Carsten Spohr has been Chairman of the Executive Board of Deutsche Lufthansa AG
Property tax for business centers proposed
The Ministry of Finance and Economy has drafted a property tax proposal, which is expected to be brought to the Council of Ministers by the end of this fiscal year, in order to collect more revenue from business hub areas.
Sources told Capital that a property tax between 0.5 percent and 2 percent will be levied on the businesses. For a long time, property income taxation has been seen as neglected by Ethiopia’s tax authority.
According sources close to the issue if the draft is endorsed by Parliament the new property tax law will enhance local revenue mobilization by increasing the local tax base and addressing tax administration weaknesses identified at the local level and in the long run the tax will be expected to cover at least 60 percent of the municipality budget.
“Business hub areas benefit from the better infrastructure that surrounds their business. If you go to Bole, the roads are better, the sewerage system is better. However, the building owners pay nothing to build the infrastructure. Receiving money from the business shops will help renovate, maintain and construct roads, street lights and drainage systems” a source told Capital.
The property tax money will be administered by urban cities.
“The Property tax will not be based on assumptions, mere conclusion of property value by individuals, old records and non-professional opinions among other means but it will be based on property values obtained from registered estate surveyors and certificates of valuation”, the source added.
The latest IMF report stated that Ethiopia has made progress mobilizing domestic revenue since the mid-1990s, but still lags countries in the region and other low income countries (LICs). “The tax-to-GDP ratio rose from 8.6 percent in 2008/09 to 12.7 percent in 2014/15, but it has declined since then to 11.1 percent in 2017/18,” it said. In the past budget year, the government wanted to collect 200 billion birr, but the actual performance was actually ¼ of the target, which is a significant reduction compared with the recent trend in the tax collation and target achievement ratio.
Since the beginning of the first Growth and Transformation Plan (GTP) the government has expressed its eagerness to expand the revenue from tax in line with the rate of the GDP. It has also show an improvement in the first GTP even though the rate is under the projection. At the heyday of tax collection in 2014/15, which was the end of GTP I, the revenue authority body which at the time was the Ethiopian Revenue and Customs Authority, collected 12.7 percent of the GDP. This is lower than peer economies and countries in the east Africa region.
National liquor privatization delayed
Compensation of former owner leads to court injunction
The privatization process of National Alcohol and Liquor Factory (NALF) has been delayed due to a claim by the former owner.
Late last fiscal year, the agency that at the time was know as the Ministry of Public Enterprise (MOPE), but is now called the Public Enterprises Holding and Administration Agency (PEHAA) opened a bid document for NALF. The alcohol factory is the largest in Ethiopia and the bid was the largest ever offered for a government enterprise by local investors. Lominat Beverages Plc, owned by the prominent business personality Binyam Berhane and Brook Worku, who is also well known in the spirit industry, offered 3.62 billion birr to fully own NALF.
In the bid opening late last June, Lominat, Pure Alcohol and Beverages Manufacturing and Metadim Manufacturing tabled their offer. The last two companies, both local, offered close to 1.7 billion birr and over 1.5 billion birr respectively, which are also very high compared with the tagged price of PEHAA. The floor price that the former ministry tagged was 1.27 billion birr.
Even though the company, that offered the highest price is expected to secure the company when they make a down payment the factory has not yet been transferred to Lominat.
Lominat is getting ready to build another beverage factory and they wanted to include NALF as an additional conglomerate.
Wondafrash Assefa, Public Relations Head of PEHAA, told Capital that the Ministry of Finance, which oversees the agency, has given a grace period to settle the down payment.
This was done at the company’s request, however the deadline for that grace period ended this week.
“The Ministry of Finance extended the deadline even though the first grace period ended,” he added.
Sources who are close to the matter said that the company is ready to settle the down payment, which commonly is 35 percent.
Sources said that the problem transferring the factory is related with Berhane G.Medhin, the former owner, who bought the factory during the period of the emperor from the original founder Elias Papassinos, a Greek citizen. Capital learned that the company has received a court injunction because of a claim from the former owner which makes it unfeasible to transfer the factory to Lominate.
“About 20 years ago the valuation work of the enterprise was conducted and the government approved giving some money as to the former owner,” Wondafrash said. “The government has called the former owner to get 2.7 million birr in compensation, but he preferred to secure the entire factory which has branches in different locations in Addis Ababa and its surrounding areas,” he said.
“After the Ethiopian Privatization Agency (EPA) did a survey on the company it gave two options. One was for me to pay the 26.4 million birr to the government and take back my company or for me to get a compensation payment. I took the first offer and responded to the EPA, later renamed MoPE that I would pay the money and take over the NALF. Until the final week of my stay in Addis Ababa about 28,000 Eritreans were deported. Due to the Ethio- Eretria border conflict, many were taken away as a threat to the national security,” Berhane, who was one of those deported, told for Capital during an interview last September.
Wondfarsh recalled the letter written about two decades ago to the former owner. The letter was written by mentioning the ‘Review of Properties Taken in Violation of the Relevant Proclamations (Amendment) proclamation no. 193/2000’ that allowed the government to posses the enterprise and settle the former owner’s required sum.
The proclamation article 7, sub article 1 states that: where a property taken in violation of the law: a) cannot be returned to the owner due to substantial public investment made on it or is administered as an inseparable unit of other properties or due to other reasons related to the public interest; or b) is owned by a public enterprise which is being dissolved and liquidated in accordance with Article 39 of Proclamation No. 25/92; the former owner shall be entitled to compensation. The amount of compensation shall be assessed and determined by the Agency.
In June Brook, CEO of Lominat told Capital that NALF is worth what his company offered. “To be frank the company is one of the most profitable public enterprises, and has a huge market in the country,” he said.
The major shareholder of Lominat, which was formed in 2014 by the two businessmen with the goal of joining the beverage and sprit industry, Binyam is well known in the import and distribution of various commodities including distribution and trading alcohol and sprits over three decades.
Lominat planned to develop the local market at international standards. Brook stated that Lominat would provide import substitution and export products. The products of NALF are prominent in the region mainly the South Sudanese market.
“We can produce the alcohol products and different brands that are imported from abroad and substitute exports by 90 percent,” Brook told Capital in June.
NALF is the collection of four factories three in Addis and one in Sebeta, 25km west of Addis.
In the 2016/17 budget year NALF’s sales were 607 million birr with a growth of 132 million birr compared with the 2015/16 budget year.
The net profit of 122.4 million birr after tax, which has showed a 30 million birr increase within a year, is also a record amount registered by the liquor factory for the stated period, but last year’s performance was expected to be higher since it had expanded.
The National Tobacco Enterprise, which was transferred to Japan Tobacco as major shareholder of the tobacco monopoly and full ownership of Meta Beer by Diageo are also two record privatization sales that have occurred recently.
Constitutional Inquiry intervenes in CCD real estate case
The Country Club Developers (CCD) appeared before the Federal High Court last Thursday with an injunction after a proceeding gave one month for the General Manager to hand over six houses that had been delayed for ten years.
Messele Haile, the founder of CCD, appeared before the Federal High Court’s 6th Civil Bench on January 14, 2019, and heard the judge order the handover of the six homes which lay on 1,000sqm. Messele was summoned to explain why his company failed to deliver the houses. Then the court ruled in favor of the home owners.
Following the ten-year court battle, the applicants opened an execution file after the company failed to comply with their amicable agreement which was to hand over the houses within 16 months. Four months after deadline they sued.
The presiding judge ordered CCD to handover the houses within one month. The owners said they were delayed from delivering the houses because they were waiting for finishing material from abroad. The company asked for three months but the applicants refused stating that enough time had been given.
On February 14 a hearing was held to see if the homes were indeed delivered by the one-month deadline. However, the real estate company’s lawyer Tamagn Beyene appeared with an injunction order given from the Constitutional Inquiry (CI) advisory council of the House of Federation (HoF).
The Chairperson of CI, Meaza Ashenafi, wrote on January 28, 2019, that the execution file at the Federal High Court’s 6th Civil Bench would be put on hold until the case obtains a final ruling in the House.
Appealing to the lower court’s decisions CCD’s lawyers submitted their application to the inquiry on September 17, 2016. The appeal stated the decision given by courts at all levels including the Cassation Bench denied that they had jurisdiction. This is because the property is located in the Legedadi Legetafo city administration in Oromiya Region. Therefore, the lawyers argued, the case should be decided by Oromia courts.
The real-estate developer asked for the inquiry to interpret article 80/2 of the constitution which delegates that regional courts deal with federal matters. The appeal also mentioned that the houses are being built with a land lease agreement obtained from the regional government and there is an argument over the regional land and investment laws.
