The Bank of Abyssinia (BoA) is navigating a high‑stakes tax dispute with the Ministry of Revenues that could result in substantial back‑tax liabilities, even as it prepares for a landmark listing on the Ethiopian Securities Exchange (ESX).
The legal controversy centers on the treatment of dividend withholding tax when dividends are used to cover shareholders’ unpaid subscribed capital. The Ministry, through the Federal High Taxpayers’ Office, views this as a payment of a personal shareholder debt, subject to the 10% dividend withholding tax under the Income Tax Proclamation No. 979/2008.
BoA, supported by the Ethiopian Banks Association, argues that such payments are effectively reinvested capital and should be tax‑exempt. The bank has frequently used this approach to help meet the National Bank of Ethiopia’s minimum paid‑up capital requirements.
However, a recent Cassation Bench ruling in a case between Tsehay Industry S.C. and the Ministry of Revenues has shifted the landscape. The court held that dividends used to fulfill subscribed capital obligations are taxable, and though BoA was not a party to that case, the decision is now being treated as a binding precedent.
While the new Income Tax Amendment Proclamation No. 1395/2024 provides clearer rules going forward, BoA faces the risk of being held accountable for historical dividend allocations made before the amendment. If the tax authority prevails, the bank could face years of back taxes, penalties, interest, and significant legal and administrative costs.
In its 29 January 2026 Prospectus, the bank explicitly warned that this tax dispute “could have a material adverse effect on the Bank’s financial condition, cash flows, and reputation.” The matter remains pending before the Tax Appellate Assembly and the regular courts, and the outcome is expected to set a crucial precedent for the entire banking sector.
Amid the uncertainty, BoA has launched a 5‑billion‑birr Rights Offer, a strategic move to raise capital and prepare for its historic listing on the ESX main board.
The Prospectus outlines three key goals: registering 15 million existing common shares, issuing 3.125 million new “rights to purchase shares” at Birr 1,600 per share, and ultimately listing 100% of its ordinary shares on the stock exchange. The rights issue is designed to strengthen the bank’s capital base and support its growth ambitions.
The 1,600‑birr price was set after an independent valuation by the bank’s board together with Deloitte, using market and earnings‑based methods, since the shares are not yet trading on any public platform. Net proceeds of about 4.9 billion birr will be used to bolster the capital adequacy ratio and accelerate the bank’s shift to 100% digital banking through its partnership with Temenos.
For the 2024/25 financial year, BoA reported a net profit of Birr 7.3 billion, up from Birr 4.2 billion the previous year. Total assets stood at Birr 286.2 billion, with customer deposits of Birr 211.7 billion and loan reserves of Birr 193.4 billion.
The bank acknowledges that “increased competition could reduce market share and erode profit margins,” but sees ESX listing as an opportunity to enhance governance, improve transparency, and attract domestic and international institutional investors, including pension funds and sovereign wealth funds.
The rights subscription period runs until 3 March 2026. Once the capital increase is approved, BoA plans to list all its common shares on the ESX as soon as possible.
