Finance Sector Union Appeals to PM Over New Tax on Employee Loans

The union representing approximately 150,000 workers in Ethiopia’s financial industry has taken its concerns about the new tax regulations on employee loans directly to the Prime Minister. This escalation follows failed negotiations with the Ministry of Finance over the newly introduced tax rules.

The Industrial Federation of Ethiopian Financial Institution Trade Unions is appealing to the Prime Minister because a change in the Federal Income Tax Regulation is placing an unfair financial load on bank employees. The core issue is that the amended regulation now considers the benefit employees receive from low-interest staff loans as taxable income.

Financial institutions typically offer employees loans at reduced interest rates, often close to the average deposit rate of about seven percent. These loans are commonly used for essential needs such as housing and vehicle purchases. However, under the revised regulation approved by the Council of Ministers, the difference between these discounted loan rates and the National Bank of Ethiopia’s benchmark lending rate of 15 percent is now treated as income and taxed at the full 35 percent income tax rate.

Union leaders say the policy places additional financial pressure on employees already coping with inflation and high living costs. In a letter addressed to the Office of the Prime Minister, the National Bank of Ethiopia, and the Ministry of Finance, the Federation claims workers are already heavily taxed through salary deductions, pension contributions, and loan repayments.

According to the Federation, employees contribute as much as 85.33 percent of their salaries to taxes, pensions, and other obligations, leaving them with only 14.67 percent of their income as take-home pay. The union maintains that access to affordable loans for housing and transportation should be treated as a basic necessity rather than a taxable benefit.

The Federation is also calling for the government to extend the existing 2,000 Birr income tax exemption threshold to cover certain employee benefits, such as maternity bonuses and food support provided to low-income staff.

Desta Berhe, president of the Federation, stated that previous appeals to the Ministry of Finance did not lead to any adjustments to the regulation. He emphasized that the union is not requesting preferential treatment but is seeking fairness in tax policy.

Union representatives argue that employees of major state-owned enterprises such as Ethiopian Airlines, Ethio Telecom, and Ethiopian Electric Power receive similar benefits without being taxed in the same manner, raising concerns about unequal treatment across sectors.

The Federation represents unions across banks and insurance companies, covering approximately 90 percent of the workforce in the financial sector. Nearly half of its members are employed by the state-owned Commercial Bank of Ethiopia.

The union warns that the tax could negatively affect employee morale and productivity if not reconsidered.

Source The Reporter