Introduction
The Ministry of Revenue has issued a new directive on Tax Administration Penalty Waiving, Directive No. 189/2025 on February 2025. The directive provides a structured framework for the waiver of administrative tax penalties. The directive introduces specific classifications, conditions, and procedures governing penalty waivers, aiming to improve fairness and efficiency in tax administration.
Scope of Application
The directive applies exclusively to tax administrative penalties imposed under Ethiopian tax laws. It does not extend to interest on tax arrears, except where incorrect interest calculations result from administrative errors, in which case corrections must be approved by the branch manager based on expert verification.
Penalties
The directive first distinguishes between waivable and non-waivable administrative penalties. While most tax administrative penalties may be waived in whole or in part under specific conditions, certain violations are explicitly non-waivable due to their critical role in ensuring tax compliance. Notably, penalties imposed for failure to issue tax receipts, as prescribed under Articles 108 and 113 of the Tax Administration Proclamation No. 983/2016, Article 66(1)(g) of the VAT Proclamation No. 1341/2024, and Article 10(3) of the Stamp Duty Proclamation No. 110/1990, cannot be waived under any circumstances.
Beyond this distinction, the directive further categorizes waivable penalties into three levels—low, medium, and high—based on their severity and impact on tax administration.
- Low-level penalties: which include those imposed under Article 101 of the Tax Administration Proclamation No. 983/2016, which pertains to registration and cancellation requirements, Article 103, which addresses penalties related to Taxpayer Identification Numbers (TINs), Article 109, which penalizes understatement of tax liabilities, and Article 112, which imposes penalties on tax agents for noncompliance with regulatory obligations.
- Medium-level penalties: which include those outlined under Article 105 of the same proclamation, which imposes penalties for late payment of taxes, Article 106, which governs withholding tax penalties, and Article 114(1)-(6), which addresses various miscellaneous penalties. Additionally, Article 38(1)-(3) of the Excise Tax Proclamation No. 1186/2020 prescribes administrative penalties that also fall within the medium-level classification.
- High-level penalties: which encompass more serious infractions, including those prescribed under Article 102 of the Tax administration Proclamation, which penalizes failure to maintain proper tax records, Article 104, which imposes penalties for late filing of tax returns, Article 107, which governs VAT-related penalties, Article 110, which penalizes tax avoidance, Article 111(A), which penalizes failure to comply with electronic tax systems, and Article 114(7), which imposes penalties for failure to supply information to tax authorities. Additionally, Article 66 of the VAT Proclamation No. 1341/2024 establishes VAT-specific penalties, which are classified under high-level penalties.
Any penalty not explicitly classified under the directive is presumed to be medium-level, unless it is otherwise designated as non-waivable under Ethiopian tax law
Conditions for Partial Penalty Waivers
The directive introduces a graduated penalty waiver system, whereby the percentage of penalty waivers is determined by the timeliness of the taxpayer’s full payment of tax, interest, and any non-waivable penalties. If a taxpayer makes full payment within 30 days of receiving the tax assessment notice or a decision from the tax review department, tax appeal commission, or a court ruling, 90% of low-level penalties, 80% of medium-level penalties, and 70% of high-level penalties may be waived.
If payment is made between 31 and 60 days, the waiver percentage is reduced to 80%, 70%, and 60%, respectively. For payments made after 60 days, the waiver further declines to 70%, 60%, and 50%. In cases where property has been seized due to non-payment, but the taxpayer makes payment before an auction notice is issued, the waiver percentage is 60% for low-level, 50% for medium-level, and 40% for high-level penalties. However, if tax is paid after the auction notice has been issued, the maximum possible waiver is 50% for low-level penalties, 40% for medium-level penalties, and 30% for high-level penalties.
Full Penalty Waiver Scenarios
A full waiver of administrative penalties is granted under specific conditions as outlined in Article 6(1) of the directive. These include force majeure events such as natural disasters or severe illness; confirmed business bankruptcy, where a court ruling establishes the taxpayer’s insolvency; voluntary correction of tax errors before detection by the tax authority, provided the taxpayer pays the assessed tax and interest; substantial property loss of at least 20% due to natural or man-made disasters, verified by a government institution; and administrative errors by the tax authority, including system-generated penalties resulting from delayed receipt filings where tax was remitted on time. Additionally, if a taxpayer fully pays the tax, interest, and non-waivable penalties within 30 days of receiving the tax assessment notice or a legal decision, any low-level penalty will be fully waived.
Special Circumstances for Penalty Waivers
Beyond these predefined conditions, the directive grants discretionary authority to the Minister of Revenues or their delegate to approve full or partial penalty waivers in special circumstances for economic, administrative, or social reasons. Taxpayers may submit a request to their respective branch office, which is responsible for verifying the total tax debt, tax type, taxpayer status, payment history, and justification for the waiver request before forwarding it to the Minister or their representative for final determination. The request may also be reviewed by the Tax Debt Management Directorate for further verification and the final decision is implemented through the branch office.
To apply for a penalty waiver, taxpayers must submit a written request to the tax authority, tax debt management department, or tax center coordinator, detailing the reason for the waiver However, if the taxpayer has already paid the tax, interest, and non-waivable penalties, the waiver may be automatically granted without requiring an application. If a taxpayer disputes a waiver decision, they may file a complaint with the Tax Decision Objection Reviews Department, which will provide a recommendation to the branch manager.
For taxpayers entering into installment payment agreements, only non-waivable penalties are included in the agreement. Once the taxpayer has fulfilled all tax obligations under the agreement, the waivable penalties will be automatically canceled. However, if the taxpayer fails to comply with the terms of the agreement, penalties will be recalculated based on the remaining unpaid tax debt. (Article 10(3)). The directive also imposes reporting obligations to ensure transparency and accountability in the administration of penalty waivers. Branch offices are required to submit monthly reports on the penalties that have been waived to the Tax Debt Management Directorate. The Tax Authority must also submit quarterly reports to the Ministry of Finance, consolidating the total amount of administrative penalties waived during the period.
Conclusion
Directive No. 189/2025 introduces a structured, transparent framework for tax penalty waivers in Ethiopia. By classifying penalties, setting clear conditions for waivers, and defining administrative procedures, the directive enhances fairness while incentivizing timely tax compliance. Taxpayers should carefully assess their obligations and apply for waivers where applicable.
