Addis Fortune (Addis Ababa)
Yohannes Anberbir
24 November 2008
Parliament has empowered the Ministry of Finance and Economic Development (MoFED) to decide whether Value Added Taxes (VAT) should be collected by local suppliers, or be retained by their purchasers, who latter would have to transfer it to the Revenue and Customs Authority (RCuA).
An amending proclamation of VAT Proclamation Number 285/2000, which was approved by the legislative organ of the government last Tuesday, November 18, 2008, gives MoFED the authority to remove the delegated powers to collect VAT from some unreliable suppliers, allowing the procurers to withold the 15pc VAT, and pay it instead directly to the Revenue and Customs Authority (RCuA). The previous proclamation stated that purchasers had to pay VAT to the suppliers with the acquisition of goods.
"The tax shall be withheld and be paid to the authority by the buyer in accordance with the directives to be issued, as may be necessary, by MoFED," a sub article on the amending proclamation reads.
This amendment has been necessitated because many of the suppliers delegated by the existing law to collect VAT have not been timeously forwarded to the relevant authority, according to government finance officials.
"They have been spending the tax they collected from the purchasers, disadvantaging the tax collecting authority," Mekonnen Ayele, vice attorney general of the RCuA told Fortune.
This is the very reason that forced the authority to propose the new article in the amending proclamation to avoid this problem, he elaborated. This particularly places the onus on the purchasers by giving them the mandate to withhold the tax and pay it to the authority.
"MoFED is not going to prohibit all suppliers from collecting VAT and it will not give withholding power to all procurers either," Mekonnen told Fortune. "That is why the phrase 'as may be necessary' is inserted in the amending article."
Government institutions represent 80pc of the country's procurements. Thus, allowing purchasers to withhold tax would significantly contribute to reducing the loss in revenue, a research conducted by the authority indicates.
A legal expert in one of the beverage factories, who requested anonymity, criticized the amending proclamation for failing to cater for the complaints often made by suppliers.
"We have been paying the VAT that we collect after deducting the tax we paid for the production of the supplied goods," the expert said. "However, this law will prohibit us of that chance and will delay our reimbursement period."
The authority has a system of reimbursement for taxes mistakenly overpaid, or if the tax payer qualifies for a refund. But it has also officially admitted that the system is not helping the tax payers.
Lately, however, the authority seems to have a solution for the feared delay.
"It would not be a problem now because the Business Process Reengineering (BPR) we have just implemented has a remedy to improve efficiency," Mekonnen said. "This will help the authority in providing quick service to the tax payers."
VAT represented close to six billion Birr of the 20 billion Br revenue collected from local sources last year.
Currently, the government estimates that there are 13,000 major tax payers who are not actually paying the exact amount they should be.
Performance of the authority within the first two months of this financial year shows a maximum of 30pc shortfall of its anticipated target.
For instance, from a 2.53 billion Br projection of the taxes it would amass in August 2008, it only collected 1.8 billion Br.
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