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.
ERCA to crackdown on tax return audits
Dashen continues to soar
Dashen Bank, one of the two most profitable private banks, continued its positive trajectory during the 2016/17 financial year. One of the biggest private banks in the country, Dashen announced that it amassed close to a billion birr in gross profits before tax.
At the general assembly held at Sheraton Hotel, the bank stated that its revenue for the year reached 3.4 billion birr, a 25 percent growth compared with a year ago.
For the year the bank also earned a three percent profit growth before tax.
The report that the bank sent to Capital indicated this year they experienced their best performance.
Recently the bank inaugurated a 21 storey HQ located in the upcoming financial district in front of the National Bank of Ethiopia.
The report indicated that the profits before tax stood at 980 million birr, which was 950 million birr in the 2015/16 fiscal year.
Dashen’s total assets surged by 6 billion birr during the 2016/17 fiscal year and reached 34.6 billion birr as of June 30, 2017.
The total capital of the bank has also reached four billion birr, while the paid up capital increased by 435 million birr and reached 1.9 billion birr, according to the report.
The bank opened 83 additional branches within a single fiscal year. That means they now have 303 total branches and 10 Forex Bureaus.
For the year the deposit mobilization has grown by 22 percent or an additional five billion birr. The report indicated that total mobilized deposits reached 27.8 billion birr, while loan allocation also achieved extraordinary growth, a 42 percent increase.
The total loans that Dashen released has reached at 17.7 billion birr a growth of 5.2 billion birr compared with last year.
Dashen Bank has also secured approval from the Central Bank to operate interest free banking services. “The fully fledged alternate interest-free and Sharia-compliant banking service, named Sharik to exemplify the common good when working in partnership, will be launched soon in selected branches,” their statement read.
To set itself for greater domestic and international competitiveness, Dashen Bank has contracted the services of KPMG for a 10 year strategic road map development and a five year strategic plan, formulation and implementation support.
Four weeks ago Dashen inaugurated a billion birr HQ in the presence of President Mulatu Teshome (PhD).
The 21 storey building lies on 2,690sqm from a total plot of 3,495sqm. It has a parking area for 170 cars and it also features a gym, clinic, two halls, and day care services.
NBE fixes hard currency allocation
National Bank of Ethiopia (NBE), the financial institution regulatory body, has placed a fixed percentage on the hard currency allocation for private banks on the letter of credit (LC) approval for priority areas.
The central bank’s new directive that replaced the 2016 directive stated that 40 percent of the LC’s must go to the imports of the priority sector.
Based on the new directive private banks are responsible for allocating 40 percent of the hard currency for the imports of the priority sector.
The 2016 directive stated that the priority imported items shall get preferential benefit when they need access to hard currency. The currency then will be allocated on a first come first serve basis.
The reset of the imported items and services that are not mentioned on the priority lists can also access the hard currency.
The previous directive did not mention about the rate or percentage of hard currency allocation for these priority areas.
The import of petroleum, fertilizer, agricultural machines, inputs, spare parts, medicine and related items, industrial inputs and accessories, supplement food for babies, are mentioned as a priority for the hard currency allocation.
Experts in the financial industry said that the new directive will give more benefit for the priority sectors. While the business sector mainly those who engage in import and wholesale may not get hard currency as was the previous trend, according to experts.
“The directive may have additional benefits for the industry, which was previously complaining about a hard currency shortage,” an industry actor said.
Recently, NBE issued a directive forcing private banks to transfer 30 percent of their hard currency to the central government.
“They have to share the burden of the Commercial Bank of Ethiopia, a state owned,” Teklewold Atnafu, the central bank governor recently said.
In relation to the hard currency shortage the central bank replaced the rule on LC allocation to tackle unfair distribution of hard currency and revoke illegal acts.
Both the 2016 rule and the revised one strongly mentioned that the banks’ management, board and IBD officers must undertake business carefully.
Even though there is an increased demand for hard currency, the foreign currency earnings, particularly the export sector is not growing as expected, making foreign currency access very scarce.
Sinotruck assembly plant opens in Addis Ababa
NA Metals, Industry and Engineering invested 250 million birr to open a truck trailer assembly plant in Addis Ababain partnership with the National Heavy Duty Truck Group Company (SINOTRUCK), a Chinese state-owned truck manufacturing firm.
The site NA Metals is using lies on 12,000 square meters and is located around Haile Garment. The factory, which took two years to construct, can assemble 1,200 trucks per year and should create around 400 jobs. Assembling the trucks here will also save foreign currency and help local workers develop skills.
At the inaugural ceremony, held on November 25, NebuyuAssefa, owner of NA metals said, “for many years Sinotrucks were brought into our country, now it is time for us to assemble the trucks here.”
The company is asking for an additional 25,000sqm from the Addis Ababa City Administration to expand the assembly plant.
“We are expecting to get the land in less than two months, when we expand we can double production and produce some of the materials here in Ethiopia.”
He added that the new plant should save Ethiopia a lot of foreign currency used to import heavy duty vehicles and plans to eventually export the trucks to other countries.
Chinese Sinotruck International is also sharing their experiences with the company. According to Zhang Yuzong, the Africa Division Sino International Manager, the company transfers its technology for free.
He added “I hope that the Ethiopian government can help support truck sales.”
NA Metals Industry and Engineering was established 10 years ago. At first it produced metal products and field tankers, but now the company has enlarged its capacity to assembly Sino Trucks for the first time in Ethiopia.
Ethiopia is a major market for SINOTRUK products. Founded in 1956, SINOTRUK is the largest exporter of trucks in China, accounting for 19 percent of the total trucks exported out of the Asian country in 2014. The company’s revenue from overseas sales was nine billion Yuan (USD 1.45 billion), accounting for about 13 percent of the total sales.
