Accounting on Ethiopian payroll system an accounting framework for the Ethiopian payroll system involves understanding the country's labor laws, taxation regulations, and specific payroll processes.

Accounting on Ethiopian payroll system an accounting framework for the Ethiopian payroll system involves understanding the country's labor laws, taxation regulations, and specific payroll processes.

1. Chapter 4 Accounting for Payroll System: Ethiopian Context

2. Thursday, July 14, 2022 By: MMI Tax Project Office 7 C. Overtime Earnings

3. Basic Legal Provisions of EIT TB Over Birr To Birr Tax Rate 1 st 600 Exempted Threshold 2 nd 601 1650 10% 3 rd 1651 3,200 15% 4 th 3,201 5,250 20% 5 th 5,251 7,800 25% 6 th 7,801 10,900 30% 7 th 10,901 xxxxx 35% 10 The newly issued Proclamation 979/2016 gives the following rates Thursday, July 14, 2022 By: MMI Tax Project Office

4. Medical Allowance to cover actual costs Transportation Allowance (max Br 2200 or 25% of salary whichever is lower) Hardship Allowance (for approved locations) Per-diem Allowance (Daily Allowance) (max Br 225 or 4% of salary whichever is higher) Traveling Expenses (elsewhere than the place of work) Board Allowances of public enterprises’ board members and secretaries and of study groups set up by the Federal or a state government or city administration. 11 EIT Exemptions (Article 65 of Proclamation 979/2016) Thursday, July 14, 2022 By: MMI Tax Project Office

5. Exemptions - Cont’d … Food and Beverage provided for free to an employee by an employer conducting a Mining, Manufacturing, or Agricultural Business ; Allowances paid by the government of the FDRE to employees engaged in public service in a foreign country Contributions by an employer to a pension, provident, or other retirement fund for the benefit of an employee (Maximum is 15% of the monthly salary) 12 Thursday, July 14, 2022 By: MMI Tax Project Office

6. An amount as compensation for personal injury or the death of another person. Scholarship for attendance at an educational institution A Cash Indemnity Allowance paid by an employer to an employee but only to cover actual shortages; Income specifically exempted from income tax by any law in Ethiopia  13 Exemptions - Cont’d … Thursday, July 14, 2022 By: MMI Tax Project Office

7. Taxable Income is the sum of all taxable employment benefits. Tax Exemptions are employment incomes exempted from EIT. TEI = Computation of TEI 14 Gross Employment Income Less Exemption Thursday, July 14, 2022 By: MMI Tax Project Office

8. C omputing Employment Income Tax TB Income Rate Deduction EIT Calculation 1 0 – 600 0% 0.00 Exempted Threshold 2 601 – 1,650 10% 60.00 EIT = TEI @ 10% – 60 3 1,651– 3,200 15% 142.50 EIT = TEI @ 15% – 142.50 4 3,201 – 5,250 20% 302.50 EIT = TEI @ 20% – 302.50 5 5,250 – 7,800 25% 565.00 EIT = TEI @ 25%n – 565.00 6 7,800 – 10,900 30% 955.00 EIT = TEI @ 30% – 955.00 7 Over 10,900 35% 1,500.00 EIT = TEI @ 35% –1,500.00 15 Thursday, July 14, 2022 By: MMI Tax Project Office

9. Ato Daniel is a loan officer at Awash International Bank. Ato Daniel earns monthly salary of Br 12,800 for 160 Normal Working Hours and the Employer’s Contribution to Provident Fund is 20% of Daniel’s basic salary. He has worked for 20 overtime hours in weekly rest days during the month. Required Determine his Taxable Employment Income Determine his Employment Income Tax Example Thursday, July 14, 2022 16 By: MMI Tax Project Office

10. Solution By: MMI Tax Project Office SAQ 1 Determination of Taxable Employment Income & Employment Income Tax Basic salary. 12,800.00 Overtime Pay (20 *12,800/160 * 2 3,200.00 Provident Fund ( 12,800*20%) 2,560.00 Gross Employment Income 18,560.00 Less: Provident Fund ( 12,800*15%) (1,920.00 ) Taxable Employment Income (TEI ) 16,640.00 Employment Income Tax [(16,640*35%)-1,500] 4,324 Thursday, July 14, 2022 17

11. THE END!!