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    Accounting For Payroll System: Ethiopian Context

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    Gebremedihn Nigussu Birihanu
    Payroll

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    Accounting For Payroll System: Ethiopian Context

    Uploaded by

    Gebremedihn Nigussu Birihanu
    5 views25 pages
    Payroll

    Original Title

    C3

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    Payroll

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    5 views25 pages

    Accounting For Payroll System: Ethiopian Context

    Uploaded by

    Gebremedihn Nigussu Birihanu
    Payroll

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 25

    Accounting for Payroll

    System: Ethiopian
    Context
    C. Overtime Earnings

    By: MMI Tax Project Office Thursday, May 16, 2024


    7
    Basic Legal Provisions of EIT
     The newly issued Proclamation 979/2016 gives the
    following rates

    TB Over Birr To Birr Tax Rate


    1st 0 600 Exempted
    Threshold
    2nd 601 1650 10%
    3rd 1651 3,200 15%
    4th 3,201 5,250 20%
    5th 5,251 7,800 25%
    6th 7,801 10,900 30%
    7th 10,901 xxxxx 35%
    Thursday, May 16, 2024 By: MMI Tax Project Office 10
    EIT Exemptions (Article 65 of Proclamation
    979/2016)
    1. Medical Allowance to cover actual costs
    2. Transportation Allowance (max Br 2200 or 25% of salary
    whichever is lower)
    3. Hardship Allowance (for approved locations)
    4. Per-diem Allowance (Daily Allowance) (max Br 225 or 4%
    of salary whichever is higher)
    5. Traveling Expenses (elsewhere than the place of work)
    6. 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.

    Thursday, May 16, 2024 By: MMI Tax Project Office 11


    Exemptions - Cont’d…
    9. Food and Beverage provided for free to an employee by an
    employer conducting a Mining, Manufacturing, or
    Agricultural Business;
    10. Allowances paid by the government of the FDRE to employees
    engaged in public service in a foreign country
    11. 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)

    Thursday, May 16, 2024 By: MMI Tax Project Office 12


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

    Thursday, May 16, 2024 By: MMI Tax Project Office 13


    Computation of TEI
     Taxable Income is the sum of all taxable
    employment benefits.
     Tax Exemptions are employment incomes
    exempted from EIT.
     TEI = Gross Employment Income
    Less Exemption

    Thursday, May 16, 2024 By: MMI Tax Project Office 14


    Computing 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 – 30% 955.00 EIT = TEI @ 30% – 955.00
    10,900
    7 Over 10,900 35% 1,500.00 EIT = TEI @ 35% –1,500.00

    Thursday, May 16, 2024 By: MMI Tax Project Office 15


    Example
     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
    1.Determine his Taxable Employment Income
    2.Determine his Employment Income Tax

    Thursday, May 16, 2024 By: MMI Tax Project Office 16


    Solution

    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, May 16, 2024 By: MMI Tax Project Office 17

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