Over 100 vehicle importers have had their bank accounts frozen by tax authorities, while 41 have filed lawsuits against the Addis Abeba Revenue Bureau (AARB) over a disputed vehicle pricing standard, escalating the legal conflict.
The importers argue that the AARB’s pricing rules lack legal grounds. The dispute stems from a circular issued two years ago by Adem Nuri, head of the AARB, which was only recently implemented. The circular mandates a fixed pricing formula for imported vehicles when declared to tax authorities.
The AARB has introduced new vehicle valuation standards, which are now used by 16 tax office branches across the capital. Tax officials say these standards intend to reduce tax evasion and increase revenue.
The valuation uses a weighted formula that takes into account factors such as the customs declaration, current market prices, the vehicle’s country of origin, the factory where it was made, its intended use, and the profit estimates provided by the importer.
Sewnet Ayele, head of communications at the AARB, stated that studies were conducted to develop the formula, ensuring all scenarios are addressed and leaving no room for tax loopholes.
Importers have voiced frustration over new vehicle price standards, claiming they were caught off guard and not consulted. One importer said that the tax authorities' price assessments were as much as 70pc higher than their declared values in annual income tax filings. Many importers say they now face additional payments ranging from 10 million to 40 million Br.
The dispute escalated on December 12, 2024, when importers filed a lawsuit against the AARB. They argue the new rules were implemented without proper procedure, violate administrative protocols, and overlap with existing tax laws. Importers also claim that the pricing standard was never registered by the Ministry of Justice (MoJ).
However, tax officials say they are acting within their legal rights, citing the Tax Administration Proclamation, which grants them the authority to conduct price assessments to uncover tax evasion. Sewnet claims that many importers have underreported their income and that these new standards are necessary to address the issue.
On December 18, 2024, the Federal High Court, led by judges Nazareth Zeleke, Abdisa Dashura, and Mehari G. Medhin, issued an injunction halting the new pricing standards pending further investigation starting from December 13, 2024. The court also ordered importers to pledge five million Birr to cover potential losses incurred by the AARB.
To appeal the previous tax demands, importers must file cases with the Ministry of Revenue’s (MoR) tax appellate body, with the option to escalate to the Federal Appeals Tribunal.
The new pricing standards, delayed for a year, were enforced after vehicle importers submitted their annual income tax filings. The AARB rejected these filings and introduced new calculations to determine vehicle prices.
Importers who refused to pay the required amounts had their bank accounts frozen. "They broke the law by refusing to pay," said Sewnet. “The Bureau has the authority to seize property if bank funds are insufficient.”
The Bureau's goal for the current fiscal year is to collect 230.4 billion Br in taxes. It has so far collected 75.42 billion Br in the first five months.
An importer with 15 years in the business, has 17 vehicles stuck in Djibouti, incurring demurrage fees because his bank accounts are frozen. He said it has prevented him from settling his Letter of Credit (LC). He claims the AARB has inflated some vehicle valuations by as much as 100pc, reaching up to three million Birr per vehicle.
Despite selling around 170 electric and hybrid vehicles this fiscal year, his declarations were denied by the authorities. “We had no choice but to take our case to court,” he said.
Current market prices show that the BYD Seagull sells for around 2.2 million Br, the Volkswagen ID4 for six million Birr, and the Suzuki Dzire for 3.5 million Br. Most importers have shifted to electric vehicles (EVs) after the government imposed a ban on fuel-powered automobiles. The import of EVs nearly doubled in 2022/23, reaching 72 million dollars.
In addition to income tax issues, authorities say they are targeting tax evasion in vehicle sales. When buyers purchase vehicles, they are required to pay a two percent tax to the Addis Abeba Drivers & Vehicle Licensing and Control Authority (DVLCA) based on the contract between buyer and seller.
However, since July, the Authority has begun using its own standards to calculate vehicle prices, citing underreporting of contract prices as the reason. Tesfaye Abebe, communication director at DVLCA, stated, "Most buyers have been underreporting on their contracts."
One buyer was forced to pay 800,000 Br more than expected after the Authority assessed the real value of his 1.3 million Br vehicle at over two million Birr.
Ketema Adane, a tax expert, argues that the AARB’s authority is limited by the tax administration proclamation, which grants the Ministry of Finance (MoFA) the power to legislate such laws, and in special cases, the Ministry of Revenues. He states that the Bureau is not authorised to impose these price standards.
Ketema also criticised the use of simple letters and circulars as though they were laws. “Officials should be very careful when writing these letters,” he said.
He believes the Bureau should not apply blanket pricing, as each importer has a different pricing method, influenced by various factors. According to Adane, the AARB's role is to report and determine taxes, not to set standards for collecting them. “The Bureau has no legal basis.”
Editor's Note: This article was updated from its original form on January 1, 2024.
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