BRIEF OVERVIEW

The Amendment To The Tax Administration Proclamation

During the tax reform of 2016, the tax administration system in Ethiopia was significantly improved with the promulgation of a separate tax administration law, the Federal tax Administration Proclamation 983/2016. As of recent years however, the Ethiopian tax system has witnessed increasing changes in its taxation landscape with substantial amendments being introduced to various taxes such as income and value added tax, along with the introduction of various new taxes. Considering these developments and the need to espouse contemporary international best practices within the current system, the Tax Administration Amendment Proclamation No. 1434/2026 had to come into frame.

Setting the Scene

The Ethiopian legislative body recently promulgated the amendment to the Tax Administration Proclamation of 2016 (“the Previous Tax Administration Proclamation”) on the end of July 2026 to align the country’s tax administration system with international best practices and principles, considering the consistently dynamic economy currently observed in Ethiopia. The Tax Administration Amendment Proclamation No. 1434/2026 (“the Amendment Proclamation”) has amended the Previous Tax Administration Proclamation through key new introductions, and clarifications and modifications to existing legal procedures and provisions.

Key Introductions

Conciliation Procedure

One of the major introductions by the Amendment Proclamation is a new alternative dispute resolution mechanism that was not provided for tax disputes under the Previous Tax Administration Proclamation. The amendment introduces conciliation as a new alternative dispute resolution mechanism for tax disputes. Conciliation is a voluntary and confidential process in which a taxpayer and the Tax Authority engage in a structured dialogue facilitated by an independent third party with the aim of reaching a mutually acceptable resolution. It becomes available only after a taxpayer has formally objected to a tax assessment and in relation to decisions that may be appealed. Taxpayers may request conciliation within 30 days of filing an appeal, while the Tax Authority may also refer a dispute to conciliation during the appeal process in cases where this would promote efficiency and tax certainty, subject to the taxpayer’s consent.

The new framework establishes a formal process for initiating, conducting, and concluding conciliation. Certain disputes, including those involving suspected tax fraud, tax crimes, or matters contrary to the law, are excluded from being referred to conciliation. Once parties agree to proceed, the process will conclude within 60 days and is conducted on a confidential basis.

An independent conciliator appointed by the Prime Minister’s office facilitates discussions, reviews evidence, proposes settlement terms, and may provide a non-binding opinion if the parties fail to reach an agreement. Any settlement reached is binding and enforceable on the parties, although it applies only to the specific taxpayer and tax period in dispute. The amendment also allows taxpayers with tax disputes that were already pending when the proclamation came into force to apply for conciliation within a transitional period.

The referral of a tax dispute to conciliation does not preclude the utilization of other tax dispute resolution mechanisms except for applying to the Complaint Review Office. Once conciliation is initiated and a dispute is being reviewed accordingly, the 30 work-day period for filing a notice of appeal and the 120-day cap for the Tax Appeal Commission to render a decision on the appeal is suspended until the date when the conciliation process is completed.

Tightening of Evidentiary Rules 

Taxpayers are now legally barred from presenting new evidence during an objection, appeal or request for correction as a matter of principle. Exceptionally, taxpayers can submit new evidence in the scenarios where the (i) The non-consideration of the evidence would cause a heavy tax liability on the taxpayer (ii) The taxpayer obtained the new evidence after the tax assessment notice was issued; or (iii) the taxpayer was unable to submit the new evidence due to force majeure. In case of new evidence submitted through scenario (i), the taxpayer incurs a penalty of 10% of the tax liability that would have been payable had the evidence not been withheld.

Introduction of conditional tax clearance certificate

The Amendment Proclamation now mandates banks to require the presentation of a tax clearance from foreign investors seeking to repatriate any profits, dividends or gains from the sale of a business. This comes hand in hand with another new introduction under the Amendment Proclamation, which is the issuance of conditional tax clearance certificates. These certificates help taxpayers sustain their economic activities in situations where without their tax clearance certificates they would have to cease their activities.

A conditional tax clearance certificate is issued in two instances as determined by the Amendment Proclamation. The first scenario is when the taxpayer has lodged a formal objection, appeal or tax dispute before the legally responsible authority, and the second one is when the taxpayer has entered into a valid agreement with the Tax Authority to pay tax he/she/it owes in installments. The issuance of a conditional tax clearance certificate does not result in the taxpayer’s absolution from tax liability, the impediment of the Tax Authority’s right to recover any tax that is due, nor does it affect the outcome of any pending dispute or proceeding.

Liabilities: Manner of Establishment and Modified Amounts

The Amendment Proclamation introduces presumption of offence for individuals in managerial positions. In instances where a body or a sole proprietorship is found to have committed a tax offence, its manager, financial head or any person acting in a similar capacity at the time of the offence are presumed to have committed the offence. To escape liability incurred through this legal presumption, these individuals have to prove that either the offence was committed without their knowledge, they did not permit the commission of the offense or that they established an internal control system capable of preventing the commission of the offense.

Aside from managerial penalties, the Amendment Proclamation has further increased the penalty amount imposed for failure to issue tax invoices, from the previous amount of Birr 50,000 (ETB Fifty Thousand) to now Birr 100,000 (ETB On Hundred Thousand).

The Amendment Proclamation also limits the period for reassessment in cases of tax fraud to 10 years from the date of filing the self-assessment.

Clarifications and Modifications Under the Amendment Proclamation

Along with definitions for newly introduced concepts, the Amendment Proclamation contains definitions that provide concise and relatively clearer definitions of terms such as Tax Fraud, where they were vague or otherwise without definition in the Previous Proclamation.

Among the modifications made by the Amendment Proclamation, a major one is the segmented registration of Taxpayers that is now expressly allowed for the Authority. The Amendment Proclamation provides that the registration of taxpayers should be based on the International Standard Industrial Classification that Ethiopia has accepted and empowers the Tax Authority to categorize taxpayers as necessary. While the registration of taxpayers according to the International Standard Industrial Classification holds no immediate significance, its implications in the long run should be studied further, with references drawn from jurisdictions with similar systems.

CONCLUDING REMARKS

The Amendment Proclamation introduces significant changes to the Tax Administration System as we know it. It is essential that business owners monitor such constant changes in tax laws and reassess their current operations in light of the implications of such changes. It is also important to keep the changes introduced under the Amendment Proclamation in mind to ensure compliance with the current tax system in Ethiopia, as the Amendment Proclamation provides for the retrospective application of its provisions for cases that started before the amendments came into effect and are pending after their enactment. While the Amendment Proclamation clarifies many concepts introduced under the Previous Tax Administration Proclamation, it also raises new questions, some of which will hopefully be addressed in the Directive to be issued by the Ministry of Finance as it pertains to the implementation of the conciliation procedure.