HomeNews gridFeatured ArticlesAlternative Minimum / Turnover-Based Minimum Tax in Africa: How Ethiopia’s AMT Compares.

Alternative Minimum / Turnover-Based Minimum Tax in Africa: How Ethiopia’s AMT Compares.

Researcher : Samson Tsedeke, CEO and Founder(Samson@multilinkconsult.com, +251911207364) 

1. Context & Rationale

1.1 Tax base constraints

Ethiopia has historically relied on a profit-based income/­business tax regime (corporate income tax of 30 % for example). However, authorities recognised that a significant number of companies report low or nil taxable profits (despite large turnovers) by way of high deductions, tax holidays, loss carry-forwards or incentive regimes. For example, a report noted that about 17.1 % of incorporated businesses filed losses and 26.3 % reported zero profits in a recent year. 
This situation weakens tax-revenues and distorts competition (since firms benefiting from incentives may pay little or nothing).

1.2 Reform drivers

With the tax‐to-GDP ratio low (around 7.5 % as of 2023) and the Government aiming for a step‐up in domestic resource mobilisation, reforms were introduced to broaden the base, modernise administration, and ensure minimum contribution from profitable/large-turnover entities. 

1.3 Role of AMT

The AMT (or Minimum Alternative Tax—MAT as some sources acronym) acts as a safeguard: when the standard tax mechanism yields a low liability (below a prescribed threshold), the business is required to pay a minimum tax based on an alternative base (in this case turnover or other benchmarks). This ensures that entities with substantial economic activity still contribute tax.

2. Legal Implementation in Ethiopia

2.1 Legislative basis

The reform was introduced under Income Tax (Amendment) Proclamation No. 1395/2025 (passed by the House of Peoples’ Representatives on 17 July 2025) and effective from 8 July 2025 for the AMT element. 

2.2 Key features of the AMT regime

  • A threshold: when the calculated tax liability under the standard business profit tax mechan­ism is below 2.5 % of the annual turnover (or equivalent benchmark) the AMT applies. 

  • The rate is 2.5 % of turnover (for general entities) and analogous rates apply to banks (2.5 % of net banking income), insurance companies (2.5 % of gross premium income) and commission-based regulated companies. 

  • Entities under liquidation or debt-restructuring are generally exempt. 

  • The AMT is creditable: any actual tax paid under the standard regime (even if lower) can be offset against future liabilities up to a specified carry‐forward period (5 years). 

  • The AMT overrides tax-holiday/incentive concessions in terms of minimum liability: entities benefiting from incentives cannot wholly avoid tax under the AMT rule. 

  • The AMT provision is not applicable to very small enterprises taxed under the “Category B” presumptive regime (i.e., simple gross-turnover tax regime). 

2.3 Effective date

The AMT became effective for tax years ending on or after 8 July 2025 (i.e., based on the preceding fiscal year) pursuant to the cited Proclamation. 

3. Operational Mechanics

3.1 Eligibility / scope

  • Applies to a “body or person” engaged in business income activities whose tax liability under regular business profit tax falls below the 2.5 % turnover threshold.

  • Does not apply if business is under liquidation or formally undergoing debt restructuring. 

  • Small businesses taxed under the simplified Category B regime (turnover beneath ETB 2 million threshold) are excluded from the AMT requirement. 

3.2 Base and computation

  • Base: the annual turnover (gross sales) of the entity (or other benchmark as specified for banks/insurance).

  • Rate: 2.5 % of this base.

  • Calculation: First compute the standard business income tax on taxable profit. If that liability is lower than 2.5 % of turnover, then the AMT triggers and the taxpayer must instead pay 2.5 % of turnover.

  • Offset: The AMT payment may be credited against future business income tax up to 5 years 

3.3 Interaction with incentive regimes

Even entities enjoying tax holidays or other incentives are not exempt from the AMT: if their standard tax liability falls below the 2.5 % threshold, they will need to pay the minimum alternative amount. 

3.4 Compliance / administration

  • Businesses must track turnover and taxable profit to assess whether AMT applies.

  • Advance tax payments: taxpayers (Category A and B) are required to make quarterly advance payments equal to previous year’s tax. The reforms (which accompany AMT introduction) strengthen compliance and raise the tax base. 

  • Taxpayers must maintain proper records of turnover, profit, deductions, and incentives to assess AMT liability accurately.

  • The tax authority (Ethiopian Revenue and Customs Authority) will monitor compliance, and businesses may face increased audits, documentation requests and scrutiny of deductions to ensure that the minimum tax is not avoided through aggressive expense reporting.

4. Comparative Matrix — Turnover-Based Minimum/Alternative Minimum Tax Regimes in Africa (2025)

Scope: regimes that either (a) impose an Alternative/Minimum Tax (AMT/MAT) when profit-based CIT falls below a threshold, or (b) apply a turnover-based minimum for certain taxpayers. 

Country Legal basis / status (latest) Base & rate Trigger / who pays Exemptions / carve-outs Credit / carry-forward Effective date / notes
Ethiopia Income Tax (Amendment) Proclamation No. 1395/2025 (passed Jul 17, 2025). Implementing briefings summarize the “Minimum Alternative Tax.” (KPMG Assets) 2.5% of annual turnover when AMT applies. Banks: 2.5% of net banking income; Insurers: 2.5% of gross premiums; commission firms: 2.5% of gross commission. (SNG Grant Thornton) Applies where regular business income tax < 2.5% of turnover (i.e., AMT is the higher-of amount). (SNG Grant Thornton) Entities under liquidation or court-approved restructuring; small taxpayers outside the standard regime. (SNG Grant Thornton) Creditable against future profit-based CIT for up to 5 years. (SNG Grant Thornton) Effective Jul 8, 2025 (per Proclamation; parliamentary passage Jul 17, 2025). (KPMG Assets)
Nigeria Companies Income Tax Act as amended (Finance Acts 2019–2020+); official summary updated Sep 29, 2025. (PwC Tax Summaries) 0.5% of gross turnover (less franked investment income). Non-life insurers: 0.5% of gross premium. (PwC Tax Summaries) Payable if no taxable profits or tax on profits is below the minimum; small companies, primary agriculture, and first four calendar years exempt. (PwC Tax Summaries) As above (statutory exemptions). (PwC Tax Summaries) N/A (minimum tax is not a credit but a floor). (PwC Tax Summaries) In force; continuing reforms noted in 2025. (Reuters)
Sierra Leone Finance Act 2023 inserted MAT into Income Tax Act; Finance Act 2024 reduced the rate; WTO/IMF confirm 2%. (mof.gov.sl) 2% of turnover (down from 3% in 2023). (sierralii.gov.sl) Higher-of rule: pay 25% CIT on profits or 2% MAT on turnover. (mof.gov.sl) Start-ups (first 3 years) and companies under liquidation (2 years); certain non-resident contexts as detailed. (mof.gov.sl) MAT credit (excess of MAT over normal tax) carry-forward up to 10 years. (mof.gov.sl) Jan 1, 2024 rate change to 2% per Finance Act 2024 (gazetted). (sierralii.gov.sl)
Equatorial Guinea New General Tax Code (Law No. 1/2024) effective 2025 establishes a Minimum Income Tax. (clgglobal.com) 1.5% minimum income tax on turnover, payable twice yearly (declared mid-year and year-end). (clarenceabogados.com) Applies broadly to taxpayers under the new Code as a minimum levy. (clgglobal.com) Not stated in the public brief; implementing regulations expected. (clgglobal.com) Not specified in public briefings. (clgglobal.com) Code effective 2025. (clgglobal.com)
Tanzania Finance Act, 2025 (Budget Speech & Act) increased AMT. (mof.go.tz) 1% of turnover (up from 0.5%). (PwC Tax Summaries) Applies to companies with unrelieved tax losses for three consecutive years (AMT levied on the third-year turnover). (PwC Tax Summaries) Exemptions include agricultural, health, education, and tea processors (FY24/25–FY26/27). (PwC Tax Summaries) N/A (AMT is a floor, not a separate credit regime). (PwC Tax Summaries) From Jul 1, 2025. (mof.go.tz)
Ghana GRA/PwC summaries (2025) note a minimum chargeable income rule. (Ghana Revenue Authority) 5% of turnover treated as minimum chargeable income if persistent loss filer (specific conditions apply). (PwC Tax Summaries) Taxpayers declaring losses for the previous five years may be assessed on minimum chargeable income. (PwC Tax Summaries) N/A (mechanics tied to chargeable income determination). (PwC Tax Summaries) N/A Rule active in 2025 guidance. (PwC Tax Summaries)
Kenya 1% Minimum Tax on gross turnover (Income Tax Act s.12D) was declared unconstitutional by the High Court (2021); Court of Appeal upheld unconstitutionality in 2022; not in force. (EY Tax News) N/A (struck down). N/A N/A N/A Subsequent fiscal laws were litigated separately; the minimum tax remains invalid. (KPMG Assets)
Senegal Contribution Globale Unique (CGU) — simplified turnover-based regime for micro/small individual entrepreneurs (not a corporate AMT). (dgid.sn) Typical CGU rates often cited: 2% (goods), 5% (services) on turnover, within eligibility thresholds; check DGID notice/applicable year. (Scribd) Applies to eligible micro-entrepreneurs under turnover ceilings (e.g., ≤ 50 million FCFA). Not a corporate minimum tax. (kof-experts.sn) N/A N/A Ongoing regime under Senegal’s CGI / DGID guidance. (dgid.sn)
Rwanda Presumptive turnover rules for small businesses (not AMT). Standard CIT cut to 28% in 2024. (PwC Tax Summaries) 3% of turnover applies as a lump-sum tax for small businesses (RWF 12–20m turnover). Micro thresholds have flat amounts. (PwC Tax Summaries) Only for SME presumptive taxpayers; regular corporates pay CIT (28%). (Rwanda Revenue Authority) N/A N/A In force (2024–2025 guidance). (PwC Tax Summaries)

Notes: Countries such as Uganda and others also apply presumptive/turnover-based regimes for small taxpayers; these are not corporate AMTs but are relevant comparators for administrative design. 

Comparative analysis — positioning, design choices, and implications

1) Rate level and competitiveness

At 2.5%, Ethiopia’s AMT headline rate is higher than Nigeria (0.5%), Equatorial Guinea (1.5%), and Tanzania (1% from July 2025), and lower than Sierra Leone’s 3%. A higher rate strengthens base protection but increases effective tax for low-margin sectors and firms in investment phases. For export-oriented and capital-intensive sectors, Ethiopia’s AMT could be binding in more years than in Nigeria or Tanzania. 

2) Base definition and sector calibration

Ethiopia’s use of sector-specific bases (net banking income, gross premium, commission) is a design strength that better approximates “turnover capacity to pay” in financial services. Most peers apply a single gross turnover base, with special rules largely confined to insurance (e.g., Nigeria). Ethiopia’s tailored bases should mitigate excessive burden on high-volume/low-margin financial products. 

3) Interaction with incentives and loss-making years

Ethiopia explicitly applies AMT even where incentives reduce CIT below the 2.5% floor, with a five-year AMT credit. Sierra Leone similarly provides a MAT credit with up to 10-year carry-forward. Nigeria’s structure functions as a floor without a formal AMT credit mechanism. Ethiopia’s credit horizon is shorter than Sierra Leone’s, increasing the risk that credits expire in long investment cycles. 

4) Scope exclusions and fairness safeguards

Ethiopia excludes liquidations and debt restructurings, and keeps Category B presumptive taxpayers outside AMT. That mirrors international good practice to avoid extracting tax from insolvent taxpayers and to keep SME simplifications separate from corporate AMTs. Sierra Leone exempts start-ups (3 years) and companies in liquidation (2 years). Kenya’s judiciary found that a flat turnover tax over-burdened loss-makers, a cautionary precedent on proportionality that Ethiopia’s carve-outs partially address. REF: Kenya Law+3KPMG Assets+3hst-et.com+3

5) Administration and cash-flow

Ethiopia moved to mandatory quarterly advance payments (based on prior-year CIT). While AMT is determined at filing, the broader shift strengthens cash-flow to the treasury and aligns with peers. Equatorial Guinea’s new code uses semi-annual minimum tax payments. For taxpayers near break-even, Ethiopia’s higher AMT rate can tighten cash-flows in lean years; the five-year credit partially offsets but is timing-mismatched. REF: KPMG Assets+1

6) Regional trendline

Across Africa, governments are widening minimum-tax use to reduce base erosion. Tanzania’s 2025 uplift to 1% and Sierra Leone’s MAT confirm the direction, while Kenya’s constitutional bar shows legal risk if design lacks proportionality and fairness. Ethiopia’s sector-specific base, exclusions and credit place it on the “strong-design” end, albeit with a high rate by regional standards. guineaecuatorialpress.com+2mof.gov.sl+2

5. Practical implications for Ethiopia-based and cross-border investors

  • Pricing & margins: Low-margin models (e.g., wholesale distribution, high-volume services) must test whether 2.5% of turnover exceeds normalized CIT. If AMT is binding in multiple years, revisit pricing, cost pass-through, or channel mix to defend margins. REF: KPMG Assets

  • Financial institutions: The net banking income and gross premium bases reduce distortion vs simple turnover; nonetheless, test AMT impact on fee-heavy products and bancassurance.  REF: KPMG Assets

  • Incentivized projects: Promotion-area incentives that depress CIT below 2.5% will still face AMT; model post-incentive cash-flows and the five-year credit burn-down to avoid stranded credits. Compare to Nigeria where a lower floor is less likely to bind. REF: KPMG Assets+1

  • Risk management: Document loss drivers (start-up curve, FX, one-offs) and preserve evidence for potential policy dialogue on sectors disproportionately affected, referencing the Kenya jurisprudence as guardrails for fairness. REF: Kenya Law

 

5. Analyst notes and implications

  1. Design differences matter

    • Ethiopia, Nigeria, Sierra Leone, Tanzania, Equatorial Guinea operate true AMT/MAT floors for corporates: tax is the higher of profit-based CIT or a turnover-based minimum. Ethiopia’s 2.5% is at the high end regionally; Tanzania’s AMT is narrower (only after three consecutive loss years), while Sierra Leone lowered its MAT to 2% in 2024 to balance revenue needs with investment climate concerns. 

  2. Sector-specific bases

    • Ethiopia sets sector bases (net banking income, gross premiums, commissions) to better align the minimum with how value is generated; Nigeria does similar tailoring for insurers. This reduces distortions where “turnover” isn’t a meaningful proxy for financial-sector value added. 

  3. Crediting mechanisms

    • Creditable AMT: Ethiopia (5-year carry-forward) and Sierra Leone (10-year MAT credit) soften the risk of double taxation when profitability rebounds. Nigeria’s minimum tax functions more as a pure floor. 

  4. Judicial risk

    • Kenya’s invalidation shows that broad turnover taxes can face constitutional challenges (e.g., unfairness to loss-makers). Ethiopia’s design (higher-of rule with credits/exemptions) mitigates some litigation risks by retaining a profit-based reference and transitional reliefs. 

  5. Benchmarking Ethiopia’s 2.5%

    • Above: Tanzania’s effective AMT is 1% and only after three loss years; Sierra Leone’s is 2%; Equatorial Guinea’s minimum income tax is 1.5%.

    • Comparable: Nigeria’s 0.5% minimum is materially lower, but exemptions are broader; Ghana’s 5% of turnover is used to impute minimum chargeable income after five loss years, not as a general AMT floor. 

Takeaway: Ethiopia’s AMT is robustly engineered (clear sector bases, exclusions, crediting) but set at a comparatively high 2.5% floor. Investors should treat AMT as a binding design parameter in pricing and capital budgeting, and model multi-year outcomes to manage credit utilization and cash-flow. Policymakers considering refinements can look to Tanzania’s trigger-based design and Sierra Leone’s longer credit window as levers to balance revenue protection with investment competitiveness.