Regions prepare to reap tax benefit

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A committee has been formed to implement the House of Federation’s decision to distribute tax revenue to the regions on businesses that do have branch offices in regions and hedquartered in Addis. The House recently decided about how to fairly distribute and calculate tax revenue between the federal government and regions.
In a major change now when a company has a branch office in a certain region, the branch’s tax revenue will go to that region. Previously when companies were registered and based in places like Addis Ababa or Dire Dawa, even if they had branches in other regions, the tax revenue would go to the federal government.
For example, if a bank had a branch in Hawassa but was headquartered in Addis Ababa, the tax revenue would go to the federal government but now tax revenue from that specific branch in Hawassa would go to the SNNP region.
Speaker of the House of Federation Keriya Ibrahim sent a letter to the Ministry of Revenue (MoR) to implement the House’s decision.
The letter was issued on July 5 and signed by the House Speaker. It indicated that the calculation should be applied by the coming budget year, 2020/21.
According to the information Capital secured from the Ministry of Revenue (MoR), to implement the House of Federation decision, a committee comprised of the MoR, Ministry of Finance and House of Federation was recently formed.

Mohammed Haso, Chair of the committee and Tax Harmony and Regions Support head at MoR, told Capital that the committee will undertake a study for the implementation of the decision and it would be discussed between regions.
Experts said that there are several companies based in Addis Ababa but that have businesses in different regions for a short time like contract work.
“The companies generate revenue with their short or long term businesses by their branch offices but the tax that might be profit or other taxes is given to the federal government,” tax experts explained.
Mohammed explained that there are companies like financial firms, construction companies and several big companies that have branches in regions.
“The committee would finalize the study and proposal for the implementation of the House decision by the coming budget year,” he added.
He said that the initial proposal would be finalized by May next year and stakeholders will discuss the matter after that.
“The main work would be identifying the system that might be applied for the way to calculate regional revenue portions from these types of companies. Directives to implement the decision from the House of Federation would be changed or improved,” the committee chair added.
Based on the current tax distribution calculation of federal government and regions, the income tax would be distributed equally with regions, for indirect tax (VAT, excise tax, and sales tax regions shall get 30 percent, and regions shall get 50 percent of dividend tax from shareholders 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 at the meeting held July 5 the tax distribution calculation for regions is readjusted as follows; profit tax 50 percent, income (salary) tax 100 percent, indirect tax (VAT, sales and excise tax) 50 percent, and shareholders’ profit tax 50 percent.