Of tax and assessment: Do TPLF companies pay the right level of taxes?

8 Jul

Editor’s Note:

    An expert familiar with Ethiopian tax system and laws thereon tell the Reporter he did not believe the tax officials have used the proper measures. This may be because ERCA’s primary concern is raising revenue, no matter what so long as it is high.

    In Ethiopia tax is a political instrument and that the TPLF may be aiming to break the spirit of helpless citizens?

 
Posted by The Ethiopia Observatory (TEO)
by The Reporter
 
The past few weeks have been hectic for the Ethiopian tax administrators. All week around, they have been under fire due to the recently completed daily income tax assessment for business with annual turnover less 500,000 birr. Most small and basic trade and business activities in Ethiopia fall under this taxation category aka Category “C”. And, certainly, many people found themselves rejecting this daily income estimation and the associated tax levy, writes Dawit Endeshaw.

Mulu Meleka is a 60-year-old trader who established her retail business five years ago following the Addis Ababa city’s initiative to organize unemployed domestic workers and help them to set up small businesses mostly in petty trade activities.

She is among thousands of Addis Ababans who are raising their voice in resistance to the recent business income tax assessment and daily income estimation. Close to 145,756 businesses are said to be a part of the recent assessment.

For the past couple of months, the tax authority has been working on something which will significantly restructure the way the lower tax payers aka category “C” taxpayers will be paying their tax returns.

For the past five years, she has been selling ingredients like hop and malt commonly used in brewing Tella (a local beer). Her two meter by two meter size shop is among 520 similar shops located in wereda 12 of Bole Sub city, in an area also known as Bole Bulbula.

The market area where Mulu’s shop is located seems to be isolated from the rapidly growing Bole Bulbula neighborhood. Situated very close to the Bole International Airport, Bole Bulbula is now changing and attracting many real estate companies and individual developers.

Unlike the expensive and uniform houses being constructed nearby, the market place where Mulu’s shop is located seems to be very disorganized and isolated.

Despite the rather dormant atmosphere in this market, the recent presumptive tax assessment project has caught the 520 shops located in the area by surprise.

These days it is difficult to see people coming to the market, a police officer patrolling the area said.

This area is evolving to one of the upscale neighborhoods in the city, he explains. “Most of the inhabitants purchase their goods and services from supermarkets”.

One can easily see the wide discrepancy between the market area and the very luxurious real estate properties being built in the area.

Mulu, a mother of four, could not describe the situation without shading tears.

According to her, tax assessment officers had informed her that her tax returns will be calculated on the estimated average daily income of 1,450 birr recently. In general, Mulu will owe the tax authority a hefty sum of 10,000 birr a year.

When The Reporter visited the market place in Thursday afternoon, it was received with very emotional and agitated traders wanting to sound their grievances.

It is not like we are resisting paying our tax obligations, Abera Tessema who sells sandals and plastic shoes in small shop in the market, said. We have been doing that for years.

“But this one is just ridiculous; it is beyond what we are making,” Abera said.

“The estimation of our daily income did not put into consideration the location and the demography of the area,” he said.

Given his business and its size, Abera has been paying 400 birr yearly tax for the past five years. Now, his tax dues have grown by leaps and bounds.

It has been a couple of months since then tax officials of the city announced that they will introduce a new assessment.

Since then 1,909 individuals, comprising of people with background in finance, trade and tax swarmed the city and began the assessment.

There are three groups of committees at city, sub city and wereda levels which will be directly involved in the income assessment and tax determination. The main committee is chaired by Mayor Driba Kuma.

It is based on this assessment that the city has finally started to notify traders about outcome of the assessment and where they will in fall in the Category “C” income tax schedule.

When the assessment is done the city officials were accusing some of the traders of allegedly hiding their stocks to evade the estimation of their daily income and the tax they will be paying in process.

The hide and seek saga has finally ended with a frustration and mass complain regarding the estimation results.

A directive number 123/2017 which was introduced just a month before the launch of the assessment has indentified some indicators which are to be considered by the assessment committees.

According to the directive, the estimation should take into consideration the traders’ daily income, the location of the business, the type of buyers, the demography and the composition of types of businesses in the surrounding area.

The directive further listed things that should be taken into consideration when assessment is done in accordance to each type of business. Things like, the amount and size of stock are among the main indicators.

“Look! It is just hop and malt that I am bringing to the market; and I am told that I earn 1,450 Birr, a day,” Mulu said.

During the assessment, Mulu said, she gave to the assessing committee all the necessary information which was required to accomplish the task. Among other things, she told the assessing committee that she earn 25 birr, per day.

However, to her dismay, the tax assessment team has notified her that it has found out that she earns way more than 25 birr.

Turuwork Abebaw, a returnee from Bahrain, also shares her friend’s (Mulu’s) frustration.

Involved in retail business of different household materials, Mulu was told to pay 10,400 birr a year.

This forces Mulu and Turuwork unlike the previous trend to use cash registration machine, pay value added tax (VAT) as well as turn over tax (ToT).

Not to mention Abebech Gerbre Michale’s emotional testimony who say she spent half day at wereda offices to submit her complain over what she said is a very exaggerated conclusion of the tax assessment team.

Her effort to submit her complains however failed because she said there was no one to receive the complaints.

So far traders across the city are organizing themselves into small groups and filing their complainants to the concerned public offices.

However, the city officials have announced this week that it is not allowed to file or reflect grievances in groups.

If people had complains, we can only treating them individually, Nestanet Abera, deputy director for Addis Ababa tax program department, said.

“No one is allowed to come to us en-mess,” she said.

During a media brief she was explicitly asked by The Reporter if this statement violates group rights provisions prescribed in FDRE constitution.

“This has nothing to do with the constitution,” she lamented.

“We assess and evaluate the tax payers individually and if they have a problem they should come to us individually,” she explains.

The last and similar tax assessment and estimations was done six years ago. Back then, the similar resistance was observed across many sectors.

Tadesse Lencho (PhD), an expert in Ethiopian tax system with a vast experience in the area, criticizes the way assessments and estimations are conduct in Ethiopia.

This should not be something that has to be done in one day, he said. There has to be extensive background work before such estimation is done.

“The methodologies employed should be very scientific to narrow down the margin of error, he explains.

According to Tadesse, yet before the assessment, they were supposed to establish consensus with the business community regarding the methodology they will use to make the estimation as well as the indicators to be used.

“I don’t think they have not used it rightly; unless all these people will not have opposed them, he said.

ERCA’s primary concern seems to be raising revenue, Tadesse said.

For the coming fiscal year, the city has planned to collect 26 billion birr revenue from taxes. It is to be recalled that last year, Ethiopian Revenues & Custom Authority has collected 129.6 billion birr which was 18 billion birr below its plan.

“If their methodology remains unscientific and the public resistance continues, I expect the politics to play its role,” Tadesse said.

The tax officials may receive a call from the political office, he said. This might force them to retract some of the assessments, he predicted.
 

Related:

ትልቁ የኢትዮጵያ ‘ፌደራል’ በጀት ድክመቱ፣ገጽታዎቹና ውስብስብ ችግሮቹ
 

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