Tour operators victorious in tax controversy

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The Ministry of Finance and Economic Development (MoFED) has sided with the tour operators.

Sources close to the issue said that the Ministry office and the Ethiopian Tour Operators Association (ETOA) have reached consensus following the discussions held between MoFED officials and the association. According to the sources, the association wrote a letter to Sufian Ahmed, minister of Finance and Economic Development, to attempt to reach a compromise about accrued tax enforcement that they said went against the spirit of the export proclamation.

“The association spoke with legal experts of MoFED about the status and policies related with the issue,” sources at the association told Capital. They said that MoFED officials’ have accepted the tour operators’ claim based on the tax laws issued for export oriented businesses.

According to the sources, about two weeks ago MoFED’s position on the issue was delivered to Sufian for final approval.

The current ERCA’s accrued tax enforcement has made it impossible for some operators to renew their business licenses. However ERCA officials assured the association and the companies that they can renew their trading license while their case remains under discussion. The business owner on their part said that they were not able to obtain the renewal notice from ERCA branches.

The association and the tour operators were at several government offices over the past couple of months including Hailemariam Desalegn, Deputy Prime Minister and Minister of Foreign Affairs, who is board chairman of the National Tourism Development Forum. The latter  is made up of government officials with close ties to the tourism sector.

Certain exports are considered tax exempt although the tourism sector was not included despite the fact that it brings in a large amount of foreign currency. Then earlier in the year travel and tour companies began receiving tax bills based on the entire package they sold even though much of the money went to other service providers such as guides and hotels. Since ERCA calculated the amount owed based on the entire package offered over the years, the accrued back taxes of some companies were as high as 35 million birr.

Tour operators argued that following a  regulation introduced eight years back they had to pay VAT based on the money they actually profited after paying all other business people involved in the industry.

The Ethiopian government plans to grow tourism into a one billion dollar industry by the end of the GTP, while the tourist flow is also expected to double from the current 500,000. Experts say that the tax policy must take this goal into account.