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Ministry sets new VAT threshold

Ministry sets new VAT threshold

Almost five months after a public outcry over tax assessment that resulted in unrest in some parts of the country, the Ministry of Finance and Economic Cooperation (MoFEC) increased two weeks ago the threshold amount in excess of which businesses are required to pay value added tax (VAT), thus setting it now at one million birr from the previous 500,000 birr.

The ministry’s directive notes that with the passage of time, the increase in inflation as well as the decline in the purchasing power of the birr disadvantaged small businesses that should not have been included in the previous VAT bracket.

Moreover, the ministry argued that implementation gaps in tax administration necessitated the rule change.

Accordingly, the ministry instructed the Ethiopian Revenues and Customs Authority (ERCA) to work out details on the implementation of the new directive.  It also asked the authority to establish ways in which those who are currently mandated to pay VAT (but are below the new threshold) to be relieved of the tax.

As per the new directive, the authority has written a letter to all branch offices this week, The Reporter has learnt.

All branch offices are expected to inform taxpayers to make the necessary preparations, Ephrem Mekonnen, director of communications with the authority, told The Reporter.

Following finalization of all preparations by taxpayers and branch offices, the new directive will go into effect starting end of January 2018.

In related news, the Addis Ababa City Administration has taken over from ERCA the city’s tax administration and revenue collection.

It is to be recalled that ERCA has for the past eight years been in charge of tax and revenue of the city.

In this regard, the total revenue of the city which was no more than five billion birr eight years ago has increased to 23 billion birr as of last year. This, however, is far below the potential amount that some studies put in the neighborhood of 50 billion birr.

At an event held on December 25, 2017, ERCA’s Director Moges Balcha and Deputy Mayor Abate Sitotaw signed an agreement revoking ERCA’s mandate over Addis Ababa.

For the coming fiscal year, the city has planned to raise 26 billion birr revenue in taxes.

It is to be recalled that the authority last year collected 129.6 billion birr, which fell 18 billion birr short of plan.