. The valueadded tax vat is the worlds most common form of consumption tax, in place in more than 160 countries, including every economically advanced nation except the united states. No extensive research has been done in these essential and critical features of the comparison of sales tax with vat in the ethiopian. Adding tax on income if the tax on income from employment, instead of being deducted from the salary or wage of the employee, is paid by the employer in whole or in part, the amount so paid shall be added to the.
The ethiopian fiscal year starts on july 6 and ends on july 7 of. Indirect taxes have a significant place in developing eu countries tax systems. Assessment on the value added tax implementation in ethiopia. A value added tax and factors affecting its economic impact. With its strength and weakness in which applies will be generalized. In the longterm, the ethiopia sales tax rate vat is projected to trend around 15. This study tried to explore the major problems and prospects of vat implementation in tigrai regional state. Standard integrated government tax administration system. The research design adopted in this study was causal study. How working in ethiopia impacts your us expat taxes. A comparative overview dasalegn mosissa jalata lecturer department of accounting and finance, college of business and economics, wollega university, post. Vat is the principal source of revenue for the ethiopian government. Value added tax vat value added tax or vat is a tax on the consumption or use of goods and services levied at each point of sale.
Pdf the main objective of the study is to assess vat administration in guraghe zone revenue authority. Vat is imposed for every imported goods and services other than an exempt imports and an import of services. Taxation in ethiopia in ethiopia a company, based on its activities may be required to pat the following taxes. Since the jurisprudence of ethiopian taxation is yet to develop fully, this. The target population for this study consisted of the quarterly reports on the state of the kenyan economy in relation to productivity.
Vat part of their tax system, where ethiopias standard. As a part of the global tax reform discourse, vat was introduced in ethiopia in the midst of developing countries notion of vat as money machine and. A value added tax vat has at times been mentioned as a substitute for an existing tax or as a source of new revenues in the united states. This paper examines vat administration in ethiopia and identifies key problems including lack of sufficient number of skilled personnel and gaps in the. Sales tax is collected by the retailer when the final sale in the supply chain is reached via a sale to the end consumer. The studys objective was to determine the effect of value added tax on economic growth in kenya. For every taxable transaction by a registered person, every import goods other than an exempt import, and an import of services, 15% of the value. Standard vat is currently fixed at the rate of 15 %. The macroeconomic effects of an addon value added tax. Ethiopia aspires to be a leading manufacturing hub in africa by 2025.
The challenges of tax collection in developing economies with special reference to india pramod k. The value added tax system, unlike the conventional sales tax system, efficiently addresses the problems of cascading and input tax credit that causes an automatic hike in the consumer price level. As a result, there is increased risk that taxpayers will be caught unprepared, making a current, detailed guide like the worldwide vat, gst and sales tax guide all the more valuable. Corporate businesses are required to pay 30% flat rate of business income tax. Get a free selfhelp ebook that gives you the keys to a guaranteed successful life.
A very common question in the tax community is what is the difference between sales tax and vat. For many decades, the tax contribution to gdp was very less and this needs an improvement. Value added tax vat the official portal of the uae. It is a consumption tax charged on taxable goods, services immovable property of any economic activity whenever value is added at each stage of production and at the final stage of sale.
While greatly accelerating the pace of all their tax legislation, the worlds governments have relied most heavily on indirect taxes for extra revenue. Vat exempted items in ethiopia vancouver ethiopian blog. It is not, however, difficult to see that its implementation is. Ethiopia sales tax rate vat 20142020 data 20212022. The macroeconomic effects of an addon value added tax iv the macroeconomic effects of an addon value added tax executive summary as u. However, the reform, especially the introduction of vat, involves the influence and participation of nonstakeholders. Vat is simple to administer as compared to other indirect tax. A comparative overview this paper appraised and compared concisely the ethiopian value added tax vat and sales tax. The vat regime under ethiopian law with special emphasis.
Tax and the valueadded tax vat of ethiopia, which seems to have caught the. The following shall, in particular, be considered to be a permanent. It seizes and takes legal action on the people and vehicles involved in the act of smuggling while it facilitates the legitimate movement of goods and people. The list is from the ethiopian revenues and customs authority erca.
Vat is a form of indirect tax and is levied in more than 180 countries around the world. The incidence of cascading is avoided in vat as the tax is imposed on the value addition at every stage of production. Value added tax vat, mekelle city administration, consumers, business community. Value added tax vat, income tax, turnover tax tot, withholding tax, excise tax, capital gains tax, rental tax, royalty tax, sur tax on imported goods, and stamp duty. It replaces the sales tax, have two rates 15% and 0% with exemptions of the tax. A duty on goods imported into the customs territory is paid at the rates specified by the customs tariff regulation. Advantages and disadvantages of value added tax vat. Now, therefore, in accordance with article 55 1 and 11 of the constitution of the federal democratic republic of ethiopia it is hereby proclaimed as follows. Definitions a value added tax is a modern tax system and broad based. Adding tax on income if the tax on income from employment, instead of being deducted from the salary or wage of the employee, is paid by the employer in whole or in part, the amount so paid shall be added. Ethiopia has recently implemented the value added tax system to its tax regime. The study is limited on the current of vat administration in ethiopian and compliance risks. In ethiopia, vat was introduced since january 12003 designed to replace the cut dated sales tax which was. The principal taxes currently in place are company profit tax, turn over tax valueadded tax vat, excise tax, customs duty, income tax from employment and income tax.
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