Ministry rules businesses must pay taxes to regions

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(Photo: Anteneh Aklilu)

The Ministry of Revenue (MoR) is defending its latest decision to change the registration of 102 companies some of which are very big, which have invested only in the Oromia region to be registered under their original investment location based on the decision of the House of Federation. The Southern Nation, Nationalities and People’s Region (SNNPR) is demanding that it should benefit from 88 companies that only operate in the region.
A letter issued on October 23 and signed by Adanech Abebe, Minister of Revenue, mentioned that the 102 businesses only operate in Oromia region, even though their head offices are based in Addis Ababa, to be registered under their investment area.
According to the letter of Adanech, the tax identification number (TIN) address should be corrected on the Standard Integrated Government Tax Administration System (SIGTAS) based on the business location.
Mohammed Haso, Tax Harmony and Regions Support head at MoR, told Capital that the current decision came after more than two years of discussion and evaluation of laws as per article 98 of the constitution.
He said that Oromia region has raised the fair tax distribution since early December 2017. The letter signed by Ahmed Tussa, the then head of Oromia Revenue Authority, stated that the region has identified 203 businesses that only operate in Oromia but the region did not get its revenue portion because the companies are registered at the federal government.
An additional two similar letters that have been signed by Chaltu Sani, Director General of the regional tax office and sent to MoR ask for fair tax distribution.
Since then the federal revenue body formed a committee that evaluates the case and identifies the 102 businesses from the 203 that the region claimed only operate in the region but their TIN at the SIGTAS is at the federal tax body.
According to the region’s argument, since the companies are registered at the federal level the region did not get its tax part as other businesses based on the constitution. The region argued that if the companies address is readjusted by their original business area the SIGTAS automatically shall show the tax portion of the region.
Mohammed said that besides the study under the Ministry, the House of Federation has passed its decision on several tax issues between the federal and regional governments including the issue of businesses that are actually located in regions but registered at the federal level that might be at Addis Ababa or Dire Dawa city administrations.
“Due to that we have given the decision,” he added.
“The letter of the Minister does not mean that companies should be registered at the regional tax offices. It said that the TIN address at the SIGTAS should be changed and businesses shall pay their taxes at the federal level, while the regional tax portion will be automatically identified by the SIGTAS since their business addresses is changed for the regions,” Mohammed explained.
Based on the country law companies have to approve the TIN address change and their memo authenticated by authentication office. But the letter stated that until the authentication process is settled the branch office at MoR to change the address for the sake of time.
“Some of the companies have several shareholders and some of them are out of the country due to that the authentication process shall take time and due to that we will change the address until they come within six months’ time,” the letter of Adanech explained.
“We do this because some of the businesses have many shareholders and the authentication process may take time,” Mohammed supported the Minister’s letter.
However, some experts argued that it is against the country’s law and illegal.
In a related issue Mohammed told Capital that SNNP has also raised similar question for MoR that 88 of business in the region are only operating in the region. “So a committee is formed to look their case and identify which companies are operating only in SNNP,” he said.
Article 98 of the constitution states that the federal government and the states shall jointly levy and collect profit, sales, excise and personal income taxes on enterprises they jointly establish. It added that they shall jointly levy and collect taxes on the profits of companies and on dividends due to shareholders, and they shall jointly levy and collect taxes on incomes derived from large-scale mining and all petroleum and gas operations, and royalties on such operations.
Based on the current tax distribution calculation of federal government and regions the income tax would be distributed equally with regions, for VAT, excise tax, and service tax regions shall get 30 percent, and regions shall get 50 percent of shareholders profit tax on the investments in regions. The calculation is approved by the House of Federation. But the calculation will be revised as of the coming budget year. Based on its decision on the meeting held July 5 the tax distribution calculation for regions readjusted as follows; profit tax 50 percent, income (salary) tax 100 percent, VAT, sales and excise tax 50 percent, and shareholders’ profit tax 50 percent.