Capital Ethiopia Newspaper

Compromise reached in tourism tax

A meeting seems to have brought the schism between the Ethiopian Revenue and Customs Authority (ERCA) and tour operators to a halt.
Since the authority demanded a huge amount of accrued tax from some major tour and travel operators, the companies and their association, Ethiopian Tour Operators Association (ETOA), have been complaining about ERCA’s request saying it violates the law.
The association and the tour operators were at several government offices over the past weeks until ERCA granted a meeting on Saturday June 30, 2012. Five weeks 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.
During the discussion on Saturday, ERCA’s special committee chaired by Nebiyu Samuel, head of Director General special office, spoke about the issue with the board of directors of ETOA.  
According to sources who attended the discussion, the authority has empathized with the plight of the association and the operators.
“The authority has accepted our claim but they did not give final dissension about the issue until end of the past week,” board members of the association told Capital on late Friday. 
The association letter written for the deputy PM was raised the accrued tax issue and tourism issues that they argue need attention from the government.
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.
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,” tour operators complained. In the past years the operators paid VAT calculated from their commission, while export oriented business are exempted from VAT.
But the current accrued VAT tax requested was calculated based on the revenue from the total tour package. “This was the main issue for operators to claim for relevant government offices,” experts in the sector explained. 
ERCA was 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.
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 ERCA accrued tax request.
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. But experts said that this government projection is not considering the sector current statues and policies that hang its development.