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A bar and restaurant owner at a new condominium compound on the outskirts of Addis Ababa is saying that the new way of conducting the daily sales assessment by the Ethiopian Revenues and Customs Authority (ERCA) has negatively affected him. The businessperson who wished to remain anonymous told Capital he opened the establishment eleven months ago.
“I am just starting out. I’m just introducing my business to customers living in the condo compound, which is smaller and further away from the city than most,” he explained.
“At first I was hardly earning any money although it’s been getting a bit better now,” he said.
He estimates that he takes in an average of 800 to 3,000 birr a day. During the evaluation he told ERCA officers who evaluated his daily sales that he had about 300 birr in daily business transactions.
He gave ERCA the smaller estimate after receiving advice from other business owners and because of what he observed from others evaluated before him.
Another businessman based at Shola Market, a large outdoor market like Merkato, has been in business for over ten years.
He told Capital that after the assessment concluded six years ago he was responsible for paying 12,000 birr a year in taxes. However after the current assessment the amount went up 14 times that amount to 168,000 per year.
The recent evaluation that covered 148,756 shops in the city has become one of the top issues in the business community mainly with traders who run Level C businesses.
Since ERCA commenced disclosing the daily sales of the business after its own evaluation the anxiety has increased with business owners.
The bar and restaurant owner who said his daily sales amount is about 300 birr was given a 7,000 birr amount by ERCA. The letter given to him by ERCA estimates his yearly revenue to be over one million birr.
The letter, which Capital obtained, stated that he was being moved to the Level A tax payers bracket.
The bar and restaurant owner told Capital that he is not on a level playing field and he is concerned with the amount of tax he has to pay.
The authority told him his tax based on the daily sales evaluation is about 220,000 birr. “They immediately reduced to about 170,000 birr when I told them that I’d only been open for the last 11 months,” he said.
He said that the ERCA branch officer told him the tax amount orally; and then he received a letter indicating his daily sales.
However, the bar and restaurant owner still strongly disagrees with the amount he is being required to pay.
“I have filed a claim letter to the branch office and even asked them to come and spend the whole day and evaluate the daily transactions at the restaurant,” he told Capital.
“Besides the whole investment and rent for the business has taken over 80 thousand birr from my pocket, I had to have a butcher partly leased a plot at my business last April before the business could become sustainable and I could meet my operational cost independently,” the confused businessman said.
He says he wants to pay adequate tax to the government since the money that collected from him and other citizens is an input for national development.
But the assessment and the tax request has to consider the capacity of businesses and has to be encouraging citizens to do more, he said.
“Initially I preferred to do my business based on the modern scheme and preferred to be a VAT registered business and when others who do business behind me are not like me, I won’t able to compete with them in terms of price,” he said.
“If my business was modern, this kind of unpredictable assessment would never affect me,” he added.
Business owners in the town who were visited by tax authority agents say their assessment did not take into consideration their real sales adding that ERCA’s daily sale estimates is baseless.
However the trader at Shola rejected his justification. He said that after the assessment in 2011 for the last six years he used to pay 12,000 birr tax every year. He said that it was fair if they doubled it but that this was unreasonable.
“Suddenly they asked me to settle more than 160,000 birr,” he claimed. He declined to comment whether his annual revenue is the amount that they are estimating. He just expressed his frustration about the unexpected tax amount.
He told Capital he preferred to claim a reduction than paying the stated amount.
A letter written by one of the ERCA branches that Capital obtained indicated that the businessman is being ordered to start process to upgrade its level to A, which indicates a business that has more than one million birr in annual sales.
Ephrem Mekonnen, Public Relations Head of ERCA, told Capital that some of the traders are spreading phony information about the latest tax evaluation. “Some of the traders are purposely misleading the public,” he added.
He said that the bar and restaurant owner was being deceptive. “Maybe he misunderstood what the officer told him or he purposely tilted the information,” he strongly argued.
Ephrem said that to be clear ERCA has posted the calculation for the public on its facebook page and its official website.
The government has stated that it is not collecting enough tax in proportion to what businesses produce.
The tax collection in the country is lower than the regional average according to the government and different international organizations like the International Monetary Fund (IMF). Currently the total tax collection is less than 13 percent of the GDP, according to reports.
In the Growth and Transformation Plan (GTP I), that ended July 2015 the government planned for tax collection to reach 15 percent of the GDP. Even though the actual achievement did not meet targets, tax collection grew.
According to the GTP II projection, tax collection will reach 17 percent of GDP in 2020. However tax collection has remained stagnant.
To achieve the plan the government is undertaking a study to expand the tax base and collect more tax.
The latest daily sales assessment is usually undertaken every three years. It is not related to the tax reform being introduced by the Ministry of Finance and Economic Cooperation to increase government revenue.
ERCA officials who met with media argued that the current evaluation was expected to occur three years ago but was delayed. They say it follows modern scientific methods, and that their calculations are solely based on this.
Netsanet Abera, ERCA’s Addis Ababa Tax Program and Coordinating Deputy Head, said that the amount ERCA is requesting from tax payers is very fair and takes into account their current situation.
She also ridiculed some of the traders for exaggerating the amount that ERCA is asking from them.
However ERCA strongly dismissed their claim saying the tax is fair and calculated scientifically. During the press conference Netsanet’s team explained that the tax is calculated via an annual estimate based on daily sales. From this amount 90 percent is considered to be expenses and the remaining ten percent is taxed.
This resulted in some businesses being placed in a higher tax bracket, going from level C to level B or even A.
Netsanet stated that traders have a right to appeal to the Authority.
“They have to come individually since we assessed their daily sales separately,” she said. She added that business and annual sales are divided from business to business, so people would not be able to get a resolution if they came as a group.
If the claim is sound the authority is ready to solve the problem “we don’t want to hinder the business community” she added.
ERCA and the City’s Finance and Trade Bureau sent 1,904 officers and formed 469 evaluation committees and an additional 49 inspection groups to conduct assessments in 116 city woredas.
Level A tax payers must have a VAT registration, cash register machine, authorized receipts and a financial statement. Level C businesses earn less than 500,000 birr in annual sales, they are expected to pay taxes from July 8 to August 6. The budget for this fiscal year is 320.8 billion birr and 196.4 billion is expected from tax.