13 January 2013

Ethiopia: Cash Machine Management Proving Problematic

At Haron Computers, technicians accommodate around 40 to 50 customers a day.

Wednesday January 9, 2013, witnessed yet another discussion about cash register machines, between representatives of the business community, and higher officials of the Ethiopian Revenues and Customs Authority (ERCA).

Such discussions are a staple of the meeting circuit between ERCA officials and businesspeople, ever since the Tax Authority started requiring businesses that paid Value Added Tax (VAT) or Turn-Over-Tax (ToT), to install cash register machines, in 2010.

Currently there are 62,540 cash register machines nationally, being used by 55,866 taxpayers. Most of the users, 46,947, are located in Addis Abeba, with a total of 52,976 machines.

This time, however, the ERCA came armed with statistics from a recent supervisory survey it began conducting in November, 2012.

Of the 32,821 businesses, with cash registers, it surveyed in Addis Abeba, it found that 43pc had committed various infractions. The number is expected to grow as the survey continues to canvass all cash register users.

Amongst those found in error, 13,407 businesses have committed violations that are punishable by a fine of 10,000 Br to 25,000 Br.

These violations include; not displaying the cash register machine in a visible place, not notifying the Authority and service providers within two hours of a cash register machine malfunctioning, not keeping adequate records and failing to notify customers to ask for a receipt.

Legal actions will follow, according to Anteneh Tamerat, cash register machine administration and implementation team leader, who was making a presentation of the findings during the meeting, held at the auditorium of the ERCA's main office.

It was this statement that drew a horde of comments from business leaders. Some, like Tadele Yimer of the Ethiopian Employers Federation, cajolingly asked that the government consider the relative novelty of cash register machines and focus more on creating awareness, rather than issuing punishments. Others, like Ayalew Zegeye, president of the Chamber of Commerce and Sectoral Association, admitted to their own culpability in violating the rules and asked for lenience.

The situation on the ground sometimes makes it difficult to comply with some of the rules, they complained. They listed such problems as; inadequate infrastructure, lack of awareness, low tax compliance rate and the inflexibility of the law to consider various situations as reasons for violating the rules.

In Ayalew's case, his tax registration machine, used for his personal business, was found in a different location than that given to the Authority. This violation could lead to a fine of 50,000 Br, or a prison sentence of six to 12 months. But how it happened was quite innocent, according to Ayalew, who runs a consultancy company.

"When I initially moved into the building, where my business is located, it did not have a specific address, so the landlords gave me their residential address instead," Ayalew told Fortune.

By the time the building had a permanent address Ayalew had updated his business licence, and other documents, but failed to do so for his cash registration machine, he says.

"The reason is because I run a consultancy firm and I only consult for clients about four times a year," he explained to Anteneh and Melaku Fenta, director general of the Authority, who was also chairing the meeting.

At the request of the ERCA, Ayalew said he had to testify to a police station that the machine had in fact been in the same place the whole time.

"I know ignorance of the law, or forgetfulness is not an excuse, but I am sure that since the system is still new there is room for awareness creation and second chances instead of punishment," he said.

The ERCA ensured a happier ending to the meeting, by giving in to the pleadings of the businesses found in error, after they asked for awareness creation instead of punishment. But the leniency will not include those businesses with more serious violations.

However, awareness creation is not the only way to address the host of problems in connection to use of cash registration machines, complain businesspeople. They are of the opinion that the ERCA needs to pay attention to increasing the tax compliance rate and scaling up its infrastructure, instead of just regulating machine users.

Fekerte Berhanu, 25, a café owner in Nefas Silk Lafto District, laments that her expenses for purchases from Merkato, where she does not get receipts, are not considered when her taxes are calculated.

"Especially spices are a problem," she told Fortune.

Usually those that fail to get a receipt, but have a cash register machine are required to issue a voucher form with the signature of the seller. But sometimes auditors from the ERCA claim that the prices on the vouchers are inflated, according to Fekerte, and with no evidence to present, there is only a lengthy argument.

"It is usually better to pay (the tax asked by the ERCA)," she says, instead of arguing about the amount.

Indeed in Ehel Berenda, the wholesale market for grains, crops and spices, it is very hard to find a single shop owner who is willing to issue a receipt. Most asked if a customer is buying in bulk, at-least 20 quintals, before they were willing to issue a receipt, when Fortune visited them last Friday.

In the end, it is businesses that do not have cash register machines that can buy from such areas at a lower price, and this brings a difference in pricing that affects others negatively, according to Fekerte.

Most of the representatives in the Wednesday meeting, including Hagos Woldemichael, chairman of the trader's forum, shared this view.

Officials from the ERCA admit that not as much attention was given to administering the trading system in the country, as regulating the cash registration machines.

"It is a complaint we hear a lot and we will have to work closely with other government branches to make sure that the whole market chain comes under the tax system," Tewordros Tefera, Deputy Director General of the ERCA, told Fortune.

Currently there are around 62, 540 cash register machines being used by businesses in the country.

Another complaint is the issue of maintenance and servicing of the machines. More and more traders protest that it takes a lot of time for the machines to be fixed or serviced. When a machine breaks down or needs servicing, its owner has to call and notify both the ERCA and the maintenance service provider within two hours.

The maintenance service provider is tasked with picking up the machine from the business and fixing it within 48 hours. This hardly ever happens, however.

Fikerte says she had to wait up to eight days to have her machine serviced. Repairs also take a long time, she states. Her family, who own a pharmacy store, have frequent machine breakdowns, but the supplier fails to respond quickly and collect the machine for repair.

"They state that they are overcrowded with other machines," Fikerte told Fortune.

So far the ERCA has 14 suppliers countrywide that can bring in these machines and provide maintenance services.

These include; Addis Home Depot Plc, Ambassel Trading Plc, Bedfam International Plc, Gossaye General Trading Plc, I-Pos International Trading Plc, Jupiter Trading Plc, Omedad Plc and Payment Business Solutions Plc, as well as the state-owned Merchandise Wholesale & Import Trade Enterprise (MWITE).

These suppliers agree that servicing and machine repair are taking longer than usual. But rather than being overcrowded, the most difficult part of the job is trying to access the ERCA and the network servers.

It was much easier in previous years to finish repair within 48 hours, technicians from Haron and I-Pos told Fortune. But, since May last year, the ERCA requires that technicians ensure the machine is able to transmit information to the ERCA server, before handing it over to customers.

Technicians have to log on to the ERCA server and print a form that shows that the machine is able to transmit information.

"Most of the time this server is down, meaning that we are having trouble," a technician from Haron Computers, which has so far supplied 20,000 machines to businesses, told Fortune. "Usually we handle the overcrowding, by working late into the night and moving in technicians from other departments to help."

On average, Haron receives around 30 calls for servicing and repair a day. It also processes around 40-50 clients that come to the office daily. Overcrowding is tough when business licence and registration is on the horizon, as those that fail to have their cash-registration machines serviced on time are denied tax clearance.

"We get a backlog, but even then we handle it by working into the night," a technician from Haron told Fortune.

Network problems are frequent, according to Belete Woubneh, deputy manager at I-POS, which has supplied 7000 machines so far.

On Friday, January 12, 2013, I-Pos had 30 machines which had not been delivered on time because of network problems, when Fortune talked with them.

SIM cards, which transmit information to the ERCA also fail and have proven to be a problem. These SIM cards have to be changed when the machine is serviced yearly, at a cost of around 400 Br.

One supplier, who wanted to remain anonymous, reported that 1,100 SIM cards failed to activate last week, which will delay the same number of businesses whilst getting their machines serviced.

The ERCA also realises that network and server interruptions are becoming a problem. However, it only admitted this after it began requiring print-outs, as proof that the machine is transmitting.

"Previously, the suppliers had a 94pc success rate in finishing the work and delivering the machines on time," Tewodros, from ERCA, told Fortune. "However, since printouts have been made a requirement, this is no longer the case,"

The ERCA is trying to work with ethio-telecom to address the problem. It has no intention, however, of cancelling its contract with the suppliers.

"A single supplier, on average, has provided around 4,000 machines. So cutting off contracts is not something we take lightly," Tewodros said.

Instead, heavily regulating these suppliers and adjusting the server and network problem with telecom, is something the ERCA is working on. The ERCA certainly set the mood right by changing its punitive attitude, but the businesses Fortune talked to were unhappy about having to answer legally for problems that are out of their hands.

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