Revenue Authority demands millions in back taxes as tour operators cry foul
The Ethiopian Revenue and Customs Authority (ERCA) is demanding millions of birr in accrued tax revenue from travel and tour operators.
Sources close to the issue informed Capital that seven tour operators have already been billed for a large amount of tax by the authority in the past few weeks.
According to these sources, some of the tour operators have been charged around 30 million birr by ERCA for years’ of accrued tax that include interest and penalties.
The maximum amount ERCA requested from one company is 35 million birr, and the minimum is four million birr.
The Ethiopian Tour Operators Association (ETOA), the Authority and other relevant government offices held several discussions about the new value added tax (VAT) scheme, which has already been imposed on the operators. The new VAT scheme has been calculated based on the revenue from the tour package.
“When the new taxation system was issued by the authority most of the operators complained that it was difficult to collect tax from the tour package they offered for tourists,” sources said.
One of the tour operators being asked to pay the tax said that the new vat system is already being enforced on the tour companies. “Some of the operators have been asked to pay four or five years tax arrears,” he explained.
Tour operators who preferred anonymity because of the sensitivity of the issue said that currently the association is under in discussions with ERCA to come to a solution.
“Board members of the association are negotiating with the authority,” the operators said.
“Some of the tour operator companies will dissolve if they pay the amount requested by ERCA,” sources said.
Eight years ago a regulation that said tour operators had to pay VAT from their commissions was ratified. This meant that they only paid tax on the money they actually profited after paying all other business people involved in the industry; for example the drivers, the guides and park fees.
Now, however, tour operators are being forced to pay VAT based on the total price they charge tourists.
“Based on the new system we have to pay the VAT calculated from the total revenue the operator gets without taking into account hotel, transport and entrance fee costs,” they added.
“For example if a tourist paid 1,000 dollars for the tour package, the operator has to pay 15 percent vat from that amount. But the actual commission of the tour operator company is not over 100 dollars because the tour company has responsibility to pay the hotel, transport and entrance fee for tourist destinations,” the sector experts explained.
One of the tour company owners said that he will dissolve his company if ERCA forces him to pay the tax that calculated in this manner over the past five years.
The operators are not only opposing the new VAT taxation system, they argue that requiring them to pay VAT based on their entire fee is not legal.
“The VAT payment based on the commission goes against the VAT regulation issued in 2002,” they said. They also argue that hindering a major importer of hard currency will have dire consequences for development.
“We are in one of the sectors that generate hard currency for the country. So, ERCA should take that into account,” they complained.
According to the operators this kind of tax collection is practiced in other countries to keep them competitive internationally. They say operators will be forced to charge more from tourists to make up for the VAT difference.
“If the cost increases it will discourage tourists from visiting the country,” experts said.
One businessman involved in the tourism business said that profits have not been high this fiscal year. “The economic turmoil that occurred in the West and the terrorist attack in Afar region are the main reason that tourism revenue has gone down,” he explained.
Since the beginning of the budget year the government has stopped allowing tour operators to import standard vehicles duty free.
The management of the association has declined to comment about the case as they are discussing the issue with the authority.