Presumptive Income Tax Assessment of SME’s in Addis Ababa, Ethiopia

At their most general, presumptive taxes seek to use indirect means to assess the liability of a specific taxpayer, which differ from the usual rules based on taxpayer accounts. Many countries use some form of presumptive taxation to simplify the rules for businesses and individuals that frequently escape taxation. Ethiopia uses presumptive taxation as a simplified method of revenue collection from small informal sector firms. To implement its presumptive tax, the Ethiopian Revenue and Customs Authority (ERCA) carries out an assessment process to estimate the income earned by small informal sector firms. Defined as ‘Category C’ taxpayers—those with an estimated annual turnover less than 500,000 birr (US$17,500)—such firms are subject to a ‘turnover-based’ or ‘indicator-based’ presumptive assessment. Annual tax bills are then levied on the assessed income of Category C taxpayers. This is a 2-page summary of Working Paper 94.