Ethiopian payroll: employment income tax bands and 7% / 11% pension
Since the Income Tax (Amendment) Proclamation No. 1395/2025 (in force from 8 July 2025, Hamle 1, 2017), the first 2,000 birr of monthly salary is tax-free and the top rate of 35% starts above 14,000 birr. Private employers also pay pension: 7% from the employee and 11% from the employer.
Employment income tax bands (per month)
| Monthly taxable salary (birr) | Rate | Quick deduction* |
|---|---|---|
| 0 – 2,000 | 0% | 0 |
| 2,001 – 4,000 | 15% | 300 |
| 4,001 – 7,000 | 20% | 500 |
| 7,001 – 10,000 | 25% | 850 |
| 10,001 – 14,000 | 30% | 1,350 |
| Above 14,000 | 35% | 2,050 |
* Quick method: salary × rate of its band − quick deduction. It gives the same result as taxing each band separately. The deductions are our own arithmetic from the bands, not part of the law.
Worked example: 18,000 birr salary
| Basic salary | 18,000.00 |
| Employment income tax (18,000 × 35% − 2,050) | − 4,250.00 |
| Employee pension 7% | − 1,260.00 |
| Net pay | 12,490.00 |
| Employer pension 11% (paid by the company) | 1,980.00 |
| Total cost to the company | 19,980.00 |
Band by band: 2,000 × 15% + 3,000 × 20% + 3,000 × 25% + 4,000 × 30% + 4,000 × 35% = 300 + 600 + 750 + 1,200 + 1,400 = 4,250 birr.
Another example, 8,000 birr: 8,000 × 25% − 850 = 1,150 birr tax, 560 birr employee pension, 6,290 birr net pay.
Pension
- Under the Private Organization Employees Pension Proclamation No. 1268/2022, the employee contributes 7% and the employer 11% of the basic salary.
- The examples here calculate both on the basic salary. Allowances, overtime and benefits can change the taxable amount; check how each one is treated with your accountant.
Good to know
- The 2025 amendment raised the tax-free amount from 600 to 2,000 birr a month and removed the old 10% band, so most salaries pay less tax than before.
- The amendment also adds rules for people with income from more than one source. Employees with more than one employer should check their own filing.
Sources
- EY: Ethiopia issues a new Income Tax Proclamation (1395/2025)
- Chambers: What's changed under Proclamation No. 1395/2025
- Private Organization Employees Pension Proclamation No. 1268/2022 (text)
General information, not legal or tax advice. Laws and rates change; check with the Ministry of Revenues or your accountant before you file.