Income Tax Relief for Employees on Transport Benefits in Ethiopia

In Ethiopia, transportation allowances and expenses are exempt from taxation under the Income Tax Exemption Implementation Guideline No. 1/2011. Here’s a breakdown of the key points regarding these exemptions:

Transportation Allowance for Travel

Employers can provide a transportation allowance to employees who travel for work, which is exempt from income tax. This exemption applies only to the portion that exceeds one-fourth (1/4) of the employee’s total monthly salary.

If one-fourth of the monthly salary exceeds 2,200 Birr, the tax-exempt transportation allowance is capped at 2,200 Birr.

Fuel Expenses

Employers can pay cash for fuel expenses incurred by employees commuting for work, classifying these payments as transportation allowances. These allowances are tax-exempt only if they exceed one-fourth (1/4) of the employee’s total monthly salary, with a maximum exemption limit of 2,200 Birr.

Transportation Services

When employers provide transportation services between an employee’s home and workplace, this allowance becomes exempt from income tax only if it exceeds 600 Birr.

Cash Transport Allowance

Employers can give cash allowances to employees for commuting between their residence and workplace, which are tax-exempt only if they exceed 600 Birr.

Travel Outside the City

When employees travel outside their normal work location for job-related duties, they may qualify for tax-exempt transportation expenses. This exemption depends on the prevailing transportation tariffs or proof of expenses that employees provide.

Foreign Workers

Employers can exempt transportation costs for foreign employees coming to Ethiopia for work and leaving after their contract ends from tax. This exemption relies on the employment contract and applicable transport service tariffs, with a weight limit of one kilogram.

Family Visit Expenses

Employers may cover travel expenses for employees working away from their usual residence to visit their families. These expenses can qualify for tax exemption if stipulated in the employment contract, but the exemption applies only to a maximum of two round trips per tax year.

These guidelines ensure that employers can support employees with necessary transportation without imposing additional tax burdens, promoting fair compensation practices in Ethiopia.

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