The Ministry of Finance (MoF) has denied a request from the Ministry of Justice (MoJ) to allow Ethiopian lawyers to fulfill their tax obligations without submitting the same detailed accounts required of traders. This decision has sparked controversy, as it imposes stringent tax requirements on legal professionals that many argue are impractical and unjust.
Lawyers in Addis Ababa, who make up the majority of the over 20,000 federal taxpayers in the legal sector, have raised concerns about the new tax procedures. The MoF insists that lawyers must adhere to the Income Tax Act, which mandates that they pay taxes based on their earnings without deductions for expenses—a requirement that lawyers argue is unfair compared to the accounting standards applied to traders.
The disagreement arose after the MoJ sent a letter to the MoF, highlighting the difficulties lawyers face under the current tax guidelines. The letter argued that the lack of detailed cost management guidelines for legal professionals makes it impossible for them to provide the type of accounts demanded of them. The MoJ requested that lawyers be allowed to continue paying taxes under the existing system until a new directive could be issued.
However, the MoF responded in a letter dated August 6, 2024, stating that the directive issued in September 2023 was only temporary and that lawyers must comply with the current tax regulations. The Ministry emphasized that the tax obligations for the 2024 fiscal year would be handled in accordance with the Income Tax Act, requiring lawyers to report and pay taxes on their full earnings without deductions for costs.
The MoF’s position has frustrated many in the legal community, who argue that this approach effectively forces them to pay 100 percent tax on their earnings. Unlike traders who can deduct the cost of goods sold from their taxable income, lawyers argue that they have no similar provision to account for their operational expenses.
The MoJ has previously engaged in discussions with relevant stakeholders to resolve ongoing disputes over the taxation of legal services. Despite these efforts, the 2024 fiscal year has begun without the issuance of a detailed directive that would address the concerns of the legal community. Lawyers now face the prospect of navigating the tax season under a system they view as inequitable and burdensome.
The MoJ had hoped to secure an interim solution that would allow lawyers to continue using the previous tax reporting methods until a more comprehensive guideline could be established. However, with the MoF’s rejection of this request, the legal sector must now comply with the existing tax framework, potentially leading to further disputes and dissatisfaction among lawyers across the country.
