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ERCA catches insurers by surprise

ERCA catches insurers by surprise

Ethiopian Revenues & Customs Authority’s (ERCA) latest crackdown to collect unpaid custom bonds and guarantees provided to clients for the payment of import duties and taxes has caught insurance companies by surprise.

The action by the Authority came following an audit report by the General Auditors Office. The report indicated that there is a significant amount of money unaccounted for and uncollected by different branch offices under the helm of the Authority.

In relation to the latest move, it is to be recalled that, last year the Authority has introduced a new tax reform program called tax transformation program. This program among others was launched to collect 15 billion birr in overdue tax.

The latest action on insurance companies came under this context.

In this regard, The Reporter has learnt that private insurance companies including Africa Insurance S.C, Nile Insurance, Lucy Insurance, and Abay Insurance S.C were asked to pay millions of birr which emerged from overdue tax and customs from their clients.

In this regard, Africa insurance was asked to pay around 13.6 million birr while Nile was asked 20 million birr. Furthermore, the state owned Ethiopian Insurance Company has to pay around 60 million birr.

“This is unacceptable,” Kiro Jirane, CEO of Africa Insurance told The Reporter.

This demand from the Tax Authority is improper and came without cross checking documents related to it, he further added.

In relation to the case of Africa, from the 13.6 million birr, most of it is related with a grantee given to a construction company called, CWGC. The project was for a hydro-electric construction in Tigray Regional State which was functional almost ten years ago. At the time, Africa gave a re-export guarantee for vehicles and machineries brought by the company.

Currently, the project by the aforementioned company is no longer in existence.

Kiros argued that from 13.6 million birr, guarantees worth of 9.6 million birr is already settled when the custom and tax free imported machineries were transferred to a third party, following the termination of the project.

“We have a document evidence from the then Ministry of Finance & Economic Development,” he added.

Africa, following this action by ERCA’s Kality Branch Office, was ordered to settle the payment within two weeks and its account were blocked. 

This is utterly unacceptable, said Kiros.

In the cases of Nile Insurance, The Reporter learnt from sources that officials from Kality Branch Office and federal police briefly confiscated four vehicles used by top executives of the company including the CEO.

Later, the office released the vehicles once the company settled the payments.

According to Azezew Cahne – CEO of Kality Branch Office—so far, his office has managed to collect around 160 million birr from insurance companies.

The office according to last year’s audit report has to collect 45 million birr custom bond provided by insurance companies.

Foreign construction companies were among the main customers of their insurance services where they were allowed by government to import different construction vehicles. In this regard, usually the contractor of the project often gets to re-export guarantees from insurance companies where the contractor will be allowed to import the items duty free.

These guarantees will stay valid until the end or termination of the project contract. After that the vehicles and machineries are supposed to be re-exported, otherwise their custom and tax has to be paid if those companies wished to transfer them to a third party. 

Moreover, in case of vehicles imported custom free for tourism service, the importer will get the same guarantee from insurance companies, where the importer usually agreed to settle the tax and custom duties on installment payment.

According to industry sources, this service by insurance companies however ceased almost before four years following a new regulation by ERCA.  It ordered financial institutions to stop giving unconditional guarantees. For years, Banks gave unconditional guarantees with prescribed collateral while the insurers provided conditional guarantees with no collateral.    

Following the regulation from ERCA, National Bank of Ethiopia has ordered insurance companies to stop providing the service.

In this regard, the latest installment demanded by ERCA against insurance companies are on guarantees that were given before four years and above.   

Following this, a number of insurance companies brought their case to the Association of Ethiopian Insurers.

“We will continue to collect the overdue tax and customs,” Azezew told The Reporter. In the mean-time his office has managed to collect 260 million birr over the last nine months.