Uncle ከበደ Knows What You Did 😒

Welcome to the 94th edition of ፍራንክ Digest!

Your weekly brief on all things Finance and Investing. Quick, enjoyable reads for busy professionals in 5 minutes or less.

Here’s what’s coming your way:

• 💰 Uncle Kebede From The Ministry of Revenues Is At It Again.

• 👨‍🦳 The Curious Case of B-I-R-R

• 🖼️ Big Picture

Thanks for reading!

Taxing Imaginary Income

Economy

The Story in Three Lines

→ Ethiopia has introduced quarterly advance income tax payments.
→ Businesses must pay advance taxes based on last year’s profits, not this year’s reality.
→ Uncle Kebede says “ችግር የለም”, refunds exist. Whew 😅?!

Alright, let’s make taxes… frankly, digestible.

There is a new-ish rule that has quietly given business owners heartburn and accountants new material for their group chats.

On 17 July 2025, Parliament passed the Income Tax (Amendment) Proclamation No. 1395/2025. We didn’t cover it immediately because, like many of you, we needed time to process it, be in denial, and hope it would go away.

It did not.

Essentially, businesses are now required to pay the customary 30% income tax in advance, every quarter. Not based on how they’re actually doing this year. But based on how much tax they paid last year.

Indeed, the polite and understanding ገቢዎች ሚኒስቴር we affectionately call Uncle Kebede, remembers last year clearly and, having seen enough, considers today entirely unnecessary.

In simple terms: whether business is booming, slowing, or completely on life support, whatever income tax you paid last year, divide it by four, and pay that amount every 3 months this year.

What Exactly Is This Thing?

Officially, this is called an advance income tax payment. On paper, it’s not a “new tax”, just a timing change. Governments around the world use versions of it. Advance or provisional income tax systems exist in several African countries, including South Africa, Rwanda, Senegal, and Botswana.

But Uncle ከቤ has a special twist. Of course he does.

Instead of estimating this year’s income, or using current performance, the system assumes last year is a perfect crystal ball for this year. Same profits. Same tax. Different reality.

So if you had a great year last year and this year is rough? Doesn’t matter. Pay up.
If last year was a one-off boom and this year is normal? Pay up.
If this year you’re actually making losses? Uncle doesn’t believe in bad years. Only bad excuses. See you at the cashier!

Why We’re Calling it a Tax on Imaginary Profits

Because what else should we call it?!

This rule forces businesses to send cash to the government before they’ve earned it, before receivables are collected, before costs are recovered.

For many companies, especially in manufacturing, construction, trading, and services, profits are uneven and unpredictable. Ethiopia’s economy is not exactly famous for stability and predictability, now is it?

Yet the tax system now assumes your business runs like a Swiss watch.

The result is that income tax stops behaving like a tax on profit and starts becoming a drain on working capital.

Real-World Consequences

Ethiopia is a “pay you later” economy.

Businesses sell on credit. They buy on credit. They deliver goods today and get paid weeks or months later. Now enter quarterly advance income tax, which is very much a “pay me now” policy.

First, cash flow pain.
Quarterly advance payments mean less cash for salaries, suppliers, loan repayments, and investment. Taxes are always top of the expense menu as far as Uncle is concerned; he gest paid first and everything else follows. For businesses already juggling policy changes, inflation, and financing constraints, this is not a small hit.

Second, borrowing just to pay tax.
Some firms may literally borrow money to pay advance tax on profits they haven’t made yet. No good.

Third, risk aversion.
When cash gets tighter, businesses slow down. Hiring pauses. Expansion plans get shelved. Risk-taking drops. That’s not great for an economy trying to grow its private sector.

Fourth, informal behavior incentives.
Whenever formal systems feel unfair or disconnected from reality, businesses quietly look for workarounds. This is not a moral judgment, just an economic pattern.

Uncle Says Refunds Are Possible

Laugh, so you don’t cry.

In theory, if you paid more in advance tax than your actual tax liability, you are entitled to a refund or tax credit at year-end.

Now let’s talk come back down to earth.

Tax refunds are not exactly known for being fast, predictable, or cheerful experiences in any country! And this is Ethiopia, where “ችግር የለም” usually means “forget about it”.

Even if refunds are approved - and that’s a big If - they may take months or years. Almost certainly, they will get stuck in paperwork and red tape. At the very best, Uncle Kebede will offset it against future taxes.

So from a business perspective, this system behaves less like “advance tax” and more like an interest-free loan to the government, funded by the private sector.

Frank’s take

This amendment is not unusual globally. However, around the world and in most African countries that have some version of it, these taxes are based on estimates of the current year’s tax, and adjusted later in the year.

The key difference in Ethiopia’s model is that it uses last year’s tax liability as the fixed base for quarterly payments, effectively obliging payment regardless of this year’s actual performance.

When businesses are already navigating surprise policy changes, high interest rates, inflation, and uneven demand, advance tax payments based on last year’s performance feels disconnected from reality.

Calling it a tax on imaginary profits isn’t just sarcasm. It’s simple truth.

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አይ Birr! Will You Ever Appreciate in Our Lifetime?

Economy

Money is a peculiar thing.

It can make you happy, create rifts between family members, solve world hunger, purchase deadly weapons, and let you buy your favorite cereal amongst other things.

In physical paper form, it can also be used as a table balancer. You know when your four legged furniture wobbles like an out of form ballerina💃. But we don’t recommend that, we took an oath to the ‘ፍራንክ Digest Book of Guiding Principles’ and swore to never speak of such things. Jokes are the exception of course…

Serious face back on 🧐: Money rules our lives. Night and day, its presence is felt. It is essential for everything and it’s probably the only language that every single person in the world speaks!

But that language has different accents and dialects, in the monetary term we call those currencies. 

Now a currency is simply a system of money issued by a state on a national territory. Meaning, its legitimacy is governed by the issuing state. Money is a fiat-currency, where its value is determined by the difference between supply and demand. Plus, it's also unique in that it is not backed to any physical commodity like Gold, salt or ጤፍ! 

These were forms of money back in the day, you know, the days when men wore robes and debates about who had the best sandals where settled in the town square. We were not around during those times but apparently being called ‘salty’ had a whole different meaning 😉

The Birr is Ethiopia’s currency.

Established in 1945 during the reign of Emperor Haile Selassie, the decree enforced the circulation of banknotes that only supported one currency. Other currencies like the British East African shilling were slowly put out of circulation.

The Birr has had its fair share of makeovers over the years, its last ‘touch-up’ was a few years ago, where a new character was introduced: the purple wearing 200 birr note!

This brings us to our main point: if there are multiple currencies in the world, then that must mean that there are hierarchies, right…right? 👀 Bit of rhetorical question, especially since foreign currency demand is the main party pooper in Ethiopia’s economic growth plans.

The US Dollar has reigned supreme since the end of World War II. While Europe was recovering from the brutal after effects and with Asia still finding its foot, the US went on an industrial revolution and became the super power it is today.

Its industrial power meant that it became a force in global trade, backed by immense liquidity (assets convertible to cash in less than a year), other nations pegged their currencies to the Dollar, making it the world’s leading currency 💪.

Now China, emerging as the contender to the world order, is looking to make its currency, the Yuan, a direct threat to the Dollar. 

See where this power struggle stems from?

A country with a strong currency (higher purchasing power) meaning its demand is high in majority markets, will eventually have high economic leverage. On the flip side, the struggle is real. Very real.

Guess which side of the coin Ethiopia is?

The Birr is low in demand, even in neighboring countries, where regional trade should have encouraged its acceptance. In official channels, you need close to ETB 155 to purchase 1 US Dollar. When we were growing up, that ratio was close to 8-to-1, how we miss those times….

So we’ve established the cold reality, how can we warm up for the future?

Big. Economic. Activity! Let’s call it B.E.A and maybe pass a petition to have it printed on every Fayda card? Anyone?

B.E.A is the exercise the Birr needs not some fancy diet of monetary policy and remittance campaigns. When a country produces more, i.e, creates more goods and services, it swings the trade balance, slowly shifting a severe deficit [Import >>> Export] to a slightly less noticeable one [Import > Export]. 

Along with B.E.A, try I.P.S (Increased Political Stability). A greater I.P.S means greater chances for F.D.I or Foreign Direct Investment. Yes, we know the abbreviations are bit much and we’re S.O.R.R.Y.

F.D.I translates to more investments, more jobs, more taxes paid, safer assets for international investors, overall signaling a more reliable currency in hand sight.

The message has always been clear: a strong economy sprinkled with a robust framework for foreign money will drive the economy UP 📈. Now the mean also has another end: beefing 💪 up the local currency.

Big Picture

For decades, the Birr has had a negligible impact on world trade. The truth of the matter is, that hasn’t changed one bit today. Now, Ethiopia is not a a trade superpower so our expectations were not sky high. Yet, a look at the strong currencies out there reveals a harsh reality, Ethiopia’s economic compression has a big reason to do with that.

When currency weakens, so does its purchasing power, and the Birr has seen an exponential decline. There’s not ‘snap back’ to make things better but strong reforms and greater push for investment are good remedies.

People using a weak currency always fill the pinch. Through time, that could turn into chronic pain so big transformational measures are the only way to swing the tide 🌊.

Thanks for sticking with us, ፍራንክ family! Keep those wallets smart and your inbox open - we’ll be sliding in next week!