|
The enforcement of the new proclamation that governs the registration
licensing of businesses has started at the federal and regional
levels at the beginning of February 2011. The proclamation’s
provisions, under Article 6(6), require all persons licensed to do
business, whether registered under previously existing laws or not,
to be reregistered within 12 months from date the proclamation
became effective.
It is not clear why this requirement has been on hold for the past
eight months.
Thanks to armchair business process re-engineering (BPR) studies
conducted by experts with a “changed attitude,” the new
proclamation, supposedly aimed at “creating conducive situations for
commercial activities,” has introduced cumbersome, and in most cases
unattainable, requirements which are not warranted under the
applicable laws of the country and the facts on the ground.
Under the new proclamation, business persons, whether sole proprietors
or share or private companies, carrying out or intending to do
business by leasing business premises, must produce lease contracts
“authenticated by notaries.” They also need to produce verification
issued by lower administrative units - in this case the kebele - on
the address of the office.
This new proclamation is not confined to requiring lease contracts to
be authenticated by notary offices as a condition for commercial
registration for local traders. It also demands foreign business
persons to produce notarised documents from the “contracts and acts
authentication office” in their respective countries.
In the past, the requirement for registration and notarisation of lease
contracts of business or residential premises was not provided for
under the Ethiopian civil or commercial codes as a condition for its
validity.
Neither the public notary office, which has been renamed the Documents
Registration and Authentication Office (DRAO) in Addis Abeba and
Dire Dawa, nor court registries were required to authenticate,
register, and deposit such contracts.
This further exacerbates the burden on the ease of doing business to
its extreme.
Applicants for new business licences or renewal of existing ones would
have to enter into new lease contracts and submit these to one of
the six branches of DRAO. However, the branch offices have several
customary and some legal requirements that must be met before
authenticating lease contracts.
Contracting parties will soon find themselves with the numerous
requirements “necessary for authentication” of the lease contract.
The leaser and the renter would have to be ready to fulfil all the
requirements to prove their right to enter into a lease or sublease
contract of the business premise. This would be apart from the
unpredictable substantive and editorial corrections of the
instruments that are normally imposed by officers there.
The officer is empowered “to make necessary investigation in a way he
thinks proper to find out whether or not the signatory has the
capacity to sign.” Ultimately, the decision to authenticate lease
contracts would fall under the whims or will of the officer
concerned, which leaves the door wide open to delays and even the
potential for corrupt manipulation.
Most premises suitable to conduct business in Addis Abeba are either
under private or public holdings. Convincing the owner to visit the
notary office every now and then will be very challenging.
A building owner with several rooms to lease for the purpose of doing
business will be obliged to produce an original title deed. She must
appear in person or through his agent to sign the contract and
fulfil other requirements as they may arise, to authenticate
documents.
Lease contract authentication will start to suffer numerous
predicaments due to the requirement by the notary office to ensure
the capacity of the contracting parties to enter into such
agreements. The notary will require the title deed for the building,
as well as an authority to sign lease or sublease contracts.
Most properties in the city do not have title deeds and their owners
may not be in a position to present such documents. The capacity of
the leaser to rent the house will be questionable despite the
failure being attributable to municipal administrative bodies.
Undoubtedly, the requirement for the authentication of lease contracts
may be prompted by the need to ensure whether or not the signatories
are authorised, lawful, and proper parties.
Officers may have to ask and confirm that the parties are allowed to
enter into a lease contract on the premises. There may also be
compelling reasons to ensure the existence of a legitimate address,
to prevent bogus lease contracts, and require compliance with tax
laws.
Even though a lot has been said on the modernity of this proclamation,
implicit in the numerous requirements of the various provisions is
the need to control and fight “rent seekers” among the business
community. There could also be a motive in expanding the tax basis
and an interest towards creating new taxpayers among rent
collectors.
A contract of lease for business and residential premises generates
income for the leaser in the form of rent. Theproportion of rent
collected and the amount of rental tax paid are questionable. There
are individuals, including public officials, who let out premises
for high amounts in local and foreign currency, taking undue
advantage of small or no rental tax.
The recent announcement by the Ethiopian Revenues and Customs Authority
(ERCA) in providing incentives in the form of VAT and rent tax
registration appears to have been motivated by the interest to bring
these and other unregistered taxpayers into the tax net.
Over the past several years, most kebele administrations in urban and
rural areas have been merged or separated several times. A wereda
structure was recently created by the Addis Abeba City
Administration combining many kebeles.
Many kebeles and their independent legal personality have ceased to
exist. As a result, there are many duplications and confusion
surrounding house numbers in each wereda. Worse is that the issuing
of new house number to newly built, replaced, and previously
existing expanded homes have been abandoned and most “new” ones are
without numbers.
How each kebele could verify house numbers for the purpose of
fulfilling the requirement remains homework that should have been
done before issuing the law.
A lease contract is one of the legal acts subjected to the Stamp Duty
Proclamation. Stamp duty must be paid on each lease instrument at a
rate of 0.5pc of the value of the rent. It is payable on lease
contracts before or during signing by the parties to the contract.
The payment of stamp duties on lease contracts makes the instrument
legitimate, acceptable, and admissible as evidence while generating
revenues for the government. By registering the lease contract, the
ERCA can also access the leaser for the collection of rent tax.
It could be considered quite proper, sufficient, and reasonable to
impose stamp duty to ensure the legal validity and admissibility of
lease contracts. Yet, it is entirely weird for the new proclamation
to additionally require authentication of lease contracts by public
notary as a condition for the registration of businesses.
The policy reason behind requiring authentication by notary can be best
served by the payment of stamp duty. On the other hand, the
unprecedented requirement for the authentication of lease contracts
generates bureaucratisation, long queues, a lack of interest on the
part of the leaser to go and produce plethora of documentary
requirements to such offices, and uneasiness to do business.
Leasers are particularly uninterested to spend time at notary offices
to enter into lease contracts. The requirement is likely to be
dictated on each clause of the contract by the notaries through
editorial correction or may otherwise not tally with the needs of
the leaser.
Leasers may have adopted their own contract in a language other than
the working language of the respective federal or regional notary
office. While parties are free to enter into a lease contract in the
language of their preference, another difficult issue is whether the
concerned notary office will authenticate such a contract or require
a translation. This has to be addressed in the interest of
expediting registration and licensing.
Ethiopia ranked 104th out of the 183 countries in ease of doing
business, according to a World Bank (WB) survey. The new
proclamation was supposed to improve and modernise the existing law
and procedure in order to scale up the country’s standing in ease of
doing business.
However, the law and the facts on the ground do not seem to be
compatible. How the responsible executive body handles this
challenge in the face of the mandatory requirements and rules of the
proclamation will be interesting.
|
