Capital Ethiopia Newspaper

Feds seek 4 bln. birr more for capital expenditures

The Federal government has tabled to parliament a 4 billion birr supplementary budget request earlier this week. The Ministry of Finance and Economic Development (MoFED) downplayed inflationary ramifications of   the latest request which stretches the fiscal year’s budget which already suffers from a record defect.
Parliament approved a 117.8 billion birr budget with a record deficit of 17 billion birr in July.
MoFED says the four billion birr it wants to disburse is already secured by additional revenues.
Crucial amendments made to the tax law in October 2010 introduced a windfall taxation that has hit commercial banks hard. Fifteen commercial banks jointly pocketed 2.147 billion birr profit that year, in a consequence of the unprecedented 17 percent birr devaluation. Because of the devaluation, the banks suddenly found themselves with around 2.1 billion birr extra in their coffers when the foreign currency they held became stronger overnight.
With a single challenge [from lone opposition MP Girma Seifu], the federal government supported parliament decision for a windfall taxation, amending the Income Tax Proclamation [Proclamation 286/2002] to tax businesses that made profits capitalizing on changes in local or international economic or political factors.
The amendment that came in November 2010 taxes “windfall profits” including gains from currency devaluation, in the eyes of MoFED. It saw no problem in applying the law retroactively, rather controversially and has asked the banks for tax from devaluation profits of September, 2010.
MoFED subsequently issued a directive ordering banks to hand over 75 percent of the profits they made from the devaluation.
According to the Ethiopian Revenues and Customs Authority’s (ERCA) report submitted to parliament last year, the state owned Commercial Bank of Ethiopia was to enjoy over 381.3 million birr profit by the devaluation if it weren’t for the windfall taxation. However, the 75 percent tax meant the bank paid close to 286 million birr to ERCA.
Similarly, of the Development Bank of Ethiopia (DBE)  167.2 million birr gains from the devaluation, 125.4 million birr went to ERCA coffers. Another state arm, Construction and Business Bank of Ethiopia paid 15.4 million birr from a 20.5 million birr gain from the birr’s weakening.
The 12 privately owned commercial banks’ fates were similar, as they also handed out 75 percent of their gains to ERCA.
It’s from such first unconsidered sources that the feds say they have 4 billion birr more to spend for the current year.
Of the 4 billion birr supplementary budget proposal tabled on Tuesday, 3 billion would go to road projects. MoFED says the Ethiopian Roads Authority asked for 5.3 billion more for a number of road projects in addition to the 13.7 billion birr it has already received from the national treasury for the year.
MoFED only supported road projects totaling 3 billion birr, the draft supplementary budget disclosed.
One billion is to go to expansion projects being undertaken in various universities including in Addis Ababa, Ambo, Adigrat, Hossaena, Woldiya, Debre Tabor, Metu, Wolkite, Bule Hora and Assosa cities as such projects in the universities are said to suffer financially.
The House session referred the request for additional budget to the Budgetary and Financial Affairs Standing Committee, which should table back its decision in three weeks time.