It is generally assumed those who benefit from the reigning economic system (in a given society) should pay tax. It is also assumed those who disproportionately benefit from existing setups, should pay even more taxes. But like water, capital flows to areas of least resistance. The thing is; investment in areas of least resistance might not be what a society wants at a given time and space. To encourage those who are tackling the important and relatively difficult tasks within a society, states usually devise compensatory tax regimes. If a tax system fails to properly address the various sectors of a given economy, rather equitably, rent will soon start to dominate economic activities. Beware; easy money doesn’t build character. If anything, it promotes degeneration, as is visible in many parts of the world system where parasitic oligarchs reign!
‘Unearned income’ is a phrase used to denote net revenues that accrue without much hassle. Rents of all kinds (real estate, financial, mineral, land, etc.) fell into this category. Therefore, taxes must take into consideration the light efforts expended to earn these respective (rent) incomes. In general, those who benefit from rent tend to be numerically small, yet they are politically powerful. Tampering with their interests can cause political disruption. In a society where election matters, politicians (most likely) will not get elected by promising to increase tax, especially in the urban sectors of the world system where rent is deep rooted. On the other hand, there are critical sectors of an economy where there is hardly any profit to be made. For example in Ethiopia, the agricultural sector is very important and sustains the livelihood of about 80% of our population. This sector is not lucrative, hence is hardly taxed. As a general principle, work and rent must be clearly delineated so that operators are made aware of their obligations, particularly in regards to taxation.
Earning decent income is becoming very difficult, all over the world. Without accounting gimmicks over 60% of businesses in the mature economies of the world system might not be viable. It is becoming more or less the same even in the poorer countries. It is claimed the market economy, with all its neo-liberal vagaries intact, operates more brutally in the peripheries, than in developed economies, mostly due to institutional weaknesses and out right corruption. Be that as it may, the tendency of profit to decrease over time is one of the defining tenets of modern capitalism. We will not go through the ‘whys’ of this important thesis; suffice is to say, this phenomenon is what renders many a business (old and new) non-viable. The current deafening war drum by dominant interests is a direct consequence of the accumulation problematic! In the above, we single out crony capitalism, as it is a different animal altogether. The motto of crony capitalism is akin to the Orwellian story; ‘…all animals are equal but some are more equal than others.’ If truth be told, one is not actually talking about genuine business activities/operations in crony capitalism, but rather planned extortion, which takes place in broad daylight in cahoots with the power that be (TPTB)! The classic examples are our own recently minted parasitic oligarchs, who are uniquely allowed to access public/private resources while impostering as market operators!
Taxation regimes can distort markets and lead operators astray. The practice of allowing interests to be deducted from income; or in other words, interests to be considered as business expense, has led to the destruction of many a company. The so-called private equity funds tend to leverage this reckless business strategy to their advantages. These entities usually buy a relatively healthy company and saddle it with massive debt. The interest on the debt is allowed as expense. So long as the company can service the debt, it might be considered ok, but it certainly is not as healthy as it used to be before the buyout. These vultures run away with the accessed loan while the balance sheet of the company is systemically ruined. Studies have shown that by eliminating interest deductibility (in a regime of 35% income tax) the corporate income tax rate is effectively reduced to around 15%. By not allowing interests to be deductible, states can also help create viable and resilient companies! Naturally one of the resistors to this scheme, even though it is gaining wider acceptance, are the banks. No surprise here! The alpha and omega of bank’s or their raison d’etre, is to peddle loans. These loans, created out of thin air, make the banks plenty of money in form of interests, to say nothing about their accumulation of wealth by stealth!
Excessive debt is what ails most economies, including ours. Unless our attitude towards debts changes, situations will only get worse. “Change is never painful. Only resistance to change is painful.” Buddha. Good Day!
APPROPRIATE TAXATION
ECX to start trading industrial products, spices
The Ethiopian Commodity Exchange (ECX) announces that it will commence the trading of additional nine commodities including industrial product and spices.
The exchange that opens new facilities on the western Ethiopia to simplify the supplies of commodities into the trading floor stated that in the coming year it will add more commodities at the electronic trading platform that is expanding the products that it manages exclusively to connect buyers and sellers.
It said that in the coming year it will add nine commodities including cotton, spices and different type of pulses at the trading floor. The news for planning to trade cotton is not new, while it is yet brew fruit.
The trading floor is not new to trading industrial products since early last year it had introduced the trading of soybean, which is mainly considered for industrial purpose than using as a raw product for the household level. When the trading of cotton is included it will be another step for the commodity exchange to expand the trading for industrial commodities.
However, ECX is yet to trade spices in its 13 years operation.
The modern trading floor that celebrates its 13th anniversary has made available warehouses and other facilities at Mizan Aman and Tepi towns in the western part of the country.
The Mizan Aman, 576 km west of Addis Ababa facility that was inaugurated mid this week has a warehouse with the capacity to manage 40,000 quintal and other relevant offices and laboratory.
According to ECX, the facility located in Bench Sheko Zone, SNNP shall serve eight woredas in the zone additional to other seven woredas in West Omo Zone.
“The facility will reduce 120km on average for the farmers in the two zones to transport their products to the trading centre,” the trading floor explained.
The area is the major coffee beans source in the SNNP region; ECX says, “The facility will help to enhance the supply of quality product for the international market.”
The area is also producing sesame seeds, mung beans, which are traded at ECX exclusively and different spices. ECX said that the facility at Mizan Aman would be crucial to host spices products thus will start the trading by next year.
The other facility inaugurated on Wednesday April 28 was at Tepi, 626 km west of Addis Ababa, which is also located at Sheka Zone of SNNP. The facility will serve four woredas in the zone and two woredas in Mazang Zone of Gambela region. Like the Mizan Aman facility it will also reduce 130 km for farmers to supply their product to market compared with the previous trend.
Sheka and Mazeng zones are also popular with their coffee product, which are the major hard currency earnings for the country. They are also producing sesame seeds and mung beans besides spices.
The south and western Ethiopia is well known on its enormous spices resources.
Currently, ECX has 25 branches and trading 12 commodities. In its 13 years history the exchange has facilitated the trading of 7.13 million metric tons commodities with the value of 308 billion birr.
More facilities in Bahir Dar, Shakiso, Qelem Welega, and other places are expected to be opened.
Tax immunity landscape for diplomatic, international missions
Ministry of Revenue (MoR) reassures all tax offices to effect the waiver of the diplomatic missions and international organization from value added tax (VAT) for their house rent and telecom services.
It is to be recalled that MoR expressed on its directive no. 148/2019 which introduced the VAT immunity for diplomatic mission, international and continental organization and international nongovernmental organization.
On the latest circular issued on April 6 and signed by Meseret Kebede, Tax Refund Team Leader at MoR, the ministry reaffirmed that tax offices will continue to operate under the directive that was issued in 2019.
The circular showed the clarification of West Addis Ababa Small Tax Payers Branch Office which asked the head office about the VAT exemption for house rent for one of the diplomatic mission and the letter confirmed that it is correct to exempt the same by mentioning the 2019 directive.
The letter which showed the branch office clarification added that all branches should follow the directive.
It added that the branch offices to issue a VAT exemption certificate for those who are immune.
The directive article 9 sub articles 1 and 2 indicated that the stated diplomatic missions, international and continental organizations and international nongovernmental or nonprofit organizations are immune from paying VAT for house rent and telecom services.
It added that from the stated service, government shall not receive the VAT on behalf of the tax authority, moreover the tax authority is supposed to give a certificated for the stated type of organization as a reference that they are exempted from the stated tax.
Some international nonprofit told Capital that they were not aware about the directive, even though they are getting the stated service as per the previous trend.
Some of them are also reconsidering to request for the refund from MoR for the payment they already did since the issuance for the directive.
The 148/2019 directive was issued to review the previous directives on the aim to harmonize and modernize the VAT refund scheme. It has combined 4 different circulars and six directives under a single directive. The directive has enabled to shorten the refund scheme time to 45 days from the previous two months.
CBE’s third quarter performance
The Commercial Bank of Ethiopia generated 55.8 Billion birr income in the third quarter of the current fiscal year 2020/21. The bank earned 13.4 billion birr profit before tax during its 9 months overall performance.
From interest income, the bank gained 46.5 billion birr, while 8.8 billion birr was obtained from charges while 231 million birr from was got from other services.
The bank has raised its incremental deposit to 102.7 billion birr which is 82.4percent of its target of 124.6 billion. The bank has grabbed 101.1 billion birr incremental deposit from the private and cooperates which is 99.8 percent of its goal which makes the private deposit to 698 billion birr. According to the bank, private deposited shares account for 97 percent of the total deposit.
In the last nine months of the fiscal year, the bank has grown its deposit to 698.2billion birr from 595.5 billion birr. The total deposit of the bank has reached 698.2 billion birr, explained the president of the state giant bank.
The bank has collected 36.9 billion birr in repaid loans over the past nine months, which is only 54 percent of its target. On similar lines, 67.3 billion birr loan has been distributed to its customers over the nine month which is 67.8 percent of its goal.
He said the bank has provided over 67.2 billion birr in loans and bonds, adding that special attention should be paid to the fundraising.
In the first nine months of the current budget year, 62 new branches were opened and an additional deposit of 886 million birr was collected. The total number of branches has been increased to more than 1665. In the last nine months, 4.27 million accounts have been opened and the total number of deposits has reached 29.37 million, Abie Sano explained.
The Commercial Bank of Ethiopia’s nine-month performance appraisal was held in the presence of the Board’s Board of Directors, management members and other participants.
The President of the Commercial Bank of Ethiopia, Abie Sano, who opened the conference, said the implementation of the major goals and strategic measures in the first nine months of the current budget year are encouraging.
Abe recalled that the bank had planned to collect 2.7 billion USD in foreign exchange in the first nine months of the current budget year.
Deposit growing significantly, customer account, digital transaction growth, significant strengthened liquidity, review its structure and maintain profitability are listed as success while loan collection, FCY generation and COVID-19 were listed as challenges that the bank has faced during the last nine months.
“Fundraising will continue to be a major focus of the bank, adding that human resource development, the implementation of various technology projects, consolidated loan repayment, reduction of bad debts and COVID-19 are among the issues that need attention” said the president.
