The extent of the tax burden is one factor the private sector considers in deciding to expand, quit or move on to another industry. The Ethiopian government implemented a series of reforms in the past two decades to create and run an efficient tax collection system. This year, the government deducted tax rates, reduced presumptive taxing days and resolved last year’s complaints from category "C" taxpayers. Yet business owners still complain about the taxing system, writes BEHAILU AYELE, FORTUNE STAFF WRITER.
For Shetu Mentamo, a category “C” business taxpayer, the past week has not been one that she would elect to relive. She had to visit the city’s tax offices for three consecutive days just to pay her taxes.
“On the first day, I went to the revenue office in Yeka district, Woreda10. I waited in a long queue for a full day only to be told that they’re done for the day,” she said.
The second day she was just as frustrated.
“I waited for hours on the second day as well, before I was told that they had moved my file to another branch,” she tells Fortunefuriously. “I was finally able to pay on the third day.”
The period between the month of July and the first week of August is when category “C” business taxpayers settle their annual taxes in their respective woredas.
In this category, businesses with annual revenues of less than half a million Br are classified. Other categories include category “B” business taxpayers, which are business with revenues between half a million and one million Br, and category “A” taxpayers are businesses that exceed the one million mark.
Shetu Mentamo’s tax classification accounts for 65pc of the 340,520 or so taxpayers in Addis Abeba and makes up 58pc of the 3.3 billion Br collected in the past three weeks.
She is not the only taxpayer inconvenienced trying to pay their taxes. Abdu Mola, who owns a kiosk in Sidist Kilo, says that he was asked to pay more than the amount he paid last year.
“Last year, after the reassessment, a taxation scheme under the regime of presumptive taxation, I had filed a complaint that successfully halved the 11,000 Br tax I was initially assessed,” Abdu says. “I had been informed by the authorities then that the value will not change until another assessment has is made.”
Last year, category “C” taxpayers had undergone a reassessment of their annual returns, which was the first in six years since 2011. This had brought complaints from business owners who claimed that they were being taxed unfairly. There has not been a reassessment on the merits of the readjustment of tax rates this year.
Other taxpayers do not share Shetu’s and Abdu’s frustrations. Tigist Woldegebriel, a 30-year-old owner of a hair salon, is one of those.
“It took half an hour for me to settle my taxes,” she said. “The ensuing years between assessments are usually not as troublesome, but they seem to be more efficient this year.”
Adane Gebreegiziabher, Addis Abeba Revenue Authority’s communications team coordinator, said the contrasting experiences between taxpayers has to do with a lack of awareness about the tax system and proper dissemination of information.
To combat this, the Authority has employed awareness creation campaigns on television and radio broadcasts, according to Adane.
The Authority has also introduced a Customer Charter, a written policy that communicates the services that taxpayers are entitled to. Based on the Charter, the amount of time that the delivery of each business takes is rated. The Authority claims that it has fulfilled 71pc of the Charter’s prerequisites.
“There is still room for improvement. The government is working to improve this,” said Yosef Shiferaw, customer service director at the Ethiopian Revenues & Customs Authority.
The City’s Revenue Authority has 14 offices to coordinate the tax collection system in 116 weredasacross 10 districts. In the last fiscal year, the Authority collected 27.3 billion Br in taxes, reaching 87pc of its target. It projects that it will collect 34.5 billion Br this fiscal year.
Since the early 2000s, Ethiopia has adopted a series of tax reforms to streamline and simplify the tax system, such as the reduction of tax rates, to broaden the tax base and modernise the revenue collection process.
The major changes were the introduction of a Value-Added Tax, biometric technology based taxpayer identification numbers and presumptive taxation for category “C” taxpayers.
The last change was introduced a decade ago to address businesses that use no form of accounting and don’t even measure the volume of their sales. The tax law asserts that assessments must be taken every three years. Nonetheless, it took six years for assessments to be made after 2011.
In July 2017, the year a reassessment was implemented, around 18,000 complaints from category “C” taxpayers were registered. There was also a strike by business owners who felt that the new assessment was unfair.
“We have resolved all of the complaints,” Adane told Fortune.
Ever since the main branch office in Addis Abeba was endowed with full tax authority, answerable only to the Mayor of the City, taxpayers claim the process has become less cumbersome. Under this arrangement, middle and small level taxpayers are the only taxpayers that fall under the City’s revenue authority. Large taxpayers in category “A” must still report to the federal tax collector, Ethiopian Revenues & Customs.
The federal body is mandated to collect domestic taxes as well as customs duties. It came into existence in July 2008 after the merger of the former Ministry of Revenues, the Ethiopian Customs Authority and the Federal Inland Revenues.
It has 32 field offices, two of which are used to coordinate its customs duties located at Djibouti and Somaliland ports.
The Authority understands the problem taxpayers face, said Yoseph.
“The number of offices are highly disproportionate to the number of taxpayers,” he added. “The tax regime is under continual reform. We’ve just finalised a new study to address a restructuring of the categories.”
Based on data collected between 2014 and 2016, the study classifies middle and small level taxpayers in three categories with the aim of streamlining the system.
Online tax filing was introduced in 2011, and an e-payment system has also been rolled out recently.
“We’re trying to make the system more accessible to taxpayers,” Yoseph added.
Experts note that although there have been some reforms, they have not been holistic enough to ensure efficiency.
“The federal authority tailors how taxes are collected, which often is not in keeping with how small businesses operate,” Yohannes Woldegebriel, a tax law expert, told Fortune. “The city should develop its own strategy to help it address such businesses more efficiently.”
The inefficiency also lies with the available human resource, according to Shitu. “I was never informed when my file was moved, nor was I given a clear direction on what procedure I have to follow”, he said.
“I could have finished paying my taxes in a few hours, instead of the three days that it took me,” Shitu demurred.
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