Employment Income Tax Rates
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Questions and Answers

What kind of expenditure is not allowed as a deduction from gross income?

  • Salary paid to employees
  • Losses not connected with the business activity (correct)
  • Grants and donations up to 10% of taxable income
  • Losses connected with the business activity

    • What is the condition for interest expense to be an allowable deduction?

  • The interest rate is negotiated between the borrower and the lender
  • The lending institution is recognized by the National Bank of Ethiopia or a foreign institution (correct)
  • The lending institution is recognized by the World Bank
  • The borrower is a registered taxpayer in Ethiopia

    • What is the maximum amount of interest that can be paid to shareholders on loans and advances?

  • Four times the amount of share capital in a tax period
  • Twice the amount of share capital in a tax period
  • The average of four times the amount of share capital in a tax period (correct)
  • Unlimited, as long as the interest is paid

    • What is the purpose of a representation allowance?

    <p>To promote and enhance business with guests from outside the enterprise</p> Signup and view all the answers

    What percentage of salary is allowed as a representation allowance?

    <p>10% of the salary of the employee</p> Signup and view all the answers

    What is the limitation on gifts and donations as an allowable deduction?

    <p>10% of the taxable income</p> Signup and view all the answers

    Which of the following is not an allowable deduction?

    <p>Losses not connected with the business activity</p> Signup and view all the answers

    What is the requirement for interest paid to foreign banks to be deductible?

    <p>The lending bank must file a declaration in writing with the Tax Authority</p> Signup and view all the answers

    What is the tax rate applicable to an employee with a monthly income of Birr 2,500?

    <p>15%</p> Signup and view all the answers

    What is the deduction applicable to an employee with a monthly income of Birr 6,500?

    <p>955 Birr</p> Signup and view all the answers

    What is the tax rate applicable to an employee with a monthly income above Birr 10,900?

    <p>35%</p> Signup and view all the answers

    What is the method of employment income tax computation where the amount of tax is calculated for each layer of tax bracket?

    <p>Progression method</p> Signup and view all the answers

    What is the tax rate applicable to an employee with a monthly income of Birr 1,200?

    <p>10%</p> Signup and view all the answers

    What is the deduction applicable to an employee with a monthly income of Birr 3,500?

    <p>302.5 Birr</p> Signup and view all the answers

    How many tax brackets are there in the employment income tax schedule?

    <p>7</p> Signup and view all the answers

    What is the tax rate applicable to an employee with a monthly income of up to Birr 600?

    <p>Exemption</p> Signup and view all the answers

    What is the main objective of Turnover Tax (ToT)?

    <p>To generate revenue for the government</p> Signup and view all the answers

    Which of the following services are exempt from Turnover Tax?

    <p>Services supplied to diplomatic missions</p> Signup and view all the answers

    What is the Turnover Tax rate on goods sold locally?

    <p>2% of the sale value</p> Signup and view all the answers

    Who is responsible for collecting and transferring Turnover Tax?

    <p>Seller</p> Signup and view all the answers

    What is the base of computation of Turnover Tax?

    <p>Gross receipts</p> Signup and view all the answers

    What is the Turnover Tax rate on services rendered by contractors?

    <p>2% of the service value</p> Signup and view all the answers

    What is Customs Duty?

    <p>A charge on imported or exported goods</p> Signup and view all the answers

    How is Customs Duty normally calculated?

    <p>As a percentage of the CIF value</p> Signup and view all the answers

    Who is the party that grants rent of the building?

    <p>Lessor</p> Signup and view all the answers

    What is the term for the first lessee when they sub-lease the building to another party?

    <p>Sub-lessor</p> Signup and view all the answers

    What is the sub-lessor liable to pay tax on?

    <p>The difference between income from sub-leasing and rent paid to the lessor</p> Signup and view all the answers

    Who is responsible for paying the tax if the sub-lessor fails to pay?

    <p>The owner of the building (lessor)</p> Signup and view all the answers

    What is the responsibility of the Kebele Administration?

    <p>To inform the tax office about the completion of the building</p> Signup and view all the answers

    What is included in the gross rental income?

    <p>Brokerage fee paid on behalf of the lessor</p> Signup and view all the answers

    What is part of the taxable income under this schedule?

    <p>The value of any renovation or improvement to the land or the building</p> Signup and view all the answers

    When should the owner and contractor inform the Kebele Administration about the completion of the building?

    <p>When the building is rented before its completion</p> Signup and view all the answers

    What is the primary purpose of fines and penalties?

    <p>To punish individuals for violating laws</p> Signup and view all the answers

    What is the main difference between a fee and a license fee?

    <p>A fee is charged for a service, while a license fee is charged for permission</p> Signup and view all the answers

    What is the purpose of special assessments?

    <p>To levy a compulsory contribution in proportion to the special benefit derived</p> Signup and view all the answers

    What happens to the property of a person who dies intestate with no legal heirs?

    <p>It is taken over by the government</p> Signup and view all the answers

    What is the main purpose of forfeitures?

    <p>To punish individuals for not complying with the law</p> Signup and view all the answers

    What is a characteristic of a fee?

    <p>It is compulsory and charged for a specific service</p> Signup and view all the answers

    What is the main difference between a fine and a fee?

    <p>A fine is imposed as a punishment, while a fee is charged for a service</p> Signup and view all the answers

    What is the primary purpose of non-tax revenue?

    <p>To generate revenue for the government</p> Signup and view all the answers

    Study Notes

    Employment Income Tax Rates

    • Up to 600 Birr: Exemption
    • 600-1,650 Birr: 10% tax rate
    • 1,650-3,200 Birr: 15% tax rate
    • 3,200-5,250 Birr: 20% tax rate
    • 5,250-7,800 Birr: 25% tax rate
    • 7,800-10,900 Birr: 30% tax rate
    • Above 10,900 Birr: 35% tax rate

    Employment Income Tax Computation Methods

    • Progression method: Calculate tax for each layer of tax bracket by multiplying the given rate
    • Deduction method: Calculate tax by subtracting upper taxable income from previous tax bracket tax rate of given bracket-cumulative threshold

    Taxable Income

    • All payments made by the lessee on behalf of the lessor (e.g. brokerage fee, ownership fee)
    • Value of any renovation or improvement to the land or building borne by the lessee
    • Salary, wages, or other personal emoluments to the proprietor or partner of the enterprise
    • Losses not connected with or arising out of the activity of the enterprise
    • Grants and donations exceeding 10% of taxable income

    Allowable Deductions

    • Interest expense: Allowable if not in excess of the rate used between National Bank of Ethiopia and Commercial banks increased by 2%
    • Representation allowances: Hospitality expenses incurred in receiving guests, deductible to the extent of 10% of the salary of the employee
    • Gifts and donations: Allowable under certain conditions, including excisable services supplied to diplomatic or consular missions, foreign governments, international organizations, or aid agencies

    Turnover Tax (ToT)

    • A tax levied on goods supplied and services rendered locally by persons not registered for VAT
    • Base of computation: Gross receipts in respect of goods supplied or services rendered
    • Rates: 2% on goods sold locally, 2% on contractors, grain mills, tractors, and combine harvesters, and 10% on others
    • Obligation to collect and transfer the Turnover Tax lies with the seller

    Exemptions

    • Certain goods and services are exempt from Turnover Tax

    Customs Duty

    • A charge levied and collected on imported or exported goods
    • Calculated as a percentage of the duty-paying value (CIF value)

    Non-Tax Revenue Terms

    • Fee: Compulsory payment made by individuals who obtain a definite service in return
    • License fee: Fee collected for giving permission or a privilege to do a special or specified work
    • Fines and penalties: Imposed as a form of punishment for mistakes committed
    • Forfeitures: Penalty imposed by courts on persons who have not complied with the notice served or breached a contract
    • Escheats: Property of a person having no legal heirs, taken possession of by the government
    • Special assessment: Compulsory contribution levied in proportion to the special benefit derived to defray the cost of specific improvement to property

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    Description

    This quiz covers the tax rates applicable to employment income, including exemption rates and percentage tax rates for different income brackets.

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