The Ethiopia Revenues & Customs Authority (ERCA) is to conduct the second phase of a business survey in the capital to register more taxpayers, sources disclosed to Fortune. Senior officials from the Authority are in negotiations with the Addis Abeba City Administration in order to get their nod.

The issue has been brought to Kuma Demeksa, mayor of the capital, for a political decision, according to these sources.

“It is their taxpayers who will be surveyed, which requires a political decision from the highest order in the City Administration,” a senior official at the ERCA told Fortune. “We are only waiting for the go-ahead.”

However, tax officials at the ERCA have been busy for the past few weeks preparing programmes and training the tax agents who will be undertaking the survey that is expected to start in two weeks, Fortune learnt.

The authority aims to survey 23,000 business establishments in the capital during the second phase.

The Authority conducted its first survey back in November 2010 on 95,000 businesses, deploying 1,200 fresh graduates. The ERCA identified 9,000 businesses out of the tax net, while 11,000 taxpayers were not collecting value-added tax (VAT) on behalf of the state and 36,000 businesses were still required to use cash registers.

Such revealing findings led the Authority to collect 1.6 billion Br from the City Administration in the first quarter of this fiscal year, doubling the amount collected during the same period the previous year.

This also represents 30pc of the City Administration’s target of collecting 5.5 billion Br for the current fiscal year.

This aggressive move by the Authority has created bitter contention between business owners and the Authority.

The strongest resistance has come from taxpayers who have been upgraded from their previous Category C, the lowest classification that comprises of businesses with annual turnovers of less than 100,000 Br, to Category B. In this category are businesses whose annual turnovers fall between 100,000 Br and half a million Birr. Businesses in Category A have annual turnovers above half a million Birr.

The fresh graduates who conducted the surveys were young, inexperienced, and ill-prepared and, thus, placed them in the wrong classification, many businesses, which had to face stiff tax notices upon being upgraded to Category B, complained. The graduates deployed by the ERCA made assessments on observable assets, including furniture and equipment, in addition to account books.

“The tax law advocates a standard assessment system,” a tax law expert, who wished to remain anonymous, told Fortune. “But it is not clear why the Authority is following the estimation system.”

Standard assessment is a fixed amount of tax levied on taxpayers after the Authority makes market surveys on each of the sectors based on developed parameters, including business type and size, such as the number of employees and location. Thus the Authority fixes their profit not based on an individual basis but following parameters set for individuals who engage in the same business and develop tables for industries, indicating the tax rate, according to the expert.

“A standard assessment method shall be used to determine the income tax liability of Category C taxpayers,” reads the tax law.

However, the taskforces deployed by the ERCA go to specific business places and estimate the tax that should be paid and determine their categories.

“In the absence of credible surveys conducted, the estimation will be subjective and open to corruption,” the expert said.

It will not give the accurate revenues to the Authority, as there are industries whose businesses boom during particular seasons, while others may have a different experience, hence misleading assessments, argued the expert.

Indeed, this has been an issue raised by taxpayers in almost every meeting tax authorities have called for consultations. Declining to comment on the major changes in the procedures of the assessment, a senior official at the Authority pledged that problems of the past will not be repeated during the second phase.

The Authority is training 625 fresh graduates on the basics of market surveys. They will complete their training on February 3, 2012. Though the survey will be conducted in all districts, higher emphasis will be given to Addis Ketema, Bole, and Kolfe Keranio, according to these sources. 

The Authority wants to broaden the tax base, by increasing tax contributions to the GDP, which stood at 11.3pc in 2010/11 fiscal year. The federal government plans to increase this up to 17pc of domestic revenues by the end of its growth plan in 2015. Nonetheless, achieving this goal will remain a success not quite on par with the Sub-Saharan average of 18pc.

The government also expects the taxman to collect 70 billion Br during this fiscal year, an enormous jump of nearly 49pc from last year. However, the Authority puts its in-house target up by nine billion Birr from what the administration of Prime Minister Meles Zenawi expects for the fiscal year.