10 June 2018

Ethiopia: Keangnam Lands Partial Relief of Taxes for Reentry

Keangnam Enterprise Limited, a Korean construction firm that had requested the government to be relieved of 75.6 million Br of unpaid taxes has finally agreed to pay the due amount in instalment payments.

The company, which pulled out of Ethiopia in 2016 after operating for two decades due to bankruptcy, is trying to re-enter the country in spite of 339 million Br it owes the government in taxes and customs duties. It has also been blacklisted by the Ethiopian Roads Authority (ERA) following its financial crises. In addition, its properties and bank accounts have also been put under injunction by customs authorities.

Three weeks ago the company, through its country director, submitted a request to be relieved of 75.6 million Br in interest tax and to settle the 263 million in customs duties through a five-year instalment payment plan. The petition, which also includes a request to have the company's seized properties released, was submitted to the Ministry of Finance & Economic Cooperation (MoFEC) on May 22, 2018. Recently, ERCA has also seized 13 million Br from the bank accounts of the company.

Though its request is pending at MoFEC, the company signed an agreement last week with the Large Taxpayers Office (LTO), a division of Ethiopian Revenue & Customs Authority (ERCA), to settle the interests accrued on the taxes owed.

"It has signed the deal with ERCA, agreeing to pay the money in a one-year instalment plan," a source close to the case told Fortune.

Based on the decision of the tax appeal office of the Authority, LTO requested the company to pay a total of 290 million Br in corporate taxes incurred between 2012 and 2016 along with fines and interests. The total of unpaid taxes due was 91.9 million Br while the fines assessed amounted to 122.9 million Br. Later, LTO relieved Keangnam from the fines and requested payments for the principal and the interest only, as it does not have the authority to cancel interest payments.

Addis Abeba Kality Customs Branch Office, a division of the Authority, has also requested the company to pay a separate 263 million Br in customs duties for construction equipment and machinery it imported with temporary customs guarantee bonds issued in 2007.

While operating in Ethiopia on a 1,600Km road construction project, Keangnam had imported 1,300 pieces of equipment and machineries free of customs duties. Later, it settled payments on 875 pieces leaving the rest in limbo. Of the total 263 million Br assessed against the company for the 875 pieces, a balance of 91 million Br still remained unpaid and the amount is considered delinquent.

Established in 1951, Keangnam entered Ethiopia two decades ago and is considered one of the pioneering overseas construction companies who first set foot in Ethiopia when the country liberalised the construction industry. The Tokyo based Kajima Corporation, the European joint venture firm of Dragados-J&P and Esojat, a French construction company, are the other pioneers who were active in the country before local construction firms mushroomed.

After 20 years of successfully operating and executing 12 major projects or more, the company ceased operations in Ethiopia in 2016 following the financial crises it encountered when the parent company entered bankruptcy with the death of its board chairman, Sung Woan-Jong. The crises boiled over into its activities in Ethiopia and the company subsequently closed down its operations.

Emphasizing its goodwill, accomplishments, the list of completed projects and the business potential of the country, Keangnam requested MoFEC to be re-admitted into Ethiopia. It announced that it has been reorganized, emerged out of bankruptcy and it has merged with another Korean giant company that owns 68 subsidiaries with an annual revenue of 10 billion dollars.

Abraham Tekesete, minister of Finance & Economic Cooperation (MoFEC), told Fortune that the company has not received any official response from the Ministry.

Repeated attempt to reach the management of Keangnam through phone calls have bore no fruits.

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