It does not matter who the constituents of a country turn out to be, how liberal or conservative the government is, whether or not it adapts a more authoritarian or democratic stance – taxes are here to stay.
Some political groups, Libertarians mainly, have argued that taxes are unnecessary and that it is possible to stock the treasury through different means. There is some truth to the statement; there are indeed countries where personal income taxes are exceptionally low or non-existent – so called tax havens – like The Bahamas or Switzerland. But Ethiopia is not Switzerland, Ethiopia is too resource poor, overpopulated and unproductive to remain casual about tax collection.
The Revolutionary Democrats have never referred to themselves as libertarians, so they have never had any qualms levying the citizenry. They claim, and they are correct about this, that they need to collect money for defence, education, healthcare, pensions and employment, to take care of the preternaturally exploding Ethiopian population. Most importantly, over the last two decades, the state has added a mammoth balance sheet to its puny bankroll – infrastructure bill.
Lofty ambitions of a middle-class status by 2025 have been abated by tax revenue, but other sources have been just as crucial, if not more. Developmental loans have become so high that the state currently owes half of its annual gross domestic product (GDP) to public debt, and about a third of it to foreign debt. Exports have increased in volume but not in earnings; in fact, reports suggest that it is sometimes outperformed by money earned from remittances. And then there is aid money.
Such foreign dependence is dangerous. It is hard to anticipate what may occur tomorrow; geopolitics has too many faces. A smart North Korean defector once remarked that there is no such thing as eternal friends or foes when it comes to international politics. Aids and loans could just as easily metamorphosize into leverage or bribe money with a donor country’s subsequent political administration.
The Ethiopian Revenues & Customs Authority (ERCA), whose task is to collect taxes, is one government body that is supposed to ensure against such foreseeable calamities. But ERCA’s pockets have not beefed up, even as GDP is growing. A reassessment, the tax authority postulated, was in order as the country’s economy had substantially transformed since then.
A spotlight was cast over taxpayers whose incomes are not recorded in any book of accounts, the majority of whom are small businesses. The federal government identifies them as category “C” taxpayers because such enterprises usually have a yearly turnover that is under half a million Birr. The method by which they are taxed is called presumptive taxation.
Assessments have taken place every three years until 2011. An assessor is dispatched to a certain commercial establishment that does not keep records of its accounts. He or she estimates the daily income of the shop and the overall cost it takes to run the business. The profit margin that has been arrived at will serve as the basis for the tax estimates that will be imposed thereafter.
The last assessment took place in 2011, and category “C” taxpayers have since been levied based on those estimates. A reassessment took place a couple of months ago. The resulting estimates proved massively unpopular, with many businesses alleging they do not make anywhere near as much as the assessors’ claim.
In fact, many retailers were so outraged they closed up shop, suspending their businesses on a temporary basis. ERCA had actually set up stations in over a hundred Weredas around the city and announced that taxpayers could appeal to the Tax Appeal Commission if they were discontented by the estimates and preferred to challenge them. People must not have heard.
Or maybe everyone did hear but did not believe solutions can be arrived at through a government body. No one can fault businesses for being sceptical of the city administration. They have been let down one too many times. Remonstrations over the unfriendly nature of the business environment in Ethiopia are not new by any measure of the word. The nation’s economy has great capacity to grow in leaps and bounds but is too immutable as a result of short-term policies, institutional bureaucracy and the lack of incentives.
The past year had brought the state and its populace to a standstill over similar issues of misrepresentation and distrust. Demonstrations and riots gripped the country in ways never before seen since about a decade ago with the general election of 2005. After years of playing dress up with the outside world, a shadow was cast over a carefully structured facade of political stability.
An atmosphere of calm descended upon the nation relatively quickly after the government declared a state of emergency, the kind of calm the Revolutionary Democrats would like to preserve for at least some time. Promises were made, ministers reshuffled, and a 10 billion Br fund approved for the youth. The state is obviously trying to work its way into the hearts and minds of the citizenry much the same way it did with the Grand Ethiopian Renaissance Dam – a game plan mighty hard to execute at a time when taxes need to be increased.
After reading the new Constitution of the United States, Benjamin Franklin wrote, “In this world, nothing can be said to be certain except death and taxes,” alluding to the peculiar nature of a government’s seeming inability to function without the latter.
The basis for the conflict that had led to American independence and the new Constitution was taxation without the right to elect representatives within the British Empire. The new government had delineated its democratic values at every turn pledging egalitarianism, freedom of the press, quadrennial elections, decentralisation and much more. But as Franklin noted, though the government vowed to represent, it never promised to cease to tax.
Taxes are tough laws to carry out in any country, let alone in one with a government that lacks transparency. It is basic human nature not to want to be levied. All governments, much like that of the US’s, should understand this naked truth.
The case of category “C” taxpayers, their outcry, is rocking the government’s boat. On the one hand, they want to avoid any indications of a public unrest, and on the other, grow the state’s coffers.
This is a case in point of the dilemmas of all bad governance. A long term solution would be to increase transparency, encourage innovation, create awareness about the tax system, give credence to legitimate complaints, and impose the new estimates since 2011 assessments are obviously dated.
A short term solution would be to let the unpopularity of the reassessments get the best of them, fail to impose legitimate tax estimates because they are afraid it would unwind the status quo and stutter when China asks for its money back.
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