2 August 2014

Ethiopia: ZTE in Row With ERCA Over Taxes Worth Br920 Million

The Chinese telecom company undertaking multi-million dollar telecom projects in Ethiopia, ZTE (H.K) Limited Ethiopian Branch, has filed formal complaint to the

office of the Prime Minister as well as the Ministry of Finance and Economic Development (MoFED) regarding 900 million birr tax claim that the Ethiopian Revenues and Customs Authority (ERCA) made against the company and the tax authority's move to stop payments being made to ZTE by its contractor Ethio telecom.

ERCA claims that ZTE owed 900 million birr in unpaid taxes, penalties and interest out of the total sum of 920 million after the company settled the 20 million birr. Following that, the tax authority proceeded to writing a letter to the finance department of the contractor Ethio telecom to freeze payments that is made to the company. Earlier this week, Ethio telecom's corporate communication directorate head, Abdurahim Ahmed, confirmed that his company had received the letter from ERCA. According to Ethiopian Tax Law, ERCA reserves the right to order companies to stop payments or take other necessary measures to ensure tax compliance.

The company on its part did not deny that it was asked to pay only 920 million birr by ERCA, but said that the amount that was originally claimed went through a series of revisions following its appeal to the tax appeal committee. "The tax authority had made an audit on our company and had claimed around 920 million birr on April 21, 2014," ZTE's statement said. But, the total amount of the claim also included penalties and interest payments apart from unpaid back taxes.

In its statement, the company also indicated that it had used its legal right of appeal and tried to prove to the authority's tax appeal committee that the claims are not correct and that it had been paying its taxes properly and according to the law. According to the statement, the company had the committee acceptance for its part of the argument and the latter had ordered the rechecking of the claims. "Based on this, we had managed to get a reduction of around 398 million birr and currently the claim had been reduced to around 522 million birr," the statement explained further. ZTE also argues that, when all the penalties and interest are excluded, the total tax claim would be 157 million birr.

The Chinese telecom giant did not, however, deny that some of its arguments made to the appeal committee, which it claimed to be according to the law, had not been accepted. Nevertheless, it vowed to keep pushing the legal battle against ERCA until its arguments are either accepted or rejected according to the country's taxation system. Since the formal legal procedure is still going on, ZTE refuses to believe that it is late on its tax obligations. "We are intending to climb the appropriate legal ladder. Until all these processes are completed, it is our understanding that we cannot be said to be late in our payment," the statement said. According to sources, the company is still in negotiation with the tax authority, seeking further reduction of the claims, while, at the same time, awaiting arbitration from both PM's office and MoFED if there is one. Though ERCA is granted with the power of regulating and considering tax related appeals from individuals or organization of any tax payers, MoFED and the PM's office also have an advisory role on such matters of tax dispute and complaints, especially with foreign companies, considering the peculiar types of business they are in, like foreign direct investment.

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