How Income Tax Works in Ethiopia (2026)
Ethiopia rewrote its employment income tax in Proclamation 1395/2025 (effective July 2025): a new 6-band monthly schedule from 0% to 35%. Your 7% pension contribution (on salary up to ETB 15,000/month) is deducted before tax is computed.
The schedule (monthly)
| Monthly income (ETB) | Rate |
|---|---|
| 0 – 2,000 | 0% |
| 2,001 – 4,000 | 15% |
| 4,001 – 7,000 | 20% |
| 7,001 – 10,000 | 25% |
| 10,001 – 14,000 | 30% |
| Above 14,000 | 35% |
Worked example
Monthly salary of Br 20,000: pension = 7% × 15,000 (capped) = Br 1,050. Taxable = 18,950. Tax = 2,850 + 35% × (18,950 − 14,000) = Br 4,582.50. Take-home = 20,000 − 1,050 − 4,582.50 = Br 14,367.50.
There are no statutory health or unemployment deductions in Ethiopia.
Try it: Ethiopia salary calculator →
Another worked example
Monthly salary of Br 12,000: pension = 7% × 12,000 = Br 840. Taxable = 11,160. Tax = 300 + 600 + 750 + 30% × 1,160 = Br 1,998. Take-home = 12,000 − 840 − 1,998 = Br 9,162.
Reading your Ethiopian payslip
Ethiopia's payslip is short: pension 7% and employment income tax — that's the whole statutory list. The pension is capped at Br 1,050/month (7% of ETB 15,000), so if yours keeps rising past that, the cap is missing. Watch for housing and transport allowances listed as tax-free: if they're regular payments, they should be taxed as salary under Proclamation 1395/2025. Anything else on the payslip (health, savings) is a company scheme, not law.
Common mistakes
1. The pre-2025 tax schedule. Proclamation 1395/2025 rewrote the bands from July 2025.
2. Pension on the full salary. 7% applies up to ETB 15,000/month — capped at Br 1,050.
3. Expecting health or unemployment deductions. No statutory employee health or unemployment insurance exists.
What counts as taxable income in Ethiopia
Under Proclamation 1395/2025, employment income means salary plus regular allowances — housing, transport, hardship, and position allowances are all taxable if paid regularly. Bonuses and overtime are taxable. Exempt: genuine reimbursements, employer pension contributions, and certain per diems within limits. The key surprise for employees: allowances labeled "non-taxable" in old contracts are usually taxable now — the proclamation looks at regularity, not labels.
Tax year and filing in Ethiopia
Ethiopia's fiscal year runs 8 July to 7 July (Hamle to Sene in the Ethiopian calendar) — Proclamation 1395/2025 took effect in July 2025, so these figures apply to the 2018 EC fiscal year. Employment tax is withheld monthly and is final for salary-only earners; no annual filing needed. If you earn other income, you file with the Ministry of Revenues. Dates on official documents use the Ethiopian calendar — don't let that confuse you when cross-checking.
Sources & verification
Figures compiled from: Ethiopian Revenues and Customs Authority (ERCA).
Last verified: 23 October 2026. This guide is an estimate, not tax advice.