Capital Ethiopia Newspaper

Public-Private tourism talks to address taxation issue

A special committee of the Ethiopian Revenue and Customs Authority (ERCA) will meet and talk with the tour operators association about the issue of accrued taxation. 

The ERCA committee, formed to evaluate the claim of tour operators being billed for millions of birr in accrued tax by the authority over the past few weeks, has called the Ethiopian Tour Operators Association (ETOA) board after complaints from the association.

According to sources, the committee chaired by Mamo Abdi, Tax and Customs Affairs adviser of Melaku Fenta, Director General of ERCA has talked with association officials about the controversial action.

A month ago the association wrote a letter to Hailemariam Desalegn, Deputy Prime Minister and Minister of Foreign Affairs, who is board chairman of the National Tourism Development Forum, which is made up of government officials with close ties to the tourism sector.

The letter raised the accrued tax issue and tourism issues that they argue need attention from the government. Sources said that the association members have also orally explained the issue to the Deputy Minister.

“The issue received federal attention after we informed the Minister and other ERCA officials,” sources explained.

Recently, ERCA requested a high amount of accrued tax from some of the major tour operator companies, while most of them have argued against the authority’s request on the grounds that it is against ERCA regulations.

In line with export promotion initiatives of the government, most sectors engaged in export businesses enjoy tax exemption privileges, the draft report explained. “The Ethiopian tax proclamation, article 7, 2, a, states the export of goods and services to the extent provided in regulations shall be charged with tax at a rate of zero percent. However, the tourism sector does not enjoy the same privileges as others of export sectors,” the report added.

Currently, ERCA has billed over ten travel and tour companies for accrued tax calculated from four to five years in arrears. This accrued tax is calculated on the new VAT scheme for the sector.

The maximum amount ERCA requested from one company is 35 million birr, and the minimum is four million birr accrued tax that includes interest and penalty.

ETOA, the authority and other relevant government offices held several discussions about the new 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.

The current issues related with tour operators was the main reason for discussions organized by the Ethiopian Public Private Consultative Forum on Thursday June 28. At the end of July there will be a public private dialogue about the tourism industry with Federal officials.

During the discussion most of the participants labelled the current system double taxation. The draft report that will be presented during the public private dialogue at the end of July argues that this tax system will crunch the tourism industry in Ethiopia. The draft report, presented by Theodros Atlabachew (PhD), travel and tourism consultant, explained that the taxation system is making it difficult for Ethiopia to compete with other tourist destinations. Dr Theodros recommended that the government o endorse minimum VAT taxation for tourism business.

“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.

Tourism operators say if they have to pay the accrued tax companies will dissolve. “It will destroy tourism in Ethiopia,” one operator said.

According to sources, one of the prominent tour companies, Hadar is a victim of the accrued tax. Atnafu Bezuneh, owner of Hadar, told Capital that he is waiting government’s final decision.

“But now we are still in the business and we hope that we get positive resolution from the government,” he explained.

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.

Now, however, tour operators are being forced to pay VAT based on the total price they charge tourists.

According to experts, based on the new system operators have to pay the VAT calculated from the total revenue the operator gets without taking into account hotel, transport and entrance fee costs.

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 brings hard currency into the country. So, ERCA should take that into account,” they complained.

The Ethiopian government plans to grow tourism into a one billion dollar industry by the end of the GTP from the current close to a quarter billion, while the tourist flow is also expected to be double from the current 500, 000.