20 January 2013

Ethiopia: ERCA to Claim Unpaid Dividend Taxes

Melaku Fenta, director general of the ERCA, was unbudged by complaints from representatives of the Addis Abeba and Ethiopia Chambers of Commerce and Sectoral Associations about the Authority's move to collect prior unpaid dividend taxes.

The Ethiopian Revenue and Customs Authority (ERCA) affirmed its determination to collect dividend tax retrospectively, although it would charge no interest and penalty, at a meeting with the Addis Abeba and Ethiopian Chambers of Commerce & Sectoral Association (AACCSA).

The meeting, held at Dessalegn Hotel on January 19, 2013, entertained the protest of the business community who claimed that retrospective tax collection was illegal.

The Authority says that those companies that had avoided paying dividend tax claiming that they had not divided the profits will, nonetheless, have to pay the 10pc tax to be computed from their net profit since the time the proclamation was in place.

"The Authority was silent for the past years because of it was making corrections step by step; now it is time for dividend tax," Mekonnen Ayalew, legal advisor of the director general told Fortune.

Both ERCA and the business people were relying on the same Article 34 of the proclamation to defend their positions.

"There is no word and statement in the provision that obliges the payment of dividend tax without the members sharing the profit," Yohannes Woldegebriel, head of ACCSSA's Arbitration House. "This was the practice in both inUnited Statesand inEthiopiafor the last decades."

Mekonnen, on the other hand, argued that, whether they shared the profit or not, they would still have to pay tax by the mere fact that the company had made a profit.

"Shareholders retain their profit to create another profit," he said.

Umer Abdulqadir, manager of Snad Plc, a spare part importer, told Fortune that ERCA was silent intentionally, because it had always known the performance of the companies whose audit reports it has always been approving.

"ERCA should not say now that it is legal to collect dividend tax after ignoring it all these years," he says.

The 2002 tax proclamation, Article 71, states that the tax authority has only five years to revise its assessment if the tax payers have declared their income as prescribed in the proclamation. A lawyer quoted this article, arguing that the time has run out for the ERCA to go back to 2002 and claim dividend tax.

"The period of limitation would be an issue if the tax payers fulfilled all their responsibilities," Melaku Fenta, director general of the Authority said. "Since customers did not pay what was expected from them, the period of limitation would not be applied."

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