From the 211,703 business that are currently operating in the capital city, 63 percent are small trades that have registered a capital below 20,000 birr, according to a figure that was obtained from the Addis Ababa City Administration Trade Bureau.
Outcomes of a recent assessment conducted by the bureau showed that from the 211,703 active businesses, 19 percent or 39,021 of the businesses have a registered capital between 20,000 to 100,000 birr, while only 18 percent have a capital of over 100,000 birr.
Petty trades that operate with a capital of 5,000 birr dominate the low capital category businesses. This category of the business is studded with 22,578 small shops and 8,100 boutiques.
The figures from Trade Bureau also showed that female business owners’ account for only 28 percent of the 211,703 businesses that function in Addis. The remaining 72 percent of businesses are run by males.
Age wise, nearly half of the merchants (49 percent) are above 45 years of age, followed by a 36 percent of business owners aging under 29 years. Just 29 percent of the business people age between 29 and 45 years old. Small shops still dominate, with 22,578 licenses for boutiques followed with 8,100 shops.
The Trade Bureau said that the majority of business people have a misconception that lower capital brings lower income tax.
Abera Elias, Claims Officer of the Trade Bureau said, “we have been observing a lot of businesses flourishing and their capital grows to over 100,000 birr but they declare their capital is still below 20,000 birr. However, tax is calculated according to what they transact, not based on their capital.’’
“Of course, lower capital businesses are dominating the trade. We have made notable progress in registering accurate capital of the trades by investigating auction documents and bank loan procedures they produce” Abera said.
“People ask us to write a statement to their bank with an increased capital base. They can participate in auctions and could get loans only when they have a certain capital level. However, a few other who understand the relationship between registered capital and tax make genuine declarations.” Abera also said that there are a lot of merchants who stick to a low capital for several years due to bankruptcy and low profits.
Yednekachew Fasil, who is a wholesaler of consumer goods in Arada sub-city said, “I know that tax and capital has no relation but when you have a higher capital, the government will levy a higher tax. So due to that fear, business people refrain from announcing the right capital.”
Atakelti G/Eegzahbir, Addis Ababa Revenue and Custom Bureau supportive Director said that lower capital declarations means lower income because 20 percent of the revenue we collect comes from these group of businesses. We are also aware of incidents like a company whose annual transaction is actually over 200,000 birr but the registered capital is only 10,000 birr.
Atakelti stressed that merchants should know that there is no relationship between operating capital capacity and tax levied on a business.