Two Billion Birr in Unrefunded VAT Hurting Companies

Insufficient funds and fraudulent claims are delaying payment, officials claim

A group of businesses owed a huge amount of money by the Ethiopian revenue & Customs Authority (ERCA) met this week with officials to request a speedy resolution to the issue of two billion Birr in unreimbursed VAT claims.

Large tax payers contribute more than 90pc of the revenue the country collects from tax. VAT, which was introduced in Ethiopia in 2003, is the major contributor to revenue from tax. Large tax payers are legally entitled to recover the VAT expenses they incur in the course of trading goods or services with VAT registered persons.

“The authority approved our VAT refund claim for 250 million Birr ten months ago, but they haven’t paid us yet,” a representative of a foreign construction company told Fortune on basis of anonymity. Construction companies were the major complainants about the problem.

The unprecedented increase in the VAT refund claims has contributed to the delay in resolving the demands, an ERCA official claims, as well as the time it takes for applications to be examined fully and properly.

The VAT proclamation sets that the authority should pay 25pc interest on valid claims if it fails to satisfy valid claims within two months.

The process for the reimbursement takes a minimum of six months, including the time it takes to examine reimbursement applications and give a response, according to some large tax payers.

It takes 306 hours in Ethiopia to comply with all types of taxes including corporate, employment and consumption taxes which is much greater than the 202 hours in Kenya and 216 in Eritrea, according to the World Bank’s Ease of Doing Business Index.

During the meeting, the authority stated that that it is suffering from a shortage of funds to satisfy all the reimbursement demands. Only 10pc of the collected VAT income is allocated for reimbursement purposes.

“As the officials are working hard to answer our question, we chose not to use legal action to demand the payment with a huge amount of interest,” the representative of the construction company, asking for anonymity, told Fortune.

People claiming VAT reimbursement are expected to produce invoices as evidence of their claims. Nonetheless, there are sellers of goods and services who withhold tax but do not issue invoices to buyers. Companies working with, and purchasing goods and services from those sellers (usually located in remote areas) are the majority of those being affected by reimbursement delays. Although the companies claim that they cannot request reimbursement without having an invoice, authorities respond that the companies can purchase goods and services by issuing invoices by themselves.

“There are fraudulent VAT refund claims brought to the authority. Overstatement of VAT claims make up the majority of these,” Kebede Chane, the new general director of ERCA said.

“There are companies that bring forged invoices when no payments have been made,” said Desta Bezabih, deputy director of ERCA and head of the Inland Revenue Department.

“Unethical auditors who overstate companies’ VAT return claims have exacerbated the problem,” he added.

In the current fiscal year, the government plans to collect 141 billion Br from taxes, including VAT.

By Hawaz Merawi

Published on Dec 20,2016 [ Vol 17 ,No 868]



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