The Tax Saga Continues

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There has recently been some strife among a certain class of tax payers in Ethiopia . It came from the proud inhabitants of Category ‘C’ businesses. Having an annual turnover of up to 100,000 ETB per annum, the issue began when the daily earnings estimate of these businesses were hiked up to unusually high rates.

[sociallocker]Some of these businesses have presented that they are being asked to pay a triple of what they had the previous year, even though they are still working in the same place, have the same number of employees, and have similar working environment and profit. They are claiming that these estimates are ridiculous and not at all substantiated. It is stated that the questions that were asked during the estimation were also not of the usual nature, with inquiries such as the cost of rent and employees’ salaries. This is an unfair method of discerning how much money a business makes.

There have been several kinds of response to this event. Businesses have closed up as a form of protest and a lot have either begun to or threatened to simply shut down. The internet has also had its fun with this event, with funny memes depicting ‘before tax’ and ‘after tax’ pictures, poems and even a parody of Teddy Afro’s popular song “Marakiye” remade as “Gemachiye”. This just goes to show that the public is deeply involved in this and would like it to be resolved.

Tax complaints do not stem just from small businesses though, it is a common woe amongst the people that tax rates are simply too high. However, to a country like that of Ethiopia, who, very uncharacteristically for an African country, has little resource and therefore the little choice of revenue, tax is crucial.

Even though this the case, the GDP to tax ratio of the Ethiopian state is barely 11%, which makes it significantly low even for a Sub Saharan country, who average 20%. Having a high tax rate is not a solution to this problem.  The International Monetary Fund (IMF) suggests decisive tax reforms are needed to support the ambitious GTP II targets for revenue mobilization. The recently passed income tax law simplifies procedures, updates tax brackets, and improves the tax appeals process. Also, the newly introduced invoice-based taxation of imports is an important step in modernizing customs procedures and trade facilitation.

 

The IMF also suggests that to achieve the GTP II objective of over 17 percent tax-to-GDP ratio by 2019/20 necessitates additional tax policy reforms, including the introduction of a property tax and review of existing tax expenditures and incentives. Regarding tax administration, measures need to focus on improving taxpayer coverage and enforcement, including by updating and maintaining the taxpayer register; using risk-based compliance monitoring; and improving IT systems, data quality, and their use.  [/sociallocker]

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