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The Ministry of Finance and Economic Development (MoFED)
issued two directives aimed at broadening the tax
base of the country and raising government revenue.
Signed by Sufian Ahmed, minister of MoFED, the
six-page directive requires adjustments on the
category C presumptive tax rates on the regional
level, businesses whose annual turnover is below
100,000 Br. According to the new directive, the
profit tax rate Category C taxpayers will surrender
to the government will be within the 10-30pc margin
showing a significant increase from the 7.5-10pc
previous rate. The other directive pertaining to
rental income tax increased the 10pc rate to 30pc.
The directive was distributed to local tax
collecting agencies in the nine regional states, as
well as Addis Abeba and Dire Dawa as of July 3,
2007.
Initiated in a meeting federal ministers and
regional presidents held in Adama (Nazaret)
on March 27, 2007, the latest taxation formula aims
to boost national revenues for the 2007/08 fiscal
year. Participants also lobbied for the capital
gains tax –a levy on land and immovable assets - and
agricultural income tax rates to be reviewed. After
undertaking a study, MoFED mandated the regional
states to set these rates based on their own
contexts.
Some local business owners believe the government is
barking up the wrong tree in its fight to raise
funds for the record high federal budget.
“It cost me 30 million Br to install a building, 10
million Br higher than my expectation, due to the
increase in cement and steel prices; on that account
an increase in rental tax from 10p to 30pc is not
legitimate,” a building owner in Merkato who wished
to remain an anonymous told Fortune. “It
should be aimed at increasing the number of tax
payers rather than the tax rate.”
In the 2007/08 budget year, 20.3 billion Br is
projected to be collected in taxation from 87
different business domains, showing an increase of
13pc from that of last year. This is the largest of
all domestic revenues that the government has
envisioned on collecting with the aim of covering
46.2pc of the record high 43.9 billion budget
approved by Parliament with no vote of protest.
Of this projected taxation revenue, 60pc will be
covered by direct taxes which includes collections
on a regional level. The latest directive,
therefore, will widen the tax base of the country
from a section of businesses that are barely
touched.
Asrat Chala, general manager of the Dire Dawa
Revenue Agency, told Fortune that he does not
believe the tax increment would put pressure on the
taxpayer.
He, however, noted that the delay in the directive
would put pressure on the Agency as they had already
adjusted their collection plans and budgets based on
the previous rates.
The Agency collected 76 million Br in 2006/07,
showing an increase of 19 million Br from the
previous year. Similarly, there is a plan to raise
this figure to 89 million Br in the next budget year
with the new taxation rules, he added.
There are around 300,000 taxpayers in Addis Abeba.
“These taxpayers would pay off their tax dues in the
next budget year based on the latest directive,”
Berhanu Woldetensay, head of the Addis Abeba Finance
and Economic Development Bureau, told Fortune.
MoFED Macroeconomic and Policy Department head,
Fantahun Belew, was not available for comment.
The Plan for Accelerated and Sustained Development
to End Poverty (PASDEP) puts the amount Ethiopia
obtains in taxation from domestic production at
13pc. However, there are plans to increase this
number to 16pc in 2011.
Nonetheless, there are still concerns that 16pc of
Gross Domestic Product (GDP) tax revenue collection
is one of the lowest in Africa.
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