The Ethiopian Revenues Ministry has stated that the Finance Ministry's clarification on VAT adjustments for cash gifts exceeding 50,000 birr in business transactions should not be implemented for now. This comes after the Finance Ministry's statement on Tikimt 27, 2018 E.C., based on Income Tax Proclamation No. 1395/2017, which applies the threshold only to income tax, not VAT. The Revenues Ministry argues that the guidance serves an improperly targeted purpose and requires further discussion.
The Finance Ministry issued a statement on Tikimt 27, 2018 E.C., referencing Income Tax Proclamation No. 1395/2017, clarifying that the threshold of over 50,000 birr in cash gifts applies only to income tax and does not affect the right to VAT input tax adjustments. This guidance specifies that for employers paying cash above the threshold, profit tax deductions are not reduced as expenses. Recipients of such cash face equal financial penalties.
However, the Revenues Ministry, in a circular letter dated Tikimt 29, 2018 E.C., responded by stating that the Finance Ministry's statement serves a purpose of 'suspending tax administration' that is not appropriately targeted. As a result, it directed that VAT adjustments or refunds should not be implemented for the time being, pending further discussion.
The Minister noted that other cash thresholds in the income tax law, such as those for reduced expenses claimed by employers and penalties for sellers, are practical. Additionally, to curb fake taxpayers who falsely claim no income or sales, the Revenues Ministry advised proceeding with prior instructions until a detailed clarification arrives from the Finance Ministry.