Ethiopia’s New Income Tax Law 2025 introduces major updates that will reshape how salaries and payrolls are managed across the country. The law, which takes effect on July 1, 2025, is designed to make the tax system fairer, simpler, and more in line with Ethiopia’s growing economy.
Higher Tax-Free Threshold
One of the biggest changes is the increase in the tax-free threshold from ETB 600 to ETB 2,000 per month. This means that employees earning up to ETB 2,000 will not pay any income tax. It’s a significant relief for low-income earners, giving them more disposable income and helping them cope with rising living costs.
Simplified Tax Brackets
The new law also reduces the number of income tax brackets from seven to six. The lowest tax rate of 10% has been removed, and the new entry rate starts at 15% for those earning between ETB 2,001 and ETB 4,000. The top rate of 35% remains in place but now applies only to people earning more than ETB 14,000 per month, compared to the previous threshold of ETB 10,900.
| Monthly Income (ETB) | Tax 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% |
Impact on Payroll and Salaries
Employers need to update their payroll systems before July 2025 to apply the new rates. Most employees will enjoy slightly higher take-home pay, especially in the middle-income range. HR and finance teams should review their systems, ensure compliance, and prepare staff for these updates.
Including the Digital Economy
The reform also brings digital content creators and online earners into the tax net. Regular income from digital platforms like YouTube or TikTok will now be taxed as business income, promoting fairness in the growing digital sector.
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