Other Income Tax Accounting

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 Legal provisions for other income taxes
 Accounting for other income taxes
 Royalty Income;
 Technical Service Income;
 Income from Game of Chance;
 Dividend Income;
 Income from Casual Rental of Property;
 Interest Income; and
 Capital Gains

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 Taxable under Schedule “D” of Income Tax Proclamation No.

286/2002 and Income Tax Regulation No. 78/2002.

 Residents: Pay on their world wide other income each separately

 Non residents: on the income obtained in Ethiopia.

 The Payer of any payment subject to tax under Schedule “D”

shall withhold the amount of tax required.

 If it is not subject to withholding at source constituting a final

tax, the tax payer shall declare the income to the Tax
Authority within two (2) months from the end of the
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Ethiopian Fiscal Year.
Royalty income is any payment received for granting the

right to use:

 any copy right (literary, artistic, or scientific works)

 Any patent, trade mark, design or model, plan, secret

formula or process,

 any industrial, commercial, or scientific equipment, or

 for information concerning industrial, commercial or

scientific experience. 4
 Royalty income tax rate = 5% (is final tax in lieu of income
tax)
 If payer is resident – it is the withholding agent
 If payer is nonresident – the recipient of the money will be
the withholding agent.
Eg. Alpha Textiles Company, an Ethiopian resident, entered
into a technical collaboration agreement with Suiji Textile
Company, a Kenyan based company. The collaboration
involved exchange of trade secrets for Br 1,500,000.
Determine the royalty income tax and the relevant journal
entries assuming:
a) The Kenyan firm sold the secrets to the Ethiopian firm
b) The Ethiopian firm sold the secrets to the Kenyan firm 5
Assume that the Famous Ethiopian musician
Tewderos Kassahun (Teddy Afro) sold his album
called “Tikur Sew” at Birr 7,500,000 to Adika
entertainment.
 Required: Determine the amount of royalty
income tax and record the tax liability at the time
of payment to the artist and to the tax authority

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Include income derived:

 from expert advise or technological services (consultancy or

advisory, proposal evaluation, training of personnel on how

to use a machine or software)

 By a person or organization residing outside Ethiopia to

resident persons in Ethiopia.

 N.B. Incomes derived by an Ethiopian resident from

rendering technical services is taxable as per schedule “C”

 subject to tax at the rate of 10%
 the payer is the withholding agent 7
 Example : Hibir manufacturing Company has
received an expert advice on the manufacturing
process of sugar from the YBZ Inc., a UK based
Company, and paid a compensation of Br 180,000 net
of tax.

Required:- How much is the tax to be paid to the Tax

Authority?

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 Include income derived from winning at games of chance.
 Subject to tax at the rate of 15%.
 the final tax in lieu of income tax.
 NLA shall withhold and pay the amount to tax Authority
 Shall be paid within two months from the end of the Ethiopian
Fiscal year.
Note:
 up to Br 100 is exempted.
 if in-kind, based on market price.
 if the NLA authorizes other persons to carryout the games of
chance, the NLA shall collect a charge of 15% from the
intended total income

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 Ato Bedlu has won a lottery prize of Br 500,000 from

the National Lottery Administration. W/ro Edlawit

has also won an automobile which was offered by
Glorious PLC to its customers in a game basis. NLA
determined the price of the automobile Br 120, 000.

Required:- How much tax on such games of chance

the NLA withholds and pays to the Tax Authority?

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 Include income received in the form of dividend from a
share company, or withdrawals of profits from a PLC.
 Subject to tax at the rate of 10%.
 The final tax.
 The payer (the company) is the withholding agent.
 The tax shall be paid within 15 days starting the end of the
month.
 Example Ato Bedru is a shareholder at Dashen Bank S.C. He
owned 100,000 shares of Br 1, 000 par value common shares
in the bank. Dashen Bank declared dividend of Br 3.6 per
share for the current year.
Required: How much is the tax to be withheld from Ato
Bedru?
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 Includes income derived from casual rental of property

not engaged in a regular activity of a business.

 Any rental of an ongoing business’s property is regarded

as a business transaction, and is regarded as a business

income.

 The tax is 15% of the annual gross income is final.

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 Example : On Tikimt 1, 2006 Ato Alemu let out his

automobile for 9 months to Solomon Tour and Travel for a

fee of Br 81,000.

Required:-

 How much is the tax to be paid to the Tax Authority ?

 Who is liable to pay the tax to the Tax Authority?

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  Include income derived on deposits.
 Subject to tax at the rate of 5%.
 the final tax.
 the bank is the withholding agent.
 The bank shall withhold the tax on interest income on
accrual basis and transfer it to the tax authority within two
months from the end of the Ethiopian Fiscal year.
 Example 5.2. On March 1, 2013, Mary Company deposited
Br.500, 000 at Dashen Bank at the prevailing interest rate of
5% for three months.
 Required:-How much is the tax to be paid to the Tax
Authority?
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Gain obtained from the transfer of certain
investment property.
The rates are:
 Buildings held for business, factory, and office:
15%
 Shares of companies: 30%
Exempted Capital Gain
 Gains from the transfer of building which has
been fully used for residence at least for two
years prior to the date of transfer.
 Gains from transfer of building not found in
Urban (Municipality) areas. 15
Loss on transfer of capital asset can be offset only
against gain on transfer of another capital asset of
similar nature.
Loss on transfer of capital asset not yet offset can
be carried forward for indefinite period of time.
Loss on transfer of capital assets b/n related
persons can’t be recognized.

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 As per regulation 78/2002, when calculating the gain
realized from the disposal of capital assets,
 the basis of calculation of the tax shall be the historical
cost of the building or the par value of the share, as
appropriate.
 inflation adjustment at a rate determined by the
appropriate authority shall be allowed as deduction
 In respect of buildings, taxes paid for the land and the
building shall be allowed as deduction.
 The cost registered with the appropriate government
body at the time of issuance of permit for the
construction of the building shall be taken to the cost of
constructing the building.
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 Consider the ff information for Nile Share Company for the
year 2006.
 In 2003, acquired 10,000 shares of Br 100 par for a total
value of Br.1, 250,000.
 in 2003, acquired two buildings with cost of Br.250,000
each. The buildings were acquired for business purpose.
 During the year 2006, 500 shares were sold at a total value
of Br.75,000. One building which was acquired in 2003 was
also sold at a consideration of Br.370,000.
 Property tax paid for the building sold was Br.10,000.
 For the last three years, the average inflation rate declared
by the NBE is 10% for the three years period.
Required:-Compute the Capital Gain tax for the year ended Sene 30, 2006. 18
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