New Income Tax Proclamation to Restrict Large Cash Transactions

The forthcoming income tax proclamation includes a clause restricting the use of cash in financial transactions. Once implemented, any cash payment exceeding 10,000 birr will be deemed non-compliant. In such cases, the payer will be unable to deduct the excess amount as an expense, and the recipient will be subject to an administrative penalty amounting to twice the excess.

Tewedaj Mohammed, head of legal affairs at the Ministry of Finance, stated that the measure is intended to reduce reliance on substantial cash payments and promote formal financial systems. For example, in a cash transaction of 20,000 birr, only 10,000 birr would be recognised as a deductible expense, and the recipient would be liable for a fine of 20,000 birr.

The measure is part of broader reforms aimed at strengthening financial oversight. Nonetheless, experts involved in the drafting process expressed reservations about implementation, citing entrenched business practices that favour cash usage. They also highlighted the need to harmonise the proclamation with existing laws that currently allow cash transactions.

The draft includes exemptions for certain entities, such as government institutions, development agencies, banks, and microfinance organisations. Further exemptions may be granted through directives from the Ministry of Finance.

The regulation aligns with national efforts to reduce cash transactions and enhance fiscal transparency, although its execution and enforcement are still being deliberated by relevant stakeholders.