The Ethiopian Revenues & Customs Authority failed 29 billion Br short of its target for tax collection which was 162.1 billion Br, in the first nine months of this fiscal year. Some feel as if the Authority is easing its frustration by putting the burden on taxpayers in orfer to have better performance, reports YARED TSEGAYE, FORTUNE STAFF WRTIER.
The long-serving CEO of the African Insurance Corporation S.C (AIC), Kiros Jiranne, is finding dealing with the Ethiopian Revenues & Customs Authority (ERCA) a hassle.
For months, the 24-year-old insurer has been at loggerheads with the Tax Authority after a letter it received on May 2018, that compels it to settle its expired customs guarantee bonds.
Customs guarantees are issued to the Tax Authority to guarantee the applicants obligations when temporarily importing goods. The amount that has accrued at AIC from 2007 to 2014, until such guarantees were halted four years ago, is worth 249 million Br.
Africa was one of the 17 firms in ERCA’s list, which were compiled to settle close to a billion Birr from expired guarantee bonds. To collect this amount, ERCA notified the insurers via a letter requesting the settlement.
Later, it started confiscating vehicles owned by these insurers and seizing their bank accounts. One of the victims of this move was Africa Insurance, whose accounts in four banks were frozen for 10 days upon the request by the ERCA.
“We have now taken the case to court. They should have carried out their duties properly and collected the due amounts within 180 days of provision,” Kiros told Fortune.
The amount has since been reduced to 71 million Br, back in early June – an amount that still does not satisfy the management of the insurer that netted a profit of 35.4 million Br in the last fiscal year.
This friction with the Authority and taxpayers was up for discussion at the former’s premises around Megenagna on June 14, 2018, where level “A” taxpayers, with an annual turnover of one million Birr, were invited.
One of the attendees was Badege Kebede, general manager of Walia Steel Industries Plc, a company that imports hot and cold rode coils from China, Ukraine and Turkey and produces hollow sections, LTZ profiles, and sheet metals. The company has been in a court battle with the Authority for more than a year over tax worth 50 million Br.
“You have to treat the ERCA tax auditors well for you not to pay over what you gained,” Badege said.
Yewuidar Gebeyehu, an engineer, says that she has been asked for more than half a million Birr for pick-up tracks she imported seven years ago under a tax-free scheme.
“ERCA is easing its frustration by putting the burden on us,” she says, “we cannot continue being the victims of this unhealthy tax system.”
These two instances are part of the 977 complaints received by ERCA in just two of its branches in Addis Abeba this half year.
“We don’t want to be the enemy of the taxpayers,” Netsanet Abera, deputy director general at the Authority for Domestic Tax Revenue, said. “We cross-check and try to be as fair as possible in levying taxes; we also take complaints seriously.”
The Minister of Finance & Economic Cooperation (MoFEC), Abraham Tekeste (PhD), showed similar frustration, but with tax revenues than the Authority itself, while tabling the coming fiscal year’s budget to parliament. He indicated 50 billion Br of the planned 230 billion Br for this fiscal year might remain uncollected.
A poor tax administration system and a narrow tax base are some of the reasons for the shortfall in tax revenue, according to Abraham.
The next budget proposal stands at 346.9 billion Br, out of which the government targets to collect 235.7 billion Br, almost 90pc of this from tax revenue by the federal government.
As the current tax system is unworkable, getter reforms are inevitable this year, according to Gayim Yibrah, Customs Performance & Support Directorate director at ERCA.
In the first nine months of this fiscal year, the Authority failed 29 billion Br short of its 162.1 billion Br target for tax collection. This fits in with the trend observed over the past couple of years, where the tax-to-gross domestic product (GDP) ratio has been lower than what the second edition of the Growth & Transformation Plan (GTP II) targets at a 17.2pc. Last year was the lowest in three years at 11.6pc, against a target of 14pc.
Incentives worth 34.2 billion Br have likewise been afforded to investors in this year’s first two quarters, showing a 7.4pc decrease from last year in the same period.
“We have identified through a study that tax incentives are not being used for their intended purposes. We have formed a directorate for just this purpose, which commenced operation back in January,” said Gayim.
For Yohannes Woldegebriel, who has had a vast experience an Ethiopia’s tax system, a lack of skilled human resources and a narrow tax base are the culprits.
“ERCA is burdening existing taxpayers as a result of poor revenues,” he argues.
In the past nine months, ERCA relieved 20 of its employees from duty on allegations of corruption and misconduct.
Amongst the reforms needed are the tax audit system, data collection and tax administration, according to Abraham.
For a year the World Bank and UK’s Department for International Development have been supporting the government by opening a “Tax Transformation Office,” which will aim to enhance capacity, and will present a report to the Prime Minister’s Office every two months.
In a bid to better the tax administration system, seven regulations on the income tax proclamation and additional 14 on the tax administration proclamation are also under review, according to the nine-month performance report of ERCA this fiscal year.
“Lack of tax revenues is a policy issue. There need to be independent tax auditors if results are to ever abound,” says Girma Seifu, former member of Parliament representing and leading opposition, and served as chairperson of the Budgetary & Finance Affairs Standing Committee of the parliament between 2010 and 2015. “The reforms, which are underway, must not be merely politically motivated, but ought to consider the long-term effects.”
The Authority was formed after the merger of the Ministry of Revenues, the Ethiopian Customs Authority and the Federal Inland Revenues on July 7, 2008. The Ethiopian tax system has been around since 1991 and has three broad categories: taxes on profits and incomes, taxes on goods and services (including excise and sales tax) and customs tax.
Over the years there have been institutional reforms to enhance the government’s capacity for tax collection. The income tax proclamation, the excise tax proclamation in 1999, the introduction of value-added tax (VAT) and customs tariff in 2003, stamp duties in 1998, and withholding tax proclamation in 2001 are some of these.
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