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ERCA to crackdown on tax return audits

The Ethiopian Revenue and Customs Authority (ERCA) warned tax payers that it will implement an aggressive audit operation and intelligence service because it is disappointed by the amount of vat refunds and declarations of losses.
Authority officials met with large tax payers and stakeholders at different events to talk about the issue.
Director of the Authority, Moges Balcha met with the media and expressed concern that some tax payers are declaring losses or no income on their annual income tax report and vat refund form.
“The authority is concerned about the new trend because it is affecting the government’s income and the economy,” he added.
This development is unhealthy Moges said.
At the discussion held at the Large Tax Payers Office (LTO) about a week ago the management of ERCA stated that the issue has to be corrected.
They said the Authority will take legal action against those who try to evade the tax.
ERCA’s four month evaluation indicated that there is a difference between Addis Ababa and federal tax payers.
“Our evaluation for the first four months of the budget year indicated that there is gap mainly on legality in terms of tax payment,” Moges told media.
“To do so we have strengthened the intelligence operation and investigation audit,” he added.
The officials said that they are disappointed in the result registered in the past period.
Experts at ERCA told Capital the tax payers under LTO have been also involved in tax evasion.
Even though they are very few (large tax payers) some of them are involved in illegal activities and tax evasion, according to sources at ERCA.
There are only 1,100 tax payers followed by LTO, while some of them have not considered the damage of tax evasion on their businesses, experts at ERCA said.
The large tax payers cover 45 percent of the tax collection.
From 16,000 tax payers who declared their annual income 63 percent came up with tax payments, and 28 percent declared loss or bankruptcy.
“It does not mean that business is always profitable, loss happens and that is also supported by the law. However, the issue is it is real or fake,” the director said.
He added that ERCA has finished undertaking an investigation on those who have declared a loss.
“We will give priority to the tax payers that have declared losses,” he strongly said.
In relation to vat on average from 17,500 VAT registered businesses that report every month 45 percent request a VAT refund.
The balance of vat collectors stated that they did not undertake business in the period.
“Because of the economic growth of the country it indicates that there are phony reports or refunds from the tax payers,” the director said.
ERCA claimed that illegal receipts are issued for the claim of vat refunds. It indicates that there is unhealthy tax system from the business community, according to ERCA head, who assigned for the post recently.
So far ERCA has prosecuted or is in legal proceedings against 81members of the business community who use illegal receipts and are involved in other types of fraud.
“We will continue to take similar action against those involved in illegal activity,” Moges said.
In the budget year 199.11 billion birr is expected to be collected from taxes and related sources according to the amended budget for the year. To accomplish this ERCA has increased its goal to 230 billion birr.
ERCA planned to collect 72 billion birr in first quarter of the 2017/18 budget year, however they only collected 63 billion.
“We have to change the current trend to register the expected achievement,” he added.
Illegal or phony receipts are the major challenges according to experts.
ERCA planned to increase tax revenue to 17.2 percent from the total GDP at the end of the current five year plan that will be end in 2020.
The current tax collection is 12.5 percent of the GDP. This is considered weak compared to other regional countries, according to the International Monetary Fund and other international partners.
“When we see the current trend it indicates that it is difficult to achieve the projection, so law enforcement has to be strong,” the director said.
“However, the current challenge is not out of control,” he said.
“We will implement the legal operation to settle the evasion,” he concluded.


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