PROCLAMATION N^o 62 / 1994 (With its Amendments)

A PROCLAMATION TO PROVIDE FOR  PAYMENT OF INCOME TAX

Whereas, to facilitate the implementation of the rehabilitation and development programs of the state of Eritrea;

Whereas, recognizing the need of a new tax regime conducive to investments on foreign and local, to stimulate the devastated economy of the country;

Whereas, one of the methods by which this can be achieved is by reorganizing the taxes imposed on any source of income and for their convenient administration; Now therefore; it is hereby Proclaimed as follows

SECTION  ONE

ARTICLE  1    SHORT TITLE

This Proclamation may be cited as the "Income Tax Proclamation N^o 62 / 1994".

ARTICLE  2    DEFINITION

In this Proclamation, unless the context otherwise requires:

1. "Minister and Ministry" means the Minister and Ministry of Finance and Development.

2. "Body" means any incorporated company based on shares with limited liability.

3. "Rent of movable and immovable property" means rent of houses and /or rent of houses with its furniture and fixtures.

4. "Royalty" means an income received from copyright, patent and the like.

5. "Person" means any natural person, and all forms of associations including partnerships, but excluding incorporated companies with limited liabilities.

6. "Inland Revenue Office" means the body designated by the Minister to implement and enforce the provisions of this Proclamation.

7. "Commercial Farming" means any commercial farming activity having a license issued by the Ministry of Agriculture.

8. "Income" means every sort of revenue from whatever source derived and in whatever form paid, credited or received, which has its origin within Eritrea, irrespect of whether it is paid, credited or received within or out of Eritrea.

9. "Tax payer" means any person or body receiving income and liable to pay tax thereunder.

10. "Tax Appeal Commission" means a body established by this Proclamation or other laws that substitute it to decide appeals against tax assessments made by the Inland Revenue Office.

11. "Business" means any industrial, commercial, banking, transport and other activity pursued by any person or body.

12. "Chance winning " means lottery, bingo, tombola and the like.

13. "Taxable income" means the amount of income calculated in accordance with the provisions of this Proclamation and regulations issued hereunder, on which income tax shall be charged, levied and collected.

14. "Gross income" means the total of all income received by any tax payer before any deductions which may be authorized hereunder.

ARTICLE  3      REPEALS

All previous Proclamations, Laws, Legal Notices, Decrees, Regulations, Directives and in particular Income Tax Proclamation  N^o 173/1961 are hereby repealed and replaced by this Proclamation.

SECTION   TWO

LEVYING OF TAX

ARTICLE  4  

Subject to the provisions hereof, every person or body having income is liable to pay income tax thereon.

ARTICLE  5

Income tax shall be calculated separately for income from employment, from rent of movable and immovable property, from trade or business and from commercial financing and shall be levied, collected and paid on the aggregate amount of taxable income chargeable under each of said separate Schedules.

ARTICLE  6

If any income or part thereof is received in the form of a benefit in kind, tax shall be paid thereon after the valuation of said benefit in kind is made by the Inland Revenue Office.              

SECTION    THREE

TAX ON INCOME FROM EMPLOYMENT

ARTICLE  7 

Income tax shall be charged, levied and collected on income from employment including without limitation salaries, wages, allowances, pension contributions, directors' fees and other personal emoluments and allowances unless the Minister shall by regulations exclude certain categories.

ARTICLE  8

1.The tax on income from employment shall be charged, levied and collected monthly; however, if such income is received in the form of a payment covering a period longer than one month, the tax payable shall be computed by prorating the income received over the number of months covered by such payment at the rates specified in the schedule.

2.The tax on income from employment shall be charged and collected at the following rates:-

SCHEDULE A

Schedule 'A' of Article 8 of the Income Tax Proclamation 62/1994 is deleted and replaced by the following schedule: (Proclamation 116/2001 Effective from January 2002)

SCHEDULE ‘A’

ARTICLE   9

Unless the Minister shall by regulations exclude certain categories from payment of income tax, taxable income from employment shall include all payments in cash and all benefits in kind.

ARTICLE 10

An employer shall declare to the Inland Revenue Office an  income earned by any of his employee.

ARTICLE 11

Any person who is employed by more than one employer in the same month shall himself declare the total amount of his income from employment during said month, irrespective of declarations made by employers; and shall pay within one month of the coming month.

ARTICLE 12

Any employee of an Embassy, Legation, Consulate or Mission of a foreign state who is not exempted from payment of income tax shall himself declare the total amount of his income and pay tax thereon within one month of the next month.

ARTICLE 13

Income from employment shall be declared each month, within one month from the end of the month for which the tax is due.

ARTICLE 14

With the exception of the cases referred to in Articles 11 and 12 hereof, the tax on income from employment shall be deducted by employers from payments made to employees and transmitted to the Inland Revenue Office within one month from the end of the month for which the tax is due. If the employer fails to deduct said tax and transmit it, in due time, to the Inland Revenue Office, he shall be personally liable for payment of said tax.

ARTICLE 15

The Minister may prescribe by regulations that in specified cases income from employment may be declared and the tax thereon paid in periods other than a single month and that the tax may be paid in a special manner as prescribed in said regulations

SECTION  FOUR

             TAX ON INCOME FROM RENT OF MOVABLE AND

           IMMOVABLE PROPERTY

ARTICLE  16

The tax on income from rent of movable and immovable property (irrespective of purposes the rent is to be used) shall be charged, levied, collected and paid annually and shall be imposed on the income of the preceding fiscal year which shall, in principle, correspond to the Eritrean fiscal year; provided, however, that the Inland Revenue Office may, at its discretion, allow the use of a different accounting year.

ARTICLE  17

Any person or body having taxable income from rent of movable and immovable property shall be charged, levied, collected and paid as described in the following Schedule B:

                                            SCHEDULE B

Schedule 'B' of Article 17 of the Income Tax Proclamation No.62/1994 is deleted and replaced by the following schedule: (Proclamation 116/2001 Effective from January 2002)

ARTICLE  18

The tax on income from rent of movable and immovable property shall be calculated in accordance with regulations issued by the Minister, which regulations shall, inter alia, provide that:-

   1. Gross income shall include all payments in cash and all benefits in kind;

 2. If the tax payer rents furnished quarters, amounts received attributable to the renting of furniture and equipment shall be included as gross income;

 3. The following amounts shall be deducted from gross income in calculating  taxable income;

a) Taxes, except income taxes, paid with respect to the rented houses.

b) One fourth ( 1/4 ) of the gross income received as rent for buildings, furniture and equipment shall be considered as an allowance for repairs, maintenance and depreciation of such buildings, furniture and equipment.

ARTICLE  19

The tax on income from rent of movable and immovable property shall be declared, collected and paid annually within one month from the end of the Eritrean fiscal year for which the tax is due.

SECTION  FIVE

TAX ON INCOME FROM ANY TRADE, BUSINESS, PROFESSIONAL OR VOCATIONAL OCCUPATION

ARTICLE  20

Any person or body deriving income from trade, business, professional or vocational occupations and other trade activities shall pay income tax.

ARTICLE  21

The tax on income from any trade, business, profession or vocation and other trade activities shall be charged, levied, collected and paid as follows; provided, however, that the Inland Revenue Office may at its discretion allow the use of a different accounting year:

1) The tax on income from sources of any trade, business, profession or vocation shall be charged, levied, collected and paid annually and shall be imposed on taxable income of the preceding accounting year which shall; in principle, correspond to the Eritrean fiscal year;

2) The tax due from other trade activities, such as chance winning, royalty, and income from services rendered to person or body in Eritrea by persons or bodies from abroad shall be paid within one month from the date the income has been received.

 ARTICLE  22 

1) Any person having taxable income from source of trade, business, professional or vocational occupations and other similar activities shall be charged, levied, collected and paid as follows:

SCHEDULE - C - 1

Schedule 'c – 1' of Article 22(1) of the Income Tax Proclamation No. 62/1994 is deleted and replaced by the following schedule: (Proclamation 116/2001 Effective from January 2002)

2) In the case of any incorporated body, the  tax on income shall be charged, levied, collected and paid as follows:

SCHEDULE - C - 2

Sub-Article (2) of Article 22 of Income Tax Proclamation No. 62/1994  is deleted and replaced by the following Sub-Article: (Proclamation 116/2001 Effective from January 2002)

 “(2) In the case of any incorporated body, the tax on income shall be charged, levied, collected and paid at the rate of 30 percent.” (30%)

3) The heighest tax rate for reinvested profit shall be taxed 20%.

Sub-Article (3) of Article 22 of Income Tax Proclamation No. 62/1994 is deleted. (Proclamation 116/2001 Effective from January 2002)

4) The tax on income from other sources of trade activities, such as chance winning, royalty, and income from services rendered to person or body inn Eritrea by persons or bodies from abroad shall be charged, levied collected and paid from the gross income received as follows:

                                SCHEDULE - C - 3

a)     Income from tombola, lottery not exceeding five hundred (500) Nakfa shall be exempted from payment of income tax, whereas income exceeding five hundred  (500) Nakfa shall pay .........................................10%

b)     Income from bingo not exceeding four hundred (400) Nakfa shall be exempted from payment of income tax, whereas income exceeding four hundred (400) Nakfa shall pay ........................................10%

c)      Royalty..................................................................................................10%

d)     Income from services rendered to person or body in Eritrea by person or body from abroad...................10%

ARTICLE  23

1) The tax on income from sources of any trade, business, profession or vocation and other trade activities mentioned in paragraphs 1: 2:  3 and 4 of Article 22 hereof shall be calculated in accordance with regulations issued by the Minister.

2) The Minister is empowered to issue regulations establishing rates of depreciation of fixed assets, including without limitation of, buildings, machinery, furniture, motor vehicles, and the like.

ARTICLE  24

In calculating taxable income mentioned in sub- article 1 of Article 23, all expenses wholly, necessarily and exclusively paid or incurred for the purpose of carrying on such activities shall be deductible from gross income.

ARTICLE  25

Interest paid on any sum received as a loan, whether or not so designated for use in any activity shall not be deductible from gross income in calculating taxable income, except where said sum is received from credit institutions approved by the Government.

ARTICLE 5   LOSS CARRY-FORWARD

The following new Article 25A is hereby inserted after Article 25 of the Income Tax Proclamation No. 62/1994: . (Proclamation 116/2001 Effective from January 2002)

“ARTICLE 25 A

(1)   If, for any year, a taxpayer’s gross income is less than the deductions the taxpayer is entitled to under this Proclamation, the taxpayer shall be considered as having sustained a net loss for that year.

(2)   Any net loss incurred in one year may be set off against taxable business income in the next 5 years, earlier losses being set off before later losses.

(3)   Where the taxpayer is a company, and if during a tax period, the direct or indirect ownership of the share capital or voting rights in the company changes by more than 25 percent, sub-Article (2) hereof shall cease to apply to losses incurred by that company in previous tax periods.”

ARTICLE  26

1. Income from sources specified in sub-article 1 and 2 of Article 22 hereof, shall be declared and tax thereon paid annually as follows:

a)     If the tax payers are required by regulations issued by the Minister to keep books of account and records in such a way as to be able to submit to  the Inland Revenue Office at the end of the year a Balance Sheet and a Profit and Loss Statement with necessary specifications: within four (4) months from the end of the annual accounting period for which the tax is due;

b)     If the tax payers are required to keep only such books of account and records as may be necessary for them to submit to the Inland Revenue Office at the end of the year a summary of their daily revenue and expenditure in the form of Profit and Loss Statement as may be prescribed by regulations issued by the Minister: within two (2) months from the end of the annual accounting period for which the tax is due;

c)      If the tax payer is not required to keep any books, within one (1) month from the end of the annual accounting period for which the tax is due;

2) Taxes on income from sources mentioned in sub-article 4 of Article 22 hereof shall be paid within one month (1) from the day the income is earned

a)     Tax payment on income from royalty and chance winning shall be effected by the person carrying on such activities;

b)     Any person or body who pays for services rendered from abroad in accordance with sub-article 4 of Article 22  of this Proclamation shall withhold the income tax therefrom and declare and pay same to the Inland Revenue Office within one month from the date of the payment of the fee. 

SECTION  SIX

TAX ON INCOME FROM COMMERCIAL FARMING

ARTICLE 27

Any person or body deriving income from commercial farming shall pay income tax thereon.

ARTICLE 28

Income from commercial farming shall be declared and tax thereon paid annually within four (4 ) months from the end of the Eritrean fiscal year and tax shall be imposed on the income of the preceding fiscal year; provided, however, that the Inland Revenue Office may, at its discretion, allow the use of a different accounting year.

ARTICLE 29

Any person or body having income from commercial farming shall pay income tax in accordance with Schedule "D" below :      

SCHEDULE "D"

ARTICLE  30

1.The tax on income from commercial farming shall be levied, charged and collected the same as any other trade, business, vocational and professional activities; and its maintenance of books of account and records shall be applied as per sub-article 1 and 2 of Article 26 hereof.

2.The tax on income from commercial farming of persons or bodies who fail to  keep books of account and records shall be charged, levied and  collected by the Inland Revenue Office or any other body designated by it. Taxable income shall be calculated in accordance with regulations issued by the Minister.

SECTION SEVEN

GENERAL  PROVISIONS

ARTICLE 31     TAX EXEMPTION

The following categories of income shall be exempted from payment of income tax.

1)     Income from their own employment of self employed workers, such as weavers, pottery workers, blacksmiths, tanners and the like, who are not resident in the municipal or township areas and who do not employ other full-time workers.

2)     Income from employment of unskilled workers, employed by the day, who are not employed regularly by a single employer.

3)     Income from employment received from abroad by persons present in Eritrea representing foreign business or other persons not employed or retained by any employer in Eritrea; provided, however, that if any such person remains in Eritrea less than one hundred eighty three (183) days in the aggregate in any one (1) year, shall be exempted.

4)     Income from interest received by persons on bank accounts.

5)     Dividends received by share-holders from incorporated  or corporated bodies in Eritrea

6)     Subject to reciprocity, income from employment received for services rendered in the exercise of their duties by :

a)     Diplomatic and Consular representatives, and

b)     Other persons employed in any Embassy, Legation, Consulate or Mission of a foreign state, who are nationals of that state and bearers of diplomatic passports, or who are in accordance with international usage or custom, normally and usually exempted from the payment of income tax.

7)      Income specifically exempted from income tax by the law in force in Eritrea, by international treaty or by an agreement made or approved by the Minister.

POWERS OF INLAND REVENUE

ARTICLE  32

The implementation and enforcement of this Proclamation and of regulations issued hereunder shall be the duty of the Inland Revenue Office designated below, acting under the authority of the Minister having branches in Provincial and  Sub- provincial areas.

ARTICLE  33

1. All Provincial and Sub- provincial Tax Offices shall be under the general direction and supervision of the Head Office of  Inland Revenue .

2. In assessing and collecting tax, the Inland Revenue Office shall follow the procedures prescribed in regulations issued by the Minister.

ARTICLE 34

Each tax payer shall supply the Inland Revenue Office with all information required for assessment of the tax and shall if required, attend either personally or by a duly appointed representative at the office of the Inland Revenue Office for this purpose and shall furnish such records, books of account, vouchers and other documents as may be required.

ARTICLE  35

The Inland Revenue Office shall have the right to verify statements made by the tax payers and to send inspectors or auditors to check records, books of account, vouchers and stock maintained by them.

ARTICLE  36

1.Each Tax Payer shall notify the Inland Revenue Office of any change in his or its address, change or cessation of activity. In such cases  arrears of the tax due up to the date of cessation of activity shall be paid .

2.All companies shall submit to the Inland Revenue Office a copy of their memoranda of association and statutes and shall notify any subsequent changes therein.

ARTICLE  37

All Government Offices and Municipalities, all distributors, importers, and producers shall supply to the Inland Revenue Office, on request, any information available in official records necessary for determining the tax liability hereunder of any tax payer.

ARTICLE 38

All Government Offices and Municipalities shall notify the Inland Revenue Office of all licenses issued to new businesses and to persons or bodies taking up professional or vocational occupations.

ARTICLE 39

No governmental offices issuing licenses, may issue or renew licenses to person or companies engaged in business, professional or vocational activities that have not paid tax due hereunder or have failed to keep proper books of account and records as prescribed hereunder with out consulting the Inland Revenue Office.

DECLARATION, ASSESSMENT AND PAYMENT OF TAX

ARTICLE 40

1. Except as may be otherwise prescribed in regulations issued by the Minister:

a) Income shall be declared to the Inland Revenue Office in the Provinces or Sub-provinces, in which the tax payer carries on any activity, but where the tax payer carries on more than one activity and such activities are located in several Inland Revenue Office, Provinces, or  Sub-provinces, he shall notify in writing to the Inland Revenue Office of the Ministry  the location of all activities carried on by him so that the taxable income derived from each activity may be aggregated by the Head Office of the Inland Revenue Office and the proper tax duly assessed.

c)      Any tax payer having more than one office shall declare his income to the Inland Revenue Office in which his Head Office is located.

d)     A non-resident shall make his or its declaration to the Inland Revenue Office within which the major part of the income being declared is derived or in which his or its principal agent resides.

2.The agent or agents of a non-resident trading activity in Eritrea through said agent or agents shall be jointly responsible with the non-resident for the making of declarations and for the payment of income tax which may be due from said non-resident hereunder.

ARTICLE 41

Declarations of tax payers shall be made on special forms supplied by the Inland Revenue Offices.

ARTICLE  42

The Inland Revenue Office shall examine declarations of income and assess the tax in the manner prescribed herein.

ARTICLE  43

If the records and books of accounts maintained by the tax payer are found  to be adequate and satisfactory after examination by the Inland Revenue Office, the tax shall be assessed on the basis of said records and books of accounts.

ARTICLE  44

1. If no records and books of accounts are maintained by the tax payer, or

2. If for any reason the records and books of accounts are unacceptable to the Inland Revenue Office, or

3. If the tax payer fails to declare his or its income within the time specified in sub-article 1 and 2 of Article 26 hereof, the Inland Revenue Office shall assess the tax by estimation.

ARTICLE  45

If a tax payer has submitted a proper declaration of income, and paid income tax thereon but doesn't receive within a period of five (5) years from the date of the receipt of the declaration by the Inland Revenue Office, a notice of assessment different from the amount of tax declared, the income declared shall be deemed approved and the tax shall be deemed to have been assessed on that income; however, where the tax payer is proven to have concealed information he may not avail himself of the  five (5) year period of limitation and the Inland Revenue Office may demand payment of the additional tax due.

ARTICLE  46

The Minister may issue regulations requiring that certain categories of tax payers keep records and books of account.

ARTICLE  47

Following the assessment of the tax by the Inland Revenue Office, the difference, if any, between the tax declared and paid and the tax assessed by the Inland Revenue Office shall be paid by, or refunded to, the tax payer, as the case may be, within thirty  days (30) from the date of notification of the assessment.

ARTICLE  48

The Inland Revenue Office shall notify the tax payer in writing of their decisions concerning the assessment and payment of taxes.

ARTICLE  49

Decisions and notifications of the Inland Revenue Offices shall be communicated to the tax payer as follows:

1) By handing it to the tax payer in person or to his agent.

2) In the absence of the tax payer or his agent, by handing it to any adult member of his family or person employed by him at his residence or at the place where he is carrying on business or a professional or vocational occupation;

3) If the tax payer or his agent, or members of his family or any employee refuses to accept a document or to sign a receipt for it, or if for any other reason the decision or notification can not be delivered to the tax payer, the Inland Revenue Office shall:

a) Either affix the decision or notification on the door of the premises where the tax payer has his residence or is carrying on a business or a professional or vocational occupation, or

b) Publish a notice in an official journal or  newspaper in which court notices are published requiring the tax payer to come to the office of the Inland Revenue Office not later than fifteen (15) days from the date of publication in order to receive the decision or notification.

4) The cost of publication of the notice shall be charged to the account of the tax payer and shall be recovered accordingly. And the decision or notification shall then be deemed to be properly delivered.

TAX APPEAL COMMISSIONS

ARTICLE  50

The following Tax Appeal Commissions shall be appointed by the Government:

1) A Tax Appeal Commission to hear and decide appeals against tax assessments made by the Inland Revenue Office in the capital city.

2) Tax Appeal Commission for Provinces, or, in case of need, for certain Sub provinces offices, to deal with appeals against tax assessments made by the Provincial or local Tax Offices situated within the area for which the Commission is appointed.

ARTICLE  51

Each Tax Appeal Commission shall consist of a Chairman, a Vice-Chairman and at least five (5) members. At least half of all members of each commission shall be chosen from amongst merchants and persons carrying on professional or vocational occupations and the rest shall be chosen from Government Offices.

ARTICLE  52

1. The Chairman or, in his absence, the Vice-Chairman of each Tax Appeal Commission shall be the administrative head of the Commission.

2. Each Tax Appeal Commission shall have a permanent secretary, who is a full time member of the Commission, to keep the records of the Commission and of the proceedings of its panels with a sufficient stuff.

ARTICLE  53

1. Each appeal shall be heard and determined by the Chairman, or in his absence, by the Vice-Chairman with at least two (2) members. In the absence of the Chairman or Vice-Chairman no decision may be made.

2. The decision of the panel shall be the decision of the Tax Appeal Commission.

3. Decisions of the panel shall be taken by majority vote of the members thereof. In a case of a tie the Chairman or in his absence the Vice-Chairman shall have a casting vote.

ARTICLE  54

The Chairman, Vice-Chairman and other members of each of the Commissions shall be entitled to receive such attendance fees for sitting on panels as shall be fixed by the Minister.

ARTICLE  55

1. Any tax payer who objects to an assessment made with respect to his or to its income by the Inland Revenue Office may appeal in writing to the Tax Appeal Commission and a copy thereof shall be transmitted to the Inland Revenue Office.

2. A tax payer can make an appeal within thirty days (30) from the date he received the notification of the assessment.

3. In the case of a company  or person carrying on a business, professional, or vocational occupation and other trade activities it shall be a condition to appeal by depositing  in cash with  the Inland Revenue Office at least:-

a) An amount equal to seventy five percent (75%) of  the tax assessed by the

     Inland Revenue Office; or

b) An amount equal to seventy five percent (75%) of the tax assessed on the applicants income for the last preceding year with respect to which a final and conclusive assessment has been made; whichever of the above amounts is the lesser.

4. The provisions of Sub-article (3) of this Article shall not apply when the tax assessed is for the first time. In such case, he shall deposit with the Inland Revenue Office in case an amount equal to thirty percent (30%) of the tax assessed by said Office.

5. In all other cases other than those referred in sub-article (3) of this Article, he shall deposit in cash an amount equal to fifty percent (50%) of the tax assessed.

ARTICLE  56

If no appeal and deposit is made by the tax  payer within the period mentioned in Article 55 hereof, the assessment of tax made by the Inland Revenue Office shall  be considered as final, conclusive and executive.

ARTICLE  57

A Tax Appeal Commission may confirm, reduce, increase or annul an assessment and make such further consequential order thereon as may seem just and necessary for the final disposition of the matter. In its decision the Tax Appeal Commission shall assign reasons in law or fact. Notice of the Commission's decision shall be sent to the Inland Revenue Office and its copy to the appellant.

ARTICLE  58

A decision of a Tax Appeal Commission shall be considered as final, conclusive and executive, unless an appeal is made to the High Court either by the Inland Revenue Office or the tax payer.

ARTICLE  59

If the decision of the Tax Appeal Commission is erroneous on any matter of law, either party has the right to appeal to the High Court once within thirty days (30) from the date of the Tax Appeal Commission's decision.  

ARTICLE  60

Notwithstanding any appeal taken hereunder, the tax payer shall pay the tax in accordance with the decision of the Tax Appeal Commission; provided, however, that if the assessed amount is altered as a consequence of the decision of the High Court of appeal to which an appeal is taken:.

1) Any amount over paid shall be refunded to the tax payer, or

2) Any balance due shall be paid by the tax payer.

EXECUTION PROCEEDINGS

ARTICLE  61

Applications for execution of decisions pursuant to Articles 56 and 58 of this Proclamation, shall be made by the Inland Revenue Office to the Courts, which shall instruct the Execution Officer concerned to execute it under his responsibility.

ARTICLE  62

1. If any person or body:

a)     fails to make an appeal and deposit within thirty days (30) from the date he or it received the notification.

b)     fails to pay or appeal within thirty days (30) from the date of notification f a decision of the  appropriate Tax Appeal Commission; or

c)      fails to pay within thirty days (30) from the date of notification of the decision of the Court,

The Executive Officer is empowered, on receipt of a warrant for that purpose from the Court, to attach any funds, including cash or credit held by another for such person or body and to distrain and sell any movable and immovable property of said defaulting person or body so as to collect the tax due together with any penalties and cost of execution.

2. Any person or body, who being requested to do so, fails to pay over or transfer to the Execution Officer any funds  or property held by him or it for the account of said defaulting person or body, shall become personally liable for the tax owed by the said defaulting person or body.

PENALITIES

ARTICLE  63

Any tax payer who, being required to do so, fails to declare his or its income and pay tax thereon within the period specified in Article 26 hereof may be assessed by the Inland Revenue Office, as a penalty, twenty percent ( 20%) of the amount of tax finally assessed by the Inland Revenue Office.

ARTICLE  64

Any tax payer who fails to pay the full amount of tax  due within the time specified in this Proclamation  shall pay a penalty equal to five percent (5%) of the amount of tax which is in default in respect of every month during which payment is in default, up to a  maximum penalty of fifty percent (50%) of the amount  due.

ARTICLE  65

Any tax payer who fails to maintain books of account and records as may be prescribed by regulations issued by the Minister or his books of account and records become  unacceptable shall pay a penalty of twenty percent (20%) of the amount of the tax finally  assessed.

Amendment to Article 65 (Addition)

Article 65 of the Income Tax Proclamation No. 62/1994 is here by amended by inserting the following paragraphs: (Proclamation 138/2003 effective January 1,2004)

“ A seller or lessor who does not issue a receipt to a purchaser or to a lessee as per regulations issues by the Minister of Finance:

1.      Shall pay with in 30 days to Inland Revenue Department a penalty amounting to one-hundred twenty five percent (125%) of the money he received without issuing a receipt but in no case shall this amount be less than five-hundred Nakfa (500 Nakfa). In addition, if the amount he received without a receipt exceeds eight-thousand Nakfa (8,000 Nakfa), the Inland revenue Department may suspend the license of the seller for up to one month; and

2.      Any seller or lessor, who is not satisfied with the decision of the Inland Revenue Department referred to in the preceding paragraph (a), may appeal to the Tax Appeal Commission within 30 days. The decision given by the Tax Appeal Commission shall be final.”

ARTICLE  66

The penalties specified in Articles 63 through 65 inclusive shall be added to and shall be deemed part of the tax and shall be recovered accordingly; provided, however, that said penalties may be waived, in whole or in part, at the discretion of the Inland Revenue Office.

OFFENCES

ARTICLE  67

1. Any tax payer who violates any of the provisions hereof shall be punishable in accordance with the  Transitory Penal Law of Eritrea.

2. No punishment imposed pursuant to Sub-article 1 of this Article 67 shall extinguish or abate taxes or  penalties due.

3. Notwithstanding the provisions of Articles 45 and 56 of this Proclamation the Inland Revenue Office is authorized to revise, at any time any of its previous assessments of the tax in cases where it appears that the tax payer:

a) omitted to give a full and proper declaration of income;

b) refused to supply or supplied the Inland Revenue Office with false information concerning the sources or amounts of his income; or 

c) committed any other offense punishable under the Transitory Penal Law of Eritrea.

POWERS OF THE MINISTER

ARTICLE  68

The Minister may issue Regulations for the carrying out of the provisions hereof.

ARTICLE  69

The Minister may for good cause remit, in whole or in part, the tax payable by any taxpayer hereunder.

TRANSITORY PROVISIONS

ARTICLE  70

Nothing in this Proclamation shall affect liability of any person or body to pay previous income taxes, which were in force prior to the entry into force of this Proclamation.

EFFECTIVE DATE

ARTICLE 71

This Proclamation shall come into force on January 1, 1995.

                                                                 Done at Asmara, October 5, 1994

                                                                        Government of Eritrea

////////////////////////////////////////////////////////////////////////////////////////////////////////////////

LEGAL NEOTICE No. 20/1995 (with its Amendments)

Income Tax Regulations

SECTION ONE

General

Article 1

These Regulation have been issued by Ministry of Finance pursuant to the authority vest in him by Article 68 of Income Tax Proclamation No. 62/1994 (Hereinafter referred as the “Proclamation”)

Article 2

These Regulation may be cited as the “Income Tax Regulation No. 20/1995”.

Article 3

Pursuant to article 3 of the Proclamation, all previous Legal Notices in particular, Income Tax legal Notice No. 258/62, are hereby repealed and replaced by these Regulations.

SECTION TWO

Payment in Cash or Benefits in Kind:

Article 4

1)           The following payments in cash or benefits in kind shall be excluded from computation of salary and wage income taxable under Schedule ‘A’:

a.   amounts paid under contracts of employment by employers to cover the actual cost of medical treatment and compensation for physical injury;

b.   allowances made in lieu of means of transportation granted to employees in accordance with governmental regulations or under contracts of employment;

c.   amount paid according to provisions of contracts of employment to employees for on-duty traveling and transportation expenses;

d.    amounts of traveling expenses paid to employees recruited from elsewhere other than the place of employment of joining and completion of employment or in connection with their leave, provided, that the expenses covered by such payments are made pursuant to specific provisions of contracts of employment and actually incurred;

e.   cash and store allowance paid to cashiers and store men;

f.     entertainment allowances directly attributable to actual conduct of business; 

2)           The allowances and payments mentioned in sub-article 1) b,c,d,e, and f of this Article shall only be exempted from tax if they are deemed to be reasonable by Inland Revenue Department which is empowered to reduce or reject such expenses.

Article 5

Where an employee is retired for various reasons before he reaches pension age and the amount paid by him as pension contribution while working is refunded back, he shall be exempted from payment of income tax from employment.

Article 6

If the tax on income from employment instead of being deducted from the salary or wage of the employee is paid by the employer in whole or in part out of his own expense for the employee the amount so paid shall be added to the taxable income and shall be assessed as part thereof.

Article 7

Unskilled workers referred to in Article 31(2) of the proclamation, shall be considered as employed regularly by one (1) employer if they work for the same employer for more than fifteen (15) days in aggregate in a single month and shall pay tax on income from employment.

Article 8

Persons referred to Article 31(3) of the Proclamation who remain in Eritrea for more than one hundred and eighty three (183) days in aggregate in any twelve month period, shall be liable to pay tax on income from employment received by them for the entire period during which they are in Eritrea.

Article 9

Pursuant to the powers issued in Article 15 of the Proclamation, the Inland Revenue Department shall, depending on the conditions of each case, decide or allow for the taxpayers who need to declare and pay the tax on income from employment on a period longer than one month.

Article 10

If the Inland Revenue Department has reason to consider that the total amount of salary and other personal emoluments payable to the manager or managers of a partnership or a private limited company is exaggerated, it may reduce said amount for taxation purposes to limit which in view of the operations of the partnership or the private limited company, appears justifiable, either by disallowing the payments made to more than one manger or in any other ways which may be just and appropriate.

SECTION THREE

TAX ON RENT OF MOVABLE AND IMMOVABLE PROPERTY

Article 11

In addition to those mentioned in Article 18 (1) and (2) of the Proclamation, gross income from rent of movable and immovable property shall include:

1.      The value of any improvement made to the property where the cost of such improvement was borne by the lessee in addition to rent payable to the lessor;

2.      All payments made by the lessee on behalf of the lessor

Article 12

In calculating taxable income from rent of movable property, only those expenses mentioned in Article 18(3) of the proclamation shall be deducted from gross income.

Article 13

1.      Article 18(3) of the Proclamation and Article 12 of these Regulations shall be applicable only to direct lease made between the owner of the movable and/or immovable property and the lessee.

2.      In the case of sub-lease made by a sub-lessor, taxable income of lessee shall be calculated by deducting from the gross income of the sub-lessor the amount payable by him to the lessor.

Article 14

If the amount of rent paid to the lessor or sub-lessor covers a period longer than one (1) year, the total amount of income from such rent shall be attributable to the fiscal year in which the payment was made, but the tax on such income payable for said fiscal year shall be computed by prorating the taxable income over the number of years covered by the amount paid.

SECTION FOUR
TAX FROM BUSINESS ACTIVITIES

Article 15

1)     Persons or bodies engaged in trade, business, professional or vocational occupations and other similar activities mentioned in Article 23(1) of the Proclamation are categorised as following:

a)     Category “A”

i)        Any body as defined in Article 2 (2) of the Proclamation; or

ii)      Any person having an annual gross income exceeding Nakfa 350,000

b)     Category “B”

i)        Any person having an annual gross income exceeding Nakfa 100,000 up to Nakfa 350,000;or

ii)      Any person engaged in a professional or vocational occupation whose annual gross income exceeds Nakfa 18,000; or

iii)    All importers & Exporters, wholesalers and distributors, except those gross annual income exceeds Nakfa 350,000 in which case they shall be classified in Category “A”

c)      Category “C”

i)        Any person having gross income up to Nakfa 100,000;or

ii)      Any person engaged in professional or vocational occupation whose annual gross income is up to Nakfa 18,000

2)     Where any taxpayer’s gross income over a period of three consecutive years exceeds or is below its classified category, the Inland Revenue Department, may, if necessary reclassify it in the appropriate category.

Article 16

1)     Pursuant to Article 46 of the Proclamation and Article 15 of these Regulation, the tax payers categorised in “A” and “B” shall keep the following books of accounts and supporting documents:

a)     Category “A” records and accounts which will enable them to submit to the Inland Revenue Department at the end of the year a balance sheet and profit and loss statements with the necessary detailed specifications of the following documents with in 4 (four) months from the end of the annual accounting period for which the tax is due:

i)        A general journal indicating daily income and expenses;

ii)      Acceptable and consecutively pre-numbered sales and purchase invoices

iii)    Stock cards indicating quantity, type, unit and total cost;

iv)    Cost of production report in the case of manufacturer;

v)      General and administrative expenses; and

vi)    Depreciation, rate and methods of deprecation.

b)     Category “B” books of daily income and expenditure, which enable them to submit to the Inland Revenue Department, at the end of the year, a profit and loss statement with specification and details of the following documents within two months from the end of the annual accounting period for which the tax is due:

i)        Daily income and expenditure registration book;

ii)      The document mentioned in sub-article 1) (a) (ii), (iii), (iv) and (v) of this article;

iii)    A balance sheet, in case the tax payer shows depreciation as an expense.

2)     Before the Inland revenue Department makes an assessment the tax payers classified in Category “A” should themselves assess their taxable income and pay the tax due on time, by specifying their detailed income and expense deducing the unacceptable expenses (Article 20 hereof) from the general expense.

Article 17

1)     Pursuant to Article 23(2) of the Proclamation, deduction from gross income shall be allowed in calculating taxable income from sources chargeable in respect of depreciation of fixed assets such as buildings, machinery, furniture, motor vehicles and other movable and immovable fixed assets to taxpayers who keep balance sheet with all its supporting documents showing:

a)     The date of acquisition of the asset,

b)     The cost of acquisition,

c)      From income tax purposes, the total amount deducted, in respect of the asset since the date of acquisition.

2)     Taxpayer claming deductions for deprecation shall furnish the Inland Revenue Department with satisfactory evidence that the data mentioned in sub-article 1 hereof shown in their records are true and correct.

Article 18

1)     The annual depreciation rate of depreciation of fixed assets may normally not exceed:

a)     In respect of building: 5% of the original cost of construction;

b)                                                                                                                                                                                                                             In respect of machinery: 16% of the original cost of acquisition for the first year of the acquisition and 12% for each of subsequent seven years;

c)      In respect of furniture: 10% of the original cost of acquisition; and

d)      In respect of motor vehicles: 20% of the original cost of acquisition.

2)     In special circumstances or in respect of particular assets, the Inland Revenue Department may permit the application of different rates of depreciation allowance, provided that the Department is satisfied that the period within which said assets will be completely depreciated corresponds to their useful life.

 Article 19

Pursuant to Article 24 of the Proclamation, the following expenses shall be deductible from gross income:

1)     The direct cost of producing the income, such as the direct cost of manufacturing and trading operation, of professional and vocational activities, exploitation of woods and forests, and the like;

2)     General and administrative expenses connected with the activities of               sub-article 1) of this Article;

3)     Depreciation, subject to the provisions of Articles 17 and 18 hereof;

4)     Premiums payable on insurance directly connected with trade and business activities;

5)      

a)        Commissions paid for service rendered to licensed businesses, persons or bodies engaged in a professional or vocational occupation, provided that the said services are actually rendered and the amount paid as a commission for said services corresponds to the normal rates paid by other businesses or persons similarly situated for similar services rendered in similar circumstances;

b)          The payment made to the head office located abroad by business entity located in Eritrea as a branch for services rendered, if the said services were necessary for the business and could not performed by other persons or bodies or by the business entity itself at a lower cost;

6)     Bad debts, provided that Inland Revenue Department is satisfied that they are not recoverable and the tax payer took all legal steps reasonably necessary for the recovery of the debts;

7)     Interest paid on any sum received as a loan, whether or designated for any use in any activity where said sum is received from credit institutions approved by the Government.

Article 20

1)     The following expenses may not be deducted from gross income

a)     Expenditure which is not related to the business, profession, vocation or other similar activities or which does not generate income;

b)     Expenditure for maintenance or other private purpose of the proprietor or partner of the enterprise or other persons mentioned in sub-article 1) (k) hereof

c)      Sums withdrawn from the enterprise by the proprietor or partner;

d)     Interest on capital of proprietor, or partner used in the enterprise;

e)     Capital expenditures, including improvement and alteration;

f)        Money paid as tax, penalty or fine under the Proclamation, and any penalty or fine for breach of the law, including expenses connected therewith;

g)     Losses not connected with or not arising out of the activity of the enterprise;

h)      Losses recovered by insurance or contract of indemnity;

i)        Any type of donation;

j)        Provision or reserves except for deprecation; and

k)      Money paid as salary, wages or other personal emoluments to the proprietor or partner of the enterprise, his wife, children or dependents from whose maintenance he responsible.

2)     Any loss incurred by an enterprise in one accounting period is not transferable to another period. But any loss incurred during the first two years of operation by an investor recognized under the Investment Proclamation may be carried forward for three consecutive years. However, the Inland Revenue Department may in exceptional circumstances extend the carry over period further for one year where it is convinced that such an extension would render the operation viable.

Amendment

Article 20(2) of the Income Tax Regulations -Legal Notice No. 20 of 1995 was repealed (deleted). Legal Notice No.50/2001 effective January 1, 2002.

Article 21

1)     Any taxpayer who fails to maintain books of account and supporting documents though bound to do so pursuant to Article 16 hereof or whose books of account or supporting documents are found to be unacceptable cannot argue that he has good in stock and said goods shall be deemed to have been sold during that year such that his beginning inventory for the subsequent year shall be zero.

2)     Any taxpayer bound to keep books of accounts and supporting documents pursuant to Article 16 hereof shall maintain cost of stock only on first-in-first-out or moving average cost methods.

Article 22

The Assessment and collection of tax on income from commercial farming of persons or bodies mentioned in Article 30(2) of the Proclamation shall be identical with that of the business activities.

Article 23

The Inland Revenue Department, may where necessary delegate the powers vested to it to the Provincial Inland Revenue Departments.

Article 24

When sending the assessment to the taxpayer, the Inland Revenue Department shall notify him:

a)     The amount of taxable income assessed;

b)     The amount of tax payable under the appropriate Schedule or Schedules; and

c)      Any penalties chargeable under Article 63 through 65 of the Proclamation, which shall be shown separately.

Article 25

When the decision of Tax Appeal Commission is sent to Inland Revenue Department:

1)     If the tax assessed by the Inland Revenue Department is confirmed, the tax has to be paid within thirty (30) days from the time the Commission has decided. In such case the tax assessment notification shall not be given to the taxpayer;

2)     If the tax assessed by Inland revenue Department is changed:

a)     Tax assessment notification has to be sent again;

b)     The tax due has to be paid within thirty (30) days from the time the tax assessment notification has sent.

Article 26

The Provision of Article 64 of the Proclamation shall apply where any person or body:

a)     Fails to deposit and appeal within 30 days from the date he or it receive notification;

b)     Fails to pay or appeal within 30 days from the date of notification of a decision of the appropriate Tax Appeal Commission; or

c)      Fails to pay within 30 days from the date of notification of the decision of the court.

Article 28

These Regulations shall come into force on the date of their publication in the Gazette of Eritrean Laws.

Done at Asmara 20 July 1995

Minister of Finance

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>