Taxation of Vehicle as Employment Fringe Benefits: Assessment of Legal and Practical Challenges
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Date
2020-09
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A.A.U
Abstract
Ethiopia introduced detail (not detail enough) rules for the taxation of fringe benefits in the
recent income tax reform conducted in 2016. The provision of vehicle by employers to their
employees is provided as one of the taxable fringe benefits in the Federal Income Tax Regulation
No. 410/2017. The research considers whether the FBT in general and vehicle FBT in particular,
is being effectively implemented.
The thesis identifies and examines the legal and practical challenges in the implementation of the
vehicle fringe benefits as employment income tax in Ethiopian Income Tax System. The study has
adopted a mixed legal research method which employed both doctrinal and non-doctrinal legal
research approaches. Document analysis of legal and extra-legal materials is made. Data from
field work is gathered through in-depth interviews from different stakeholders. The research
found out that FBT is not being implemented effectively against employment income. There are
legal and practical challenges for the failure. The main problem is lack of clarity in the laws in
setting parameters to determine what private use and business use of the vehicle is. Further, the
FBT is riddled with some practical challenges. Particularly, there is lack of awareness and
understanding among employers and tax administration organs about the vehicle FBT, absence
of clear and implementable rules, and absence of adequate administrative control from the tax authority. The thesis found out that the tax authority prefers to deny deductions to corporations
on computing their taxable income when they provide fringe benefits. This mainly because
employers are easy targets. Based on the findings of the research, the thesis recommends that the
MOF and MOR to issue clear, easily understandable and implementable rules and guidelines.
Further, the tax administration should work on creating awareness about the FBT
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Ethiopia introduced detail