Value added tax /VAT/ in Ethiopia

Taxpayers and business activities of value added tax in Ethiopia

Which business activities are the taxable businesses Activities for VAT?

An activity which is carried on continuously or regularly by any person  in Ethiopia or partly in Ethiopia, whether or not for a pecuniary profit, that involves or is intended involve, in whole or in part, the supply of goods or services to another person for consideration.

Who is the tax payer of Value Added Tax (VAT)?

A person who carries on taxable activity is required to file an application for VAT registration. which means;

Obligatory Registration if the person taxable transactions the total value of which exceeded 1,000,000 Birr at the end of any period of 12 calendar months;

Voluntarily Registration if, a person who carried on taxable activity and is not required to be registered for VAT, may voluntarily apply for registration, if he regularly is supplying or rendering at least 75% of his goods and services to registered persons.

or there are reasonable grounds to expect the total value of taxable transactions will exceed 1,000,000 Birr at the beginning of any period of 12 calendar months.

What are the rate of Value Added Tax?

Value Added Tax Rates

There are two tax rates for Value Added Tax:

  • 15% (fifteen percent) and
  • 0% (zero percent) rate.

If the supply is taxable at 15 percent, the supplier pays 15 percent value added tax (input tax) when making purchases, and collects 15 percent tax (output tax) when selling or supplying taxable goods. The tax collected for the government is between the two.

This means that the output tax minus the input tax becomes the tax payable.

In zero percent taxable transactions, the supplier pays 15 percent value added tax (input tax) when making a purchase, and zero percent tax (output tax) when the goods are sold or supplied.

This means that there will be no value added tax to be collected when the goods are sold or supplied.

Tax Payable for Tax Period

The amount of tax payable for any accounting period by a person who is registered or is required to register is the difference between the amount of tax charged on taxable transactions and the amount of tax credit.

Accounting period

a) In case of taxpayers whose turnover in any 12 months is birr 70,000,000 (birr seventy million) over every month;

b) In case of taxpayers whose turnover in any 12 months is less than birr 70,000,000 (birr seventy million) every three month where the month of August and Pagumen shall be aggregated and treated as one calendar month;

Filing Value added tax in Ethiopia

Every registered person shall be required to file a VAT return with the Authority by appearing in person, or through electronic filing or through a third party delegated by the minister of revenue for each accounting period, whether or not tax is payable in respect of that period; and

Simultaneously pay the tax to the Authority or to the person delegated by the Authority by the deadline for filing the VAT return for every accounting period.

A person registered for VAT and carries out a taxable transaction shall be required to simultaneously issue a VAT
invoice to the person who receives the goods or services. A person who is not registered for VAT may not have the right to issue a VAT invoice.”

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