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Recent Economic Measures Taken by the Ethiopian Government in Response to the COVID-19 Pandemic


The adverse effects of the COVID-19 Pandemic (the “Pandemic”) have resulted in not only health and social crises, but also in huge economic problems. As countries have closed their borders, export trade has been seriously impacted. The tourism industry is also highly affected as it closely dependent on global movement of peoples and the inbound flow of FDI has been severely affected. The reliable estimate of the extent of the damage is yet to be determined.

To mitigate the adverse effect of the Pandemic on the economy, the government has decided to provide financial assistance to the business community. The National Bank of Ethiopia has allocated 15 Billion Birr loan for banks to enable them to extend loan to private businesses to meet their costs for wage and other regular expenditures. It has also allowed banks to permit temporary postponement of repayment of loan. On a different front, speedier settlement of refunds of excess input VAT to businesses has also been adopted as a measure to alleviate their liquidity problem.

On April 26, 2020, the Council of Ministers of Ethiopia (“CoM”) has adopted a range of economic measures that aim at softening the influence of the Pandemic, you can find here the translation of the economic measures. Following the CoM’s decision, the Ministry of Finance has issued Directive No.64/2020 setting out the details of the tax measures applicable to businesses, you can find here the translation of the Directive.  Under this issue of our legal update, we have summarized the highlights of the measures approved by CoM.

  • Objectives of the measure

The main objectives of the measures are set out as follows:

  • to ensure the effectiveness of measures taken by government to prevent the society from the health crisis arising from the Pandemic
  • to ensure continuity of hardest hit businesses and exporters
  • to ensure the retention of workers in their employment
  • to prevent the urban poor from exposure to dislocation on account of their inability to pay house rent
  • to encourage taxpayers to supplement the government’s effort to prevent the impact of the Pandemic by making financial support in the form of donation.
  • Scope of application of the proposed measure

No explicit differentiation of sectors and preferred beneficiaries are made in the proposed measure. One can detect a heightened concern from the reading of sections 2 and 3 of the proposed measure that the following sectors or tax payers are targeted:  service sector, micro and small enterprises, manufacturing, construction and wholesale traders, financial sectors, producers engaged in production of limited type of products, employed and self-employed persons.

  • Types and natures of the measures

To mitigate the economic damage of the Pandemic, the government has adopted various fiscal and financial measures such as extension of filing and tax payment deadlines, remitting penalties and interest, deferral of tax payments, facilitating loan access and suspension of debt recovery.

TAX DEBT RELIEF AND DEFERRAL: The first economic measure adopted by the government is waiver of outstanding tax liabilities that taxpayers owe to the government until the year 2019. The measure pertaining to tax amnesty has been reduced to a Directive and issued by the Ministry of Finance.

The Directive classified the tax years, for which the relief is applicable, into Category A and Category B.

Under Category A, all the tax years until 2014 have been covered and outstanding tax liabilities arising from income tax, VAT and excise tax together with penalties and interests have been waived. However, all the payments made by the taxpayer as part of settlement agreement, in the form of withholding, or excess taxes or a tax paid in order to lodge appeal to the Tax Appeal Commission or courts, will neither be refunded to the taxpayer nor be used to settle future taxes. If the taxpayer wants to continue the appeal before the relevant appellate bodies, instead of opting for the tax remission, it has to notify the Ministry of Revenue within 30 days of the issuance of the Directive by the Ministry of Finance (“MoF”) Failure to notify with in those days’ amounts to acceptance of the remission.

The remission measure would, therefore, have the implication of terminating appeals pending at the tax review committee, tax appeal commission and the ordinary courts. It will also have the effect of terminating the re-assessment conducted by the auditors of the tax authority based on the decision of the appellate organs.  The tax authority will provide a written certificate that confirms the waiver of the outstanding tax liabilities. If the taxpayer opts to reject the waiver and go for the appeal, the normal procedure and tax laws would be applicable.

The properties seized by the tax authority for the settlement of taxes that the taxpayer failed to settle would be returned only when it is proved that the taxpayer is conducting a business, has no tax liability since 2015 and if the taxpayer is able to take the property within 30 days’ notice period.

Under Category B, the relief of tax debts due from 2014 to 2018 have been waived but with a different treatment of different types of taxpayers.

First, taxpayers who are audited and served with a tax assessment notice:  If the tax authority has conducted a tax audit and tax assessment notice has already been served to the taxpayer that shows the taxpayer has liability to pay the tax, interest and penalty, the interest and penalty will be waived if the taxpayer notifies the tax authority about its confirmation to opt for using this measure within 30 days of the issuance of the Directive, and signs a settlement agreement to pay 25% of the tax immediately and the remaining 75% within a year. If the taxpayer wants to pay the entire principal tax liability immediately, in addition to the waiver of the interest and the penalty, 10% of the tax liability will be waived. The taxpayer is required to withdraw all the appeals pending atthe relevant appellate organ in order to be a beneficiary of this relief.

Second, taxpayers who declared and paid the tax but not received an assessment notice for the tax periods-the measure mentioned above will be applicable if taxpayer applies within 30 days following the tax assessment notice to be served by the authority and if the audit finding shows that that the tax payer has to pay additional tax.

Third, tax payers who declared their tax liability but fail to pay on the due date: taxpayers, who filed a tax declaration but failed to pay on the due date for the tax periods 2014 to 2018 will be relieved from late payment interest and penalty provided that they declared and paid the entire tax amount within 30 days as of the date of the decision to benefit from this scheme.

All category B taxpayers who intend to benefit from this measure are required to apply to the tax authority within one month mentioning the specific measure they consider as applicable to their case. If they fail to do so, it is presumed that they do not want the relief measures and the normal rules and procedures of the tax law will continue to apply.  

The properties seized by the tax authority will be returned to the taxpayer provided that all the principal tax liabilities are settled, the taxpayer is able to take the property within 30 days of the payment of tax and the taxpayer has an active business.


The economic measures by CoM aim at encouraging building owners to waive two months’ rental for their lessees in exchange for waiver of income tax for the current tax year. This benefit applies to buildings rented for schools, residence small and medium businesses. The building owner will be relieved from paying the tax for the year 2019/2020 if he can prove that he granted lessees exemption from the payment of rent for two months. As collecting a tax on rental is under the mandate of the regional governments and city administrations, the federal government confirmed that it has consulted with them for the sake of smooth implementation of the scheme.

Further, the government also decided to share the cost of an employer who lets his employees to stay at home and keep them on payroll during temporary business closures. This aims at encouraging employers to retain their employees in exchange for lessening of their tax burdens. The government decided to forego four months of employment income tax in order to enable employers to use it to pay salary to employees who have stayed home away from work. Thus, an employer who paid the full salary of his employees for the months of March and April, will be permitted to use the employment income tax withheld for the four months.

EXTENSION OF VAT AND TOT FILING PERIOD: The payment period of value added tax and turn over tax has been postponed by one-month period. Accordingly, tax payers paying VAT on a monthly basis will get one-month postponement of reporting and payment obligations; tax payers paying VAT on a quarterly basis will get one-month postponement of reporting and payment obligations; and taxpayers paying ToT on a quarterly basis will get one month postponement of reporting and payment obligations. 

MAKING CHARITABLE DONATIONS TAX DEDUCTIBLE: Under the existing income tax law, charitable donation is deductible from the calculation of taxable income when it is made to Ethiopian charities and societies or in response to a call by the government. The existing tax law also limits the extent of donation not to exceed 10% of the taxable income of the taxpayer for the year. The measure raises this limit to 20%. The lower level legal instrument used, i.e. a directive or regulation, to amend the limit set forth in a higher level of legislation, i.e. proclamation, raises questions of legality when viewed from the proper hierarchy of laws in Ethiopian law making procedure. This formal gap will have been addressed in due course.

ACCESS TO LOAN BY SMALL AND MEDIUM SIZED ENTERRPRISES: the small and medium enterprises as well as micro finance enterprises are facing unprecedented impact on their cash-flow situation. As a result, the government proposed to facilitate access to loan and ordered Development Bank of Ethiopia to immediately facilitate loan to them.

LOAN ACCESS TO MICRO-FINANCE INSTITUTIONS: In order to help the cooperative societies play a role in expediting the supply of goods, the government planned to increase their financial capacity. The micro-finance institutions are the main suppliers of finance to cooperative societies. The government directed the National Bank to provide loans to micro-finance institutions that will be disbursed to cooperative societies in the form of loan.

SUPPORT TO EXPORTERS: the exporters who have been affected by losing international market will be permitted to sell their products to the local market for two months based on the investigation to be made by the Ethiopian Investment Commission. They will also be permitted to switch their production pattern to engage in other activities such as production of medical supplies for domestic as well as foreign use.

CANCELLATION OF RECEIVABLE DEBTS OF CUSTOMS DUTY- the other measure adopted by the council of ministers is the cancellation of the receivables of the Customs Commission recorded as a debt. This debt covers (i) outstanding debt of exporters, who have imported raw materials through voucher, who cannot provide evidence of the export of their products using imported raw materials through voucher; (ii) debt confirmed by audit of vehicles and raw materials imported by the authorization of the Ethiopian Investment Commission out of its mandate; and (iii) debts on raw materials imported by public enterprises up on guarantee of payment of duties and taxes registered by the Customs Commission as receivables. The CoM decided that those debts be cancelled.

The Customs Commission will investigate the debt and send the same to the MoF for its approval.

PAYMENT OF PURCHASE PRICES OF PUBLIC ENTERPRISES THAT ARE PRIVATIZED: Buyers of public enterprises that have been privatized normally pay the purchase price by installments completing the full payment within five years of the date of purchase.  Delay in payment of instalments will result in contractually agreed interest and penalties. Taking into consideration the concern that the privatized enterprises \may face cash flow problems and may not be in a position to pay the debt including its interest and penalty arising from the Pandemic, the Directive directs that the MoF in consultation with Public Enterprises Holding and Administration Agency to consider suspension of interest, penalty and debt recovery for a limited period of time. Such a measure is consistent with Article 13 of Federal Government Financial Administration Proclamation No. 648/2009 and Article 38 of Federal Financial Administration Regulation No. 190/2010).

LOSS CARRY FORWARD: Current laws limit extension of loss carry forward only to two tax years (Article 26 of the Income Tax Proclamation No. 979/2016).  The proposed economic measures, taking in to account the gravity of the problem facing a taxpayer who has exhausted his loss carry forward rights, open the door for a further loss carry forward for additional year. The implementation of this measure will require a legislation (similar status with proclamation) as there is no room for the CoM to introduce the measure via an inferior status regulation. Otherwise, the measure needs to be made through a state of emergency regulation.

PRIVATE ORGANIZATION EMPLOYEES PENSION CONTRIBUTION:  Private organizations have an obligation to contribute an amount equal to 11% of the salary of their employees for pension. This may increase the stress of organizations paying salaries of employees out of work. To address the cash-flow shortage that may be caused by the Pandemic, the government has proposed to consider postponement of payment of pension contribution for three months. Such postponement is also tolerated under the private organization employees’ pension proclamation when the employer is unable to pay the contribution.

We understand that the measures relating to extending the loss-carry forward period, extension of the filling period of VAT and TOT, postponement of the period for pension contribution by business organizations and the measure that increase the deduction rate for charitable donation are going to be effective through a state of emergency regulation of the CoM.

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