Capital Gains Taxation in Ethiopia
Definition of Capital Gains
In Ethiopia, capital gains are defined as profits or gains derived from the disposal of capital assets. Capital assets include:
- Real estate properties
- Stocks and shares
- Bonds and debentures
- Business assets
Calculation of Taxable Capital Gains
Taxable capital gains are calculated as the difference between the selling price of the asset and its acquisition cost. The formula for calculating capital gains is:
Capital Gain = Selling Price - Acquisition Cost - Expenses
Adjustments or deductions may be allowed in the calculation of the gain, including expenses related to the sale (e.g., brokerage fees, legal fees) and any improvements made to the asset during ownership.
Tax Rates
Capital gains are taxed at a flat rate of 15% in Ethiopia. This rate applies to both individuals and corporations.
Legal Framework
The taxation of capital gains in Ethiopia is governed by the Income Tax Proclamation (No. 979/2016). Article 10 of the Proclamation outlines the chargeable income subject to tax, including gains or profits arising from the disposal of capital assets.
Policy Objectives
The capital gains tax system in Ethiopia aims to:
- Ensure that individuals and businesses contribute their fair share of tax on profits realized from investments and asset disposals.
- Promote investment and economic growth by providing incentives for capital formation.
- Generate revenue for the government to fund public services and infrastructure development.
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