Capital Ethiopia Newspaper

Despite agreement ERCA still taxing tour operators

The Ethiopian Revenue and Customs Authority (ERCA) branch offices are continuing to impose accrued tax enforcement measures on tour operators even though the authority had agreed to cease the process at a meeting held between concerned parties on June 30th.
Sources from the Ethiopian Tour Operators Association (ETOA) told Capital that in the past week some tour operators have been asked by ERCA branches to settle a huge amount of accrued tax.
A few weeks ago ERCA billed over ten Travel and Tour Companies for accrued tax calculated on 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 including interest and penalty.
A regulation that said tour operators have to pay VAT from their service commissions was ratified some eight years back. This meant that they only paid tax on the money they actually collected for their services after paying all other businesses 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.
Feeling that the imposition was unfair, two weeks ago, the tour operators with their association, ETOA, met with ERCA and settled on a compromise agreement.
ERCA’s special committee chaired by Nebiu Samuel, Special Advisor of Melaku Fenta, Director General of ERCA, had agreed to suspend the enforcement until the authority reaches a final decision on the claims made.
According to sources who attended the June 30 discussion, the committee agreed to tell branch offices to cease the enforcement measure. 
However, in the past week ERCA branch offices in Addis Ababa have asked for the accrued tax from tour operators who were not included on the first list.
According to sources at ERCA, some of the tour operators visited the director general advisor’s office late last week to discuss the issue.
Officials in the association also told Capital that the association is going to lose its credibility because of the way ERCA is handling the situation.
“We told our members that no new enforcement would take place until the issue gets a final decision from the management of ERCA,” the association official said.
The association officials were also frustrated by the delay in ERCA taking a concrete decision as per the talks held between the two sides. Mamo Abde, Tax and Customs Affairs’ Advisor of the Director General of ERCA, told Capital that the authority has written a circular for every branch office instructing them to suspend further enforcement measures on tour operators until the authority discloses a new directive for the specific sector.
“It is wrong if branch offices conducted further enforcement on additional tour operators,” Mamo added. But sources said that the association does not have confirmation that ERCA wrote a letter for its tax branches. For which he asserted that ERCA and ETOA will work together to solve the confusion.
Mamo further confirmed that the technical committee of ERCA is working to revise the tax imposed on tour operation businesses. “The final decision of the committee will be disclosed in the near future,” he said.
Since the authority demanded a huge amount of accrued tax from some major tour and travel operators, the companies and their 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 before ERCA agreed to meet on Saturday June 30, 2012.
Almost two months ago the association had also written a letter to Hailemariam Desalegn, Deputy Prime Minister and Minister of Foreign Affairs, who is also the board chairman of the National Tourism Development Forum. During the discussion on Saturday June 30 the authority empathized with the plight of the association and the operators.
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 export sectors do,” tour operators complained. “We represent one of the sectors that bring hard currency to the country and ERCA should take that into account.” 
In the past years tour operators have been paying VAT calculated on their service commission, while export oriented businesses are fully exempted from such charges. 
But the current accrued VAT requested is calculated based on the revenue from the total tour package, which was the main issue for the operators when they spoke with relevant government offices, according to sources. 
Based on the new system, operators are to pay the VAT calculated from the total revenue the operator collects without taking into account hotel, transport and entrance fee costs, they need to pay. 
The operators are not only opposing the new VAT taxation system, they also argue that requiring them to pay VAT, based on their entire fee is not legal and goes against the VAT regulation issued in 2002.
They also argue that hindering a major importer of hard currency will have dire consequences for development.
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 double from the current 500,000. But experts said that this government projection is not considering the sector current statues and policies that hamper its development.
Capital’s effort to get the opinion of Nebiu Samuel on the issue did not bear fruit.