Here are the formulas on how to calculate personal (employee) income tax, pension, gross and net income in Ethiopia.

Salary Income Tax = (Gross Salary * Tax Rate) – Deduction

Employee Pension – Gross Salary x 7%

Net Income = Gross Salary – Salary Income Tax – Employee Pension – Other Taxes (If applicable)

Employee Pension – 7%

Company Pension – 11%

No. Salary Range (ETB) Tax Rate Deduction (ETB)
1. 0 – 600 Birr Non-Taxable –
2. 601-1,650 Birr 10% 60 Birr
3. 1,651 – 3,200 Birr 15% 142.50 Birr
4. 3,201 – 5,250 Birr 20% 302.50 Birr
5. 5,251 – 7,800 Birr 25% 565 Birr
6. 7,801 – 10,900 Birr 30% 955 Birr
7. Over 10,900 Birr 35% 1,500 Birr

 

Sample Calculation

If the salary of an employee is 2,000 Birr.

By referring to the above table, we can see that 2,000 birr falls in the No. 4 row. So, Tax Rate = 15% and deduction = 142.50

Income Tax = (2,000 Birr x 15%) – 142.50 Birr

Income Tax = 300 Birr – 142.50 = 157.50 Birr

Employee Pension = 2,000 Birr x 7% = 140 Birr

Employee Net Income = 2,000 Birr – 157.50 – 140 = 1702.50 Birr

Net Income = 1,702.50 Birr