Beyond Turnover

Aligning Ethiopia’s New Minimum Alternative Tax with International Best Practices

Abstract

This article aims to examine the legal, constitutional, Administrative, and economic feasibility of Ethiopia’s new turn over based Minimum Alternative Tax (MAT) by comparing it with international standards and experiences of other countries. In doing so, the paper employs doctrinal legal research methodology together with comparative Methods. Accordingly, the findings of the study shows that while the new MAT in Ethiopia aims to broaden its low tax base, the choice of turnover-based approach deviates significantly from the globally accepted profit-based approach models, including the OECD’S pillar two initiatives. Furthermore, the approach is found to be regressive, disproportionately burdening low margin or loss-making businesses and potentially stifling new investments. The article draws a key lesson from Kenya, where similar turn over based was declared unconstitutional on the grounds of inequity, and highlights India’s profit based ‘‘book profit’’ system as more equitable and effective model. Finally, it recommends for the MAT transition from turnover- to profit- based model as it helps to ensure that the MAT is aligned with business actual ability to pay, promote fairness, and align the tax policy with international standards and foster more predictable and attractive environment for foreign direct investment and long-term economic growth.