Minister of Finance Ahmed Shide ordered a temporary suspension of accrued social welfare taxes imposed on importers, citing delays and implementation difficulties since the enforcement of the regulation. He sent a letter to the Customs Commission three weeks ago, signifying a decision pending further investigation into the hurdles faced by importers.
The social welfare tax, introduced in the last fiscal year as part of the government’s strategy to broaden the tax base, was projected to generate 22 billion Br. Set at three percent on imported goods, the tax had specific exemptions, including capital goods, fertilizers, and petroleum products.
Tax authorities had been calculating the new charge by combining the value of imported commodities, freight expenses, and insurance fees. The collected fund was earmarked for rebuilding infrastructures damaged by the conflict in the north and addressing gaps in the aftermath of the pandemic.
The contention arises from the Customs Commission’s delayed order for implementation. The order was issued five months after the initial approval of the social welfare tax regulation by the Council of Ministers in 2022. The failure to commence timely implementation has resulted in a substantial backlog, leaving importers unable to adhere to the levied tax.
Zerihun Assefa, communications director of the Customs Commission, attributed the delay to the wait for the inclusion of the social welfare tax code and the Federal Negarit Gazette. This delay hindered the integration of the social welfare tax code into the system, affecting 16 out of the 18 branches.
“We were waiting for the code to be added to the system,” he said.
Ethiopia’s economy was adversely impacted by soaring expenditures as a result of civil war, political instability, a pandemic, and rising global commodity prices. Surging budget deficits have prompted officials to boost revenue collection. Ministry of Revenue reported that 64.7 billion Br was collected from foreign trade taxes and duties in the first four months of the fiscal year while aiming to generate approximately six billion Birr from the social welfare tax.
Importers anxious over unpaid duties expressed a collective sigh of relief following the Ministry’s decision while they await clarity on the fate of the social welfare tax and its implications.
As the industry anticipates the results, Kassahun Tasew, a clearing agent with 20 years of experience, highlights his frustration. He disclosed that the Commission briefed them about the social welfare tax six months after its approval, and importers were being asked to pay three percent of the tax for a period when the Commission had not designated a code in the declaration time.
“They could’ve uploaded the code immediately,” said Kassahun.
His sentiment is echoed by a transistor for two importers, Habte Petros whose clients were asked to pay 180,000 Br after the Commission audited a month ago. He believes the decision by the Ministry has brought temporary relief from additional financial burdens.
“We weren’t aware,” he told Fortune.
The situation is no different 280 km from the capital at Hawassa Industrial Park. Hibret Lema, head of the 23-member strong Investors Association with over 23,000 employees, said the manufacturers are struggling to keep their buyers after the US government delisted Ethiopia from the African Growth & Opportunity Act (AGOA). He said the Commission should not attribute backlogged taxes through a fault of their own to the investors.
“It’s not right,” said Hibret.
The Ministry’s letter to the Customs Commission outlined the need for a comprehensive briefing on the uncollected taxes from each company, with the issue potentially escalating to the Council of Ministers if deemed necessary.
Legal experts urge officials to rectify procedural mistakes in tax collection, indicating the need for regulatory bodies to uphold procedural integrity to maintain public trust and ensure a fair and transparent taxation system.
Tadesse Lencho, managing partner at Tbest Law Firm, acknowledges the law that allows authorities to request tax dating back up to five years from the effective date. However, he argues that the Commission failed to adhere to the correct procedures, leading to complications, despite the supportive legal framework.
“They should swallow their mistake,” he said, recommending to take responsibility for procedural lapses.
While payers might not proactively declare certain taxes and duties, it is the responsibility of the Commission to trace and enforce compliance, according to Lencho.
Despite the attempt to ease the situation, tensions between importers and the Customs Commission remain palpable. According to Wasihun Belay, a tax advisor at the Ministry, although the decision was made in response to importers’ plea, the Commission is within its right to audit backlogs and levy the taxes.
“Being unaware doesn’t absolve anyone from tax obligations,” he said.
Source: Addis Fortune
