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ERCA says they failed to use receipts but business owners say they are unfairly targeted
Business owners in Dire Dawa are saying they are being hindered by unfair taxes from the Dire Dawa branch of the Ethiopian Revenue and Customs Authority (ERCA) but the Authority claims they are guilty of not giving receipts for each transaction and will have to pay a hefty fine.
Members of the business community in the federally administrated city 500Km east of Addis say that they are being charged for taxes that do not make sense to them.
Sources at the City administration told Capital that ERCA officials are accusing business owners of taking the value added tax (VAT) they charge customers and, instead of declaring it and paying it to the government, keeping it for themselves.
They told Capital that tax officers claimed that when the business owners provided services outside their offices such as at their homes or when they provided a service quickly, one that would not be easy to record, that the business people then would not give their clients a receipt and would instead keep the money they charged for VAT and put it into their own pocket.
Then in October 2013 seven businesses, including a hotel, mobile shop, and a construction material store each were charged 100,000 birr for not providing receipts during each transaction and for the resulting underpayment on their taxes to ERCA. They also, if proven guilty, would have to pay accrued tax.
The business owners say there is no way they can pay the fine of 100,000 birr for each of them because they gross enough from their earnings to pay the fine and keep their shops open. If they made a mistake, they argue it was an oversight without any mischievous intentions.
“It is unfair to pay 100,000 birr for misplacing one receipt,” the businessman who is one of the traders being asked to pay the penalty told Capital.
According to the businessperson, even though they have tried to resolve the issue with the city administration, the office is not listening to their side of the story.
“This is abnormal and much exaggerated when compared to our business and our daily transactions,” one person complained.
Currently, under the city administration, over 990 businesses have registered to collect VAT in Dire Dawa.
Recently, the federal Revenue and Customs Authority (ERCA) gave trainings and spoke with the business community in the area, including the Harari and Ethiopia Somali regions about issues they are having with receipts and paying VAT.
Since 2008 businesses in Addis have been required to use cash register machines if they met a certain income threshold. That requirement soon spread throughout the country. According to the latest figures from ERCA 75,000 business now use cash register machines and 60,000 of those are in Addis. ERCA wants at least 50,000 businesses outside the capital city to utilize cash register machines.
However, this has not been happening for the most part in smaller towns. Much business goes on without issuing receipts and many people have strong relationships with officers from the local tax office. This is considered a major challenge by ERCA as they seek to collect taxes consistently throughout the nation.
Recently, officials at ERCA told Capital that the responsibility for collecting taxes in smaller towns lies with the regional government.
The officials said that inadequate tax collection may affect the development of every region. ERCA officials told Capital that they have information about illegal tax practices and not using tax register machines properly. They say there is also a lack of awareness especially outside of ADDIS. The Agency says that many are unaware they need a receipt for every transaction or that traders refuse to give business owners receipts at times.