Federal tax officials have begun shifting profit tax collection onto a quarterly calendar under a revised income tax law that took effect last July, converting what used to be a once-a-year settlement into a demand on business cash.

The law's authors believed that income is earned throughout the year and should be taxed accordingly. However, now on its second quarter, many businesses are feeling the squeeze as working capital is pulled out of operations right away and as confidence in the government's willingness to reconcile and refund overpayments is tested.

For federal officials, the change is part of a broader effort to raise tax and customs revenue as a share of GDP from its current single-digit level. The federal government plans to lift tax and duty contributions by one percentage point each year, aiming to bring the tax-to-GDP ratio to 11pc within four years. The amended law creates new categories of taxpayers, adjusts monthly employment and rental income tax rates, extends taxation to digital content creators, introduces a Minimum Alternative Tax (MAT), changes dividend taxation, and revises profit tax payment.

Among these measures, the new profit-tax schedule has become the flashpoint because it affects liquidity immediately.

Revenue Minister Aynalem Nigussie and an army of her taxmen and women argue the annual model created a long gap between collections and then a surge that rarely matched monthly spending, leaving the treasury short of cash. Quarterly instalments, they say, stabilise the government’s cash position and make receipts more predictable. They also argue that annual payments often arrive when taxpayers’ cash is tight because the money has already been spent on other purposes.

The federal government had a cumulative profit tax of up to 485 billion Br over the five years beginning in 2020, amounting to close to 95 billion Br a year. The share of tax revenues within the broader income and profits category was 18pc.

Businesses reject the premise that predictability for the treasury equals relief for taxpayers. Working capital is the cash that buys inventory, covers wages, and bridges the timing mismatch between sales and receipts. A quarterly tax pull accelerates money out of firms, shifting liquidity risk onto businesses, especially those that operate on credit. Meeting a fixed deadline can mean shrinking purchasing cycles, delaying inputs, or tightening daily operations.

Under the revised law, taxpayers are required to pay 25pc of the total tax they paid in the previous tax year as an advance payment. This should be paid within 30 days after the end of each quarter, starting from the month in which they are required to declare their income. Last year’s liability becomes this year’s quarterly benchmark. But it can also be blunt, detaching payments from current-year conditions and forcing firms to pre-fund liabilities before profits are actually measured.

Mintesinot Lemma is the CEO of Mintu Investment Group, which produces speciality coffee, honey, oilseeds, pulses, wheat flour, fruit juice, instant noodles and edible oil. A former President of the Ethiopian Plastics & Rubber Manufacturers Association, he depicted the approach as “cruel,” arguing that under the guise of collecting taxes, the government is stripping businesses of the working capital that keeps them operating.

"The shift feels punitive for firms that keep proper accounts and report accurately," he told Fortune.

Mintesinot's criticism focuses on quarterly payments based on last year’s results. He argues the government should strengthen oversight of accounting practices rather than impose quarterly payments keyed to past figures. He sees the policy discouraging proper accounting and punishing responsible businesses. The law's enforcement landed as other costs, such as electricity tariffs, bank interest rates, and living costs, galloped, prompting him to adjust wages and production costs.

"Quarterly profit tax payments exacerbate the strain and risk eroding confidence among factories that hire many people and seek to replace imports," Mintesinot said.