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Foreign businesses decry taxation, custom hurdles

A group of foreign businesses have echoed their frustration over the taxation and customs laws and procedures that are creating inconveniences in their day-to-day business activities and investment operations.

During a “Public Private Dialogue on taxation and customs issues,” held on Wednesday, which the Ethiopian Investment Commission (EIC) has facilitated; representatives of foreign businesses have tabled their concerns and recommendations to the authorities.

Rebecca Araya, general manager of the American Chamber of Commerce in Ethiopia (AmCham), detailed the concerns of foreign businesses on the taxation system of Ethiopia. And have pointed out that accompanying tax penalties and tax calculation methodologies with regard to delayed payments have become daunting and exaggerated.

Tax appeal delays, with tax payers obliged to settle 50 percent of the disputed tax amounts upfront is one of the contested issues. According to Rebecca, the Ministry of Revenues or other concerned government bodies need to setup a Tax Appeal Commission to address such concerns in time. Double taxation avoidance treaties and the draft excise tax proclamation, tabled before the Council of Ministers, are also named among the concerning issues for foreign businesses in Ethiopia.

The excise tax proclamation, unlike previous practices, has excluded public mostly shunning the private sector from commenting on the proposed amendments, before it reached the Council. There are built-up expectations, especially for exemptions from excise taxes on certain export commodities and raw materials import.

Another issue concerning the taxation system is in connection to the capacities and competences of public auditors. Rebecca said that many of the tax auditors lack basic principles of international auditing practices, as the Ministry of Revenues has been staffed with “junior auditors,” who lack the “experience to consider realities on the ground”. Hence, a separate audit council should be established to check the qualities of auditing and auditors. In addition, Rebecca suggested “Hiring experienced consultants who could help auditors.”

Learning of the draft law that is about to make its way to the House of People’s Representatives (HPR), Ben Depraetere, chairman of the European Union Business Forum  (EUBF), has requested the Ministry of Finance to provide platforms for consultations prior to the ratification of the draft excise tax law.

The discussion also entertained similar challenges with regards to dividend on earnings. The need to declare dividend surfaced when the Ministry of Revenues announced that it is adhering to a law that requires foreign businesses to make declaration in order to settle accrued payments from retained earnings.

However, Depraetere and others have welcomed the idea saying that business would love to repatriate their earnings as quickly as possible, but acute shortages of hard currency is forcing many of the companies to wait for long and in most of the cases, were approached by the government to reinvest their earnings.

Both, Zemede Teferra, State Minister of Revenues and Nebiyou Samuel, senior advisor of the Ministry, have reflected on some of the concerns and questions raised by businesses.

The state minister made it clear that the excise tax issue is no more going to be a concern, since amendments are about to be made. However, Zemede failed to give details on how the amendments will address the rates imposed on both imports and exports of certain commodities. The new law will give room for how costs are calculated for locally manufactured goods. Excise tax base will be changed taking into considerations on how costs and sales at the factory gates are computed. Both Zemede and Nebiyou have admitted that companies that came from countries that signed treaties of double taxation avoidance will be exempted.

Customs valuations and duties are among the contested issues to which the Ethiopian Customs Commission (ECC) has acknowledged shortcomings. Harsh Kothari, managing director of Mohan Group, stated that customs duties are basically higher than the actual prices of goods and even 30 to 50 percent higher than the global prices. Basically, the calculations of prices depend on the highest price margins of the past three to six months. He suggested to the authorities, to look for technologies that are applied to provide real time global prices of goods and services. 

The overall dialogue, according to Rebecca, was fruitful and officials who were present in the meeting were made familiar with the requests and recommendations beforehand. They came to meet the business representatives with answers.

The Ethiopian Netherlands Business Association has also pinpointed the challenges of customs procedures and suggested on an alternative solutions, in which many of the issues have been accepted as Azizew Chanie, deputy commissioner of ECC, made it clear to the gathering.