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4 Mekelle U. L.J. 108 (2016)
The Use of Control Test in the Classification of Taxpayers into Employee and Independent Contractor: A Comparative Study on Workers of Higher Education Institutions

handle is hein.journals/mekeulj4 and id is 114 raw text is: 

The Use of Control Test in the Classification of Taxpayers into
Employee and Independent Contractor: A Comparative Study
            on Workers of Higher Education Institutions
                                                                  Zerihun Asegid*


This Article seeks to show the gaps in the classification of taxpayers into employees and
independent contractors on the basis of control test in Ethiopia. Since the tax
jurisprudence of Ethiopia is not yet fully developed, it explores how the test is defined
under the Ethiopian Income Tax Proclamation, interpreted by subordinate directives and
implemented by the tax administration through the lens of USA and Canadian tax
systems. The Ethiopian law shares commonality with the USA and Canadian tax systems
in defining control test as the power to decide the means and manner of performance of
a work. As such, !f the power is exercised by a client, the worker is treated as an
employee. If not, the worker is an independent contractor for the purpose of income
taxation. However, due to the ill-formulation of the interpretive directives, the
Ethiopian  tax system   departs from  the two tax systems over the indicators of
control/power. The USA and Canadian tax systems weigh out the existence or degree of
control in light of the nature and type of services performed by the workers. Accordingly,
services that involve substantial discretion of workers in their performance are classified
as have been performed by an independent contractor and vice versa. In Ethiopia, on the
other hand, the interpretative directives introduced    a  full-time or part-time
employment' criterion as the sole indicator to evaluate the [non -]existence of control in a
given circumstance. The criterion whether the worker is full-time or part-time employee
of the client does not identfy the one who directs the methods of performance of a given
work. It only shows the amount of time spent by the worker at a work place. The writer,
therefore, argues that the definition of control test under the Income Tax Proclamation is
not interpreted properly by the subordinate directives. Since the tax authorities and
withholding agents rely on the defective directives, the practice is marred by fairness and
income characterization problems, as it classifies workers of higher education institutions
in the wrong category and brings incorrect application of the income tax schedules for the
various financial gains the workers make.

*Lecturer in Law, Wollo University, School of Law; LL.B (Haramaya University); LL.M
(Mekelle University); E-mail: zerihun78@gmail.com. The author is grateful to Mulu
Beyene, Mebrahtom Fitiwi and the anonymous reviewers for their helpful comments on the
draft of this Article.

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