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The Ethiopia Revenues & Customs Authority (ERCA) has
selected 10 companies from the manufacturing sector
as Authorised Economic Operators (AEO). This status
entitles them to preferential treatment during
customs clearing.
The AEO scheme is an arrangement reserved for
companies who are considered highly compliant and
reliable in their tax and customs operations.
Companies have to pass through a compliance
evaluation by auditors of the Authority before they
can benefit from the scheme.
The companies were selected though pilot projects
run to test the scheme. These include Moenco, Ayka
Addis Textile and Investment Group, ARA Shoes,
Ethiopian Shipping Lines (ESL), Dry Port Enterprise
(DPE), and the former Ethiopian Maritime & Transit
Enterprise Service (EMTS), which is now amalgamated
into Ethiopian Shipping & Logistics Enterprise
This arrangement was studied for the past one and
half years to check if it was workable. For the
pilot project, the authority selected 15 volunteer
companies. Five were found to be ineligible after
the evaluation. In order to get AEO accreditation
from the Authority, companies are required to
complete a self assessment form rating their system
compliance which is later evaluated by the
authority’s auditors. There are around 300 entry
points used during the evaluation.
This scheme is aimed at making the non-complaint tax
payers compliant by assigning different privileges,
according to Mamo Abdi, advisor to the general
director of the ERCA.
The volume and growth of a business, the compliance
history of the company, the flow of goods and their
requirement for foreign suppliers and business
partner’s reliability are some of the parameters
that the ERCA compliance auditors use. If a company
has any non-compliance on record it will be
automatically disqualified, explained Mamo Abdi.
Once a company has passed the evaluation of the
auditors, it will sign a Memorandum of Understanding
(MoU) with the general director of the ERCA.
However, the type of facilitation and preferential
treatment offered varies based on the level of
compliance as assessed by the auditors. Companies
are rated as diamond, gold, silver and bronze in
descending order.
Bronze is given to a company which has scored a
satisfactory level of compliance in the evaluation
and is entitled to priority control services at the
clearance station of the authority. The silver
entitlement will allow a company priority control as
well as simplified clearance service with
photocopied documents instead of originals. A gold
rating allows for clearance service at the premises
of businesses. The diamond status allows for
extension of payment periods.
Although operators are allowed to get clearance
services based on their own declarations, they will
be subjected to a post clearance audit as deemed
necessary, according to the authority.
If a company with AEO status defaults, it will lose
its eligibility for the scheme. This is because the
authority is assuming a huge risk when it decides to
trust whatever the operator declares as genuine,
Mamo Abdi told Fortune.
Out of the 10 companies which received the AEO
status, seven of them accomplished gold status
including Ayka Addis, a Turkish investment engaged
in exporting textiles and garments. It was
established in 2009 with a 200-million dollar
capital. ARA Shoes, a German company engaged in
exporting shoes, also attained gold status.
Two companies have reached silver and the former
EMTS achieved bronze status. However, none of the 10
companies accomplished diamond status.
Compliance has been a big issue with the Authority.
The tax compliance rate of the Merkato business
district is only 25pc only, according to an IMF
study. It is considered to be the business hub of
the country, where half of the cash-based business
transactions occur.
“It also enables the authority to generate more
revenue from customs as the companies’ trade
transaction will increase because of the tax
facilitation,” Mamo Abdi told Fortune.
The ERCA has established an AEO customer relations
unit that will register all applicants and check for
compliance to the AEO’s requirement.
“This will also help to strike a balance between the
need for tax and customs law enforcement and trade
facilitation”, Mamo Abdi said.
While this is a move that can increase the tax
compliance rate, it might opena door for corruption,
according to an expert who teaches at the Addis
Abeba University.
“Since there are powerful tax payers who have strong
affiliation with the government, they might abuse
the system,” the expert argues. “Therefore, there
should be an independent organ, which can validate
the final say of the ERCA in order to monitor the
whole activity.”
Customs duty is one of the major contributors to the
revenues that ERCA collects on an annual basis. It
contributed 48pc of the share of collections in the
last fiscal year. Out of the 79 billion Br planned
to be collected this year 22 billion is expected to
come from customs duties. |
