Hidat G/Egziabher, 23, works for a tourism company as a clerk. Apart from her other duties, she routinely handles matters concerning the Ethiopian Revenue and Customs Authority (ERCA) for the company. Most of the time, she goes home very tired as she has to go through the Authority’s haphazard processes including lining up two to three times to conclude just one issue. “That is when things are okay and you or your colleagues haven’t forgotten anything, what with the frequently changing rules and regulations of the authority,” she said.
“They have a very rigid and stringent process which is a burden for businesses and their employees,” she informed Capital. “Even with the computerized system that they have started using recently, things haven’t changed for the better; in fact it is creating problems for us.” She added. In order to modernize the tax system, the government has taken various measures, including the implementation of a Tax Identification Number (TIN No.) which is a requirement, together with an introduction of biometrics and electronic sales register machines, which are to be used by categories A and B taxpayers. It also has established a satellite tax office in Merkato, the biggest open market in Africa, to closely monitor and follow up on taxpayers who are suspected of not complying with the rules and regulations governing tax payment. Furthermore, it has implemented a pilot program using an electronic filing system for a selected number of tax payers for a long time now and also set up a Value Added Tax (VAT) system. However, complaints that the Authority is hindering the flourishing of businesses and enterprise development by making the lives of business people and employees miserable, is rampant. The system for paying tax is so arduous that it doesn’t invite locals or foreigners to do business in Ethiopia, in fact contributing to the lowering of the country’s position from 125th from 185 countries to 127th in just a year’s time, on the Ease of Doing Business Report for 2013 entitled “Smarter Regulations for Small and Medium-Size Enterprises”.
This apparently shows that paying tax in the country takes much time, and is quite costly, causing a decline in ranking. Cross-border trade, enforcing contracts, investor protection and resolving insolvency are among the 10 points that the report covers and they also showed a relatively slight decline, with only receiving credit, registering property and dealing with construction permits, showing improvement. Performance in the Distribution of electricity and starting businesses showed no difference.
In truth, the country, which is the second most populous nation in Africa with over 86.5 million, has registered a fast-track and tremendous growth, at least for the last decade or so with an average growth of 10.6 percent per year, compared to the regional average of 5.2 percent. It is the fastest growing non-oil producing economy in Africa and is also one of the fastest growing economies internationally as well. Both the government and independent organizations have confirmed that growth is being registered, although they can’t seem to agree on the rate of growth and it has yet to make a positive impact upon the lives of most of the population, who remain one of the world’s poorest with a per capita income of USD 1,100, substantially lower than the regional average of USD 1,257.
The Ease of Doing Business Report has a direct impact on the economy of countries, as it affects Foreign Direct Investment (FDI), according to experts who requested anonymity. Before investing their resources in a business venture in any country, foreign investors first study the various reports on the country they are interested in doing business with, one of them being the above- mentioned report, which has been published since 2004, to see if there is a business-friendly environment in place, they claimed. In fact, Ethiopia’s FDI has showed a slight increase over the past few years. “Had doing business been easier, the country would have enjoyed much more FDI, which would directly contribute to more growth,” one of the unnamed experts notified Capital.
“With all the potential the country has, in terms of virgin land, ample resources and cheap manpower, the country could have achieved much more,” one of the experts continued.
However, because of a relatively less favorable environment for business, especially caused by ERCA, among others, the country has been labeled as one of the countries where doing business is quite challenging,” they concluded.
Besides the report, the World Bank (WB) surveyed 69 Chinese enterprises doing business in Ethiopia, about a year ago. The survey, which covered various aspects of the FDI climate in the country, including infrastructure development, sales and supplies, land issues, crime, competition, finance, human resources and available opportunities and constraints for doing business, recommended five main areas for policy adjustment; customs clearance procedures and trade regulations, facilitation of the convertibility of currency and increased transparency of exchange rate policy, improvement in tax administration focusing on consistency and efficacy, execution of an impartial labor law and increasing the supply and quality of skilled workers.
According to pundits, the government is lagging behind in terms of facilitation of growth, which has squandered various opportunities that has resulted from the global paradigm shift towards Africa.
The taxation system, which has largely contributed to the downgrading in the country’s doing business ranking, is also a ‘pain in the neck’ for long-established business enterprises. Some have dissolved their businesses because they were unable to cope with the frequently changing and often difficult rules and regulations of ERCA. A person who owned a company and was formerly involved in the road construction sector claims he closed his business because he observed that some of his friends were headed to prison, not because they have cheated he said, but because they made a minor slip in compliance or because some officials believed they did.
“I am old now. I have already made a goodly sum for the rest of my years. The reason I stayed in business for so long was just because I wanted to use my money to help develop my country by creating job opportunities for the youths I used to employ,” he said. “I decided to quit, because I don’t want to spend the remaining few years of my life in prison for making simple mistakes, which the frequently changing rules and regulations of ERCA exposes you to,” he concluded.