The Ethiopian Revenue and Customs Authority (ERCA) is zooming its lenses more scrupulously than ever before as clients across the city claim that business owners are not giving out valid Value Added Tax (VAT) receipts after customers pay for items.
Complaints have reportedly come in from supermarkets to cafeterias, from night clubs to butcheries, from bars to restaurants across the city.
As usual Merkato is still getting much of the scrutiny. The authority claims that Merkato is the biggest tax black hole in the country. Out of one hundred traders in this part of the city, only 25 of them pay the correct tax amount, the authority argues. ERCA also claims that even when people try and pay the tax they owe there is still a lot of inconsistency. Merkato is home to 18,000 legal businesses and 8,900 illegal businesses according to information obtained from ERCA. The authority hopes to increase the number of legal businesses to 22,500.
To implement what is being called the Merkato project, the authority is in the process of opening two large tax offices which can accommodate close 1,000 employees and 10 tax collection centers. Merkato is the largest trading center in the country. It is estimated that 50 percent of the country’s financial transactions are conducted at Merkato.
“Traders in Merkato know their clients very well. Because they have frequent contact with business people throughout Ethiopia, they learn which person needs a Value Added Receipt and which one does not. Thus, they can adjust their prices accordingly. If you happen to be a new customer, you will not find any commercial commodity traded underground. They will simply tell you that they are out of stock. It is very difficult, if not impossible, to legalize business activity in Merkato,” argued a businessperson who talked to Capital on condition of anonymity.
Addis Ababa is a 125 year old city and occupies over 56 thousand hectare of land. It is home to more than three million inhabitants and is the political, economic and social capital of Ethiopia. It is divided into 10 sub-cities made up of 114 Weredas.
There are 230,000 taxpayers in Addis Ababa according to ERCA, and the city administration has collected 2.47 billion birr in the last fiscal year from direct tax which includes business income and rental income taxes. Salary income tax alone raked in 1.76 billion birr while 135.5 million birr came from rental income. Individual business income tax has brought in less than one third of what salary income taxes did; a paltry 525.5 million birr. The administration also raked in 1.49 billion birr from indirect tax of which 557 million birr came from municipality services.
“The above statistics clearly demonstrates a mismatch in the distribution of tax payments. It also clearly pin points that the burden of tax is heavy for employees whose income is easily known from the payroll of the employer. This means the haves are not carrying the burden of tax. This is possible because those with resources can take advantage of many loopholes to hide their income unlike the have nots; such is the case with fraudulent receipts,” argued an expert.
“The government loses both the VAT payments and the business income tax that could be collected from sales income. All such malpractice exists simply because there is civic neglect. Every consumer has to demand a receipt up on payment, check for the day and time and then tear it apart. That would really prevent such malpractices across the board,” the expert exclaimed.
Twenty three year old Selamawit Fikru claims that she has experienced receipt mismatches outside Merkato.
“In many cafés, restaurants, bars and night clubs I paid a visit to, I found receipts mismatch. They provided me with a receipt they had issued early in the morning for a service provided late in the afternoon. They did that simply by matching the item consumed. Since most consumers including me do not pay attention to the time and day printed on the receipt, we simply pay. Such actions create room for scams both on the client and the government. The client pays VAT that goes to the pocket of either the waitresses and their colleague or owner,” she argued.
“We know that there is a problem with receipt provisions. We are working very hard to solve it. However, we can not solve the problem related with illegal trading on our own. We need the support of legal traders in particular and citizens in general. Together, we can solve any problem,” said Anteneh Tesfaye, Team leader of the Sales Register Machine Administration and Implementation of ERCA.
ERCA needs 13,464 employees. Currently, it is carrying on its operation with 7,423 staff alone. This represents 55.1 percent of its human resource requirement. The authority has employed 619 fresh graduates who are currently being trained and 615 experienced ones during the last six months of the budget year. In the mean time, 237 employees left the authority. Out of the total number of employees who left authority, 65 of them were dismissed for disciplinary cases, 157 for personal reasons and 15 passed away.
The federal government had been netting over four billion birr every month last year, another sign that reforms undertaken by the authority are evidently bearing fruit. Thirty six billion birr was for example; the intake of ERCA in the first nine months of last year, a figure that was more than the total revenues of the federal government a year earlier. The latest performance is about six billion birr while duty free privileges reach more than two billion birr, during an average month.
The federal government is further pushing for more money based on the five year economic plan of the country; ERCA is tasked to fourfold the latest tax and nontax related revenues to 150.6 billion birr by 2015. One hundred billion birr is the goal set for the next fiscal year. Consecutively, 123.9 billion birr and 150.5 billion birr are the last two year’s goals outlined in the five year strategic plan that dusks in 2015.
Despite its move to increase the contribution of domestic income into the national budget, ERCA has given duty free privileges to strategic investments exempted from custom duty and diplomats amounting 12.3 billion birr in the past six months of the Ethiopian fiscal year, up from last year’s 11.3 billion birr. It represents 35.3 percent of the 35.1 billion birr the authority raked in the form of tax and custom duties in the first half of the current Ethiopian budget year.
All the people Capital talked to unanimously agree on one thing; VAT collected from consumers should go to the government coffers so that Ethiopia can finance its development projects on its own. To see a self financing Ethiopia, civic neglect has no room, they argued.