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The Ethiopian Revenue and Customs Authority (ERCA) is going to revise the current income tax proclamation by next year.
Girma Taffese, director of inland taxes at the Ethiopian Revenue and Customs Authority (ERCA) says that ERCA will consider revising income taxes and developing an improved tax code after the Growth and Transformation Plan sunsets in 2015.
ERCA officials fielded many complaints from around 1,000 business owners that are considered high tax payers who contribute 40 percent of the Nation’s tax income, on Thursday January 16 at the National Cultural Center, in Sidist Kilo. They responded by validating some of their concerns and promising that federal officials were working on revising tax laws and procedures.
One participant said that the decades old income tax proclamation should be revised in light of Ethiopia’s rapidly changing economic conditions. Currently anyone with a salary of 5,000 birr and above pays a tax rate of 35 percent. An individual making 3,500-5,000 pays 30 percent. After that the tax rates are 25, 20, 15 and 10 percent respectively. At one time a 5,000 birr monthly salary was considered to be upper income but inflation has gone up dramatically since the tax rates were first imposed and as a result the government should revise them, they said.
Grima told Capital that some tax proclamations will be replaced by the end of the 2015 fiscal year.
Another speaker voiced concerns with the turn over tax (withholding tax) imposed when business owners provide ‘freelance’ services for other companies.
A person with a business license will have a tax identification number (TIN) that they receive from ERCA, they then have two percent of their gross income deducted by the company they provide services for and are responsible for paying a 30 percent profit tax at the end of the year. However, if the person providing the service does not have a business license and thus does not have a TIN number the company has to pay income tax for that individual which can run as high as 35 percent.
“The government needs to have some flexibility with these rules,” they said.
ERCA spent the day responding to many complaints and saying that they are only doing their job trying to make sure people pay the taxes they legally owe on time.
“We are not trying to hurt tax payers or scare people but we are implementing assessments on selected tax payers to make sure they are not evading taxes,” officials said.
But the business people in attendance said they have had a different experience.
“The business people cannot operate if they always have to be looking over their shoulder scared that they might make some mistake, to develop the country we have to be able to fearlessly invest, the government must respect the business community as we are all trying to help the country prosper,” one person said.
Participants at the discussion said that ERCA has to find another way to enforce tax laws besides frightening traders.
“We understand that there are individuals who evade tax but ERCA is taking a guilty until proven innocent approach on almost all businesses even though most people want to comply with the law and pay their taxes properly,” one of the participants explained.
Another said that they doubt ERCA will successfully end tax evasion by operating like they currently are.
“It is very hard for us to survive this way,” the participants said.
The business people also complained that the auditors who work for ERCA are either incompetent or corrupt.
“They only want to impose penalties on companies, they have no interest in educating tax payers or explaining the proper procedure,” one person said.
Some say that ERCA tax from profit that gose to raise their company’s capital. When tax penalties are levied they are often exaggerated, the participants said.
“These penalties may force companies out of business,” one participant said.
Participants also were concerned about a new management system where one staff member leads a group of five other staff members. This meeting, termed ‘one to five’ is seen as taking time that could be used providing services.
“ERCA should say when the meetings are being held so we do not waste our time waiting at their offices,” one person said.