ANALYSIS OF TREATMENT OF THE PRINCIPLE OF NON-RETROACTIVITYINETHIOPIAN INCOME TAX IEGISLATIONS

Abstract

Taxation is a fundamental source of revenue for governments, to provide public goods andadvancing broader development objectives. These objectives are typically achievedthroughthe implementation of policies, strategies, and laws. Legislatures create laws, whichareenforced by the executive and applied by the judiciary. Since laws are intended toguidehuman behavior by setting standards for conduct, they are generally expected to be inplacebefore compliance is required. To fulfill this purpose, laws should operate prospectively, governing future actions rather than retroactively af ecting past behavior. This principleisencapsulated in the doctrine of non-reactivity, which asserts that new laws or legal decisionsshould not apply retroactively, undermining the right to legal certainty and legitimateexpectations built upon prior law. Although retroactive taxation can serve important government interests, there are compelling reasons to impose restrictions. It candisrupt legitimate expectations and undermine trust in the stability of legal frameworks. In Ethiopia, except for criminal legislation, no clear limitations on the retroactive application of incometax laws. Despite the presence of retroactive legislative practices, Ethiopian tax laws remainsilent on the issue. This doctrinal research investigates how non-reactivity is addressedinEthiopia’s income tax system. The paper recommends that retro activity in incometaxlegislation be expressly justified and subject to limitations to balance the government'srevenue needs with the legitimate concerns of taxpayers regarding the uncertaintyandunpredictability of retroactive tax laws.