Ethiopia’s House of People’s Representatives passed a comprehensive income tax law and the country’s first Startup Proclamation, following intense debate and public scrutiny. The income tax law introduces major amendments to address contraband trade, revenue shortfalls, administrative inefficiencies, and slow technology adoption. The Startup Proclamation establishes a legal framework to bolster early-stage enterprises.

The revised income tax law, which underwent public hearings this week with input from trade unions, civil society, and private sector groups, passed with five votes against and 12 abstentions. It introduces a 300% increase in the tax-free salary threshold, from 600 birr to 2,000 birr, but critics argue it still falls below the poverty line. “We’re taxing people earning under 8,100 birr, the World Bank’s poverty benchmark,” said Dr. Desalegn Chane, an opposition MP,  who also criticized the law’s rushed approval after only eight days of public engagement.

Calls were made to cut government spending instead of taxing low-income workers. “We see wasteful spending by government offices, from regional bureaus to federal agencies. Why aren’t we minimizing that first?” one MP asked. “And why not treat VAT as optional, as done in some countries?”

In response, Dr. Eyob Tekalign, state minister of Finance, defended the reform. He said the law had been under development for two years and balances national revenue needs with economic realities. “Even with this revision, we expect to lose 0.2% of GDP. But regions rely on income tax for funding, this is about sustainability,” he said.

Key changes include a new minimum tax on gross business income to curb tax avoidance, tax obligations for digital content creators, and a presumptive tax system for small enterprises. Electronic reporting is now required for rental, freelance, and professional income.

Separately, the Startup Proclamation introduces legal recognition and support mechanisms for early-stage ventures, including a national fund of funds, credit guarantees, and grant schemes. The law aims to unlock financing, reduce red tape, and formalize the startup ecosystem long constrained by regulatory gaps.