‘Dividend Tax’: Legal or Illegal?


The confusion regarding dividend tax that was expected to be clarified this past week has been delayed due to the need of further discussion by government policymakers.

A week ago a high-level official at the Ministry of Finance and Economic Development (MoFED) told Capital that the issue will be resolved after a joint meeting between officials from the Ethiopian Revenue and Customs Authority (ERCA) and MoFED is held. According to sources at the Ministry, the officials met on Monday as scheduled to discuss and put an end to the confusion that occurred following the government’s statement during the Public Private Conference held in the presence of PM Hailemariam Desalegn.
During the conference held on June 28 at the UNECA conference hall, Sufian Ahmed, Minister of MoFED, stated that the government will not collect tax from undistributed dividend.
Since then, the business community believed that the government has changed its former intention of levying tax on undistributed dividend from companies. According to high-level officials at MoFED, further discussions between policymakers are needed to forward their conclusion for final approval to the Minister.
Officials at the Ministry and the Authority that have taken part on Monday’s meeting told Capital that the government will make its final decision clear to the public shortly.
The officials said that at the joint meeting, they were unable to come to a final decision. “We need to discuss further on the issue; that is why we haven’t announced our final decision yet,” they said. 
The relevant officials at ERCA and MoFED consider dividend that has not been distributed to shareholders as taxable unless it is invested. “The government shall not lift the tax which it expects to collect from undistributed dividends unless companies can come with evidence attesting to the re-investment of the profit or transfer to their capital,” high ranking officials at MoFED, who requested anonymity naming the sensitivity of the issue, told Capital a week ago.
“Without this plan, even if shareholders did not receive/collect their dividend, it will be considered as distributed,” they said. “Therefore, they will have to pay the 10 percent dividend profit tax to the government,” they added.
The private sector has been earnestly opposing this since ERCA demanded tax payment on undistributed dividend. The private sector argued that the tax that is expected from undistributed dividend has no legal foundation.
Meanwhile the Authority has targeted to collect billions of birr from this new levy, while some part of the business community has already commenced the payment on long-term instalment or full payment basis, others are still refusing to pay up.