and Appendix 1 for the presumptive tax schedule for selected activities). The presumptive tax also includes liberal professionals (such as accountants, auditors, attorneys) provided that their annual earnings are below 500,000 birr. In contrast, in many other countries, the presumptive tax excludes liberal professionals because they are deemed to be able to comply with the accounting requirements of the standard tax regimes (Mas-Montserrat et al., 2023).

Some subsistence-level businesses (earning less than 50,000 birr) in certain sectors are subject to the presumptive tax. A tax exemption threshold exists for businesses with a revenue of less than 50,000 birr per year (approx. USD 904) in activities, such as trading in fruit and vegetables, cereal, edible oils, textiles, animal products, and selected services (Council of Ministers Regulation No. 410/2017). However, the taxfree threshold does not exist for food and beverage services (for example, bars, cafes, or hotels), construction, transit services, and trading in specific products (for example, flour, chat, and metals) (Council of Ministers Regulation No. 410/2017). Businesses in the latter group are therefore subject to tax from the moment they earn income.

Regional governments are responsible for administration of the presumptive tax (Dixon, Freedman and Yesegat 2019). The revenue generated from small and microbusinesses comprises a small proportion of the regional governments’ tax revenues. For example, in Oromia, it accounts for less than 10 percent of the total tax revenues in 2016/2017 and 2017/2018 (Dixon, Freedman, and Yesegat 2019).

Businesses generally do not calculate presumptive tax liabilities themselves, rather, the government sends out revenue assessment teams at the woreda (district) level to estimate the firms’ average daily revenue and extrapolate their annual turnover using an assumed number of working days (Workneh et al., 2019). The door-to-door collection and extrapolation of annual turnover have at times caused taxpayer dissatisfaction (Workneh et al., 2019). Taxpayers deemed the annual turnover estimation to be too high because they did not account for the business seasonality, and therefore overestimated their tax liabilities (Dixon, Freedman, and Yesegat 2019).<sup>6</sup> A survey conducted soon after the 2017 reassessment of average daily revenue and presumptive taxes in Addis Ababa found that the assessment process lacked in objectivity, and applied inconsistent methods for estimating the incomes of similar enterprises (Workneh et al., 2019). There was also a lack of understanding of the assessment methods on the part of taxpayers and assessors because the tax schedule, which disaggregates businesses into 1,881 different tax activity-bands, is overlycomplicated and subject to different interpretation (Getachew 2019, Workneh et al., 2019).

In addition to the presumptive tax, businesses are also subject to the _turnover tax,_ which is required for firms earning below the VAT threshold of 1 million birr (Harris and Seid 2021). The turnover tax rate is 2% of annual turnover for locally sold goods and services provided by contractors, grain mills, combine

> 6 If revenues are estimated on a longer interval, such as on a monthly basis instead of daily revenue, it could account for seasonality.

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