Two weeks ago Abiy Getachew, an accountant at Novis Import & Export Plc, a company that has exported pulse crops and imported Sino Trucks for the past two years, was at the Western Addis Abeba Taxpayers’ Branch Office.
Abiy was at the tax office to pay his company’s monthly income tax amounting to around 30,000 Br collected from the employees.
His company pays income tax on a monthly basis at one of the four federal taxpayer offices, i.e. Western Addis Abeba Taxpayers’ Branch Office located at Sierra Leone Street nearby Global Hotel.
The office where Abiy was beginning this month has collected 1.9 billion Br in income taxes in the last fiscal year from the employees working in the city.
The city’s revenues office collects tax mainly from three sources: direct taxes, indirect taxes and municipality taxes.
Direct taxes are collected from the salary of employees of private and governmental institutions, as well as trade profits. Indirect taxes which are consumption taxes paid by the consumers in the form of value-added taxes (VAT), excise taxs and turnover taxes (TOT). Municipality taxes are collected from service giving institutions such as land management, municipality, water authority, hospitals and schools.
In the past fiscal year, the city’s tax authority was able to collect 32.3 billion Br from direct, indirect and other taxes. The value was less by 2.2 billion Br from the target.
The revenue was collected through the 15 branch offices under the city’s tax authority and the four branches under the federal tax authority.
Out of the total tax revenues of the City Administration, 22.8 billion Br of it was collected by the city’s 15 branches. Arada District tops the branches with revenues of 6.4 billion Br, while Addis Abeba Large Tax Payers office sits on the bottom with 798 million Br in tax revenues.
Taxpayers wait in line at the city’s Revenues Authority.
Having a total of 341,517 taxpayers, the city’s tax authority classified the taxpayers in three categories depending on their incomes.
About 68,626 of businesses fall under ‘category A’ with annual sales income of one million Birr and above. The 45,199 businesses with annual income between half a million Birr and one million Birr are classified under ‘Category B’ taxpayers.
‘Category C’ taxpayers, the majority in number are those that have annual sales below half a million Birr. These 227,692 businesses are managed by a presumptive tax valuation method, as they are not obliged to have a well-organized account of their income.
Western Addis Abeba Taxpayers’ Branch Office has four schedules for taxpayers, according to Yared Fekade, director of the Western Branch Taxpayers’ Office.
‘Schedule A’ taxpayers are those who collect monthly income taxes from their employees, while ‘Schedule B’ taxpayers pay taxes from income earned by renting buildings. Under ‘Schedule C’, taxpayers pay taxes from earnings of businesses and ‘Schedule D’ taxpayers pay taxes from temporary incomes.
Abiy has already reported the tax through the e-tax system and was at the branch to collect a receipt that confirms the payment.
The branch office has dedicated a separate window for loyal taxpayers as well as for those who pay more than 250,000 Br and above a month. It has a total of 7,000 taxpayers, of which 2,000 of them are classified as loyal.
Even though the city has 347,000 businesses registered by the City’s Trade & Industry Bureau, employees cover one-fourth of the total revenue.
In the past fiscal year, 62,730 people have applied for new trade licenses, while 26,876 people returned their licenses due to various causes such as property sale and changes of trade address and trade type.
Income tax is one of the more transparent tax systems, since all of the companies like Novis are supposed to step through the doors of the tax offices monthly to pay the taxes.
In the last fiscal year, the employees of both public and private companies have paid 9.2 billion Br in income tax, which 28pc of the total tax revenue collected in the capital.
On top of that, income tax collected from 120,000 City Administration employees is around 3.2 billion Br, which brings the total tax collected from the federal and City Administration employees to around 12.5 billion Br.
The Income Tax Proclamation depicts seven salary ranges to be used for the tax deduction. The minimum tax rate is 10pc for salaries starting from 601 Br to 1,650 Br. Accordingly, the maximum tax rate of 35pc is applied for salaries over 10,900 Br.
The amount could go up, since tax collected from the employees of private companies is handled by schedule A taxpayers, according to sources close to the case.
This demonstrates that tax generated by the business community is relatively lower than the tax paid by the employees. The income tax collected by the Ministry of Revenues from the federal employees and transferred to the Addis Abeba City Revenues Authority covers over a quarter of the total of the city’s tax revenue.
Shisema Gebre Selassie, director-general of the City’s Revenues Authority, says that a slowdown in the economy has a negative impact on businesses.
“Causes of the slowdowns or freezes are considered by the Authority,” Shisema said, “but businesses have to bring justification if they pass the minimum days of operation.”
The maximum annual working days set by the city are 300 days and the minimum days are 152 days, and the acknowledged hard currency crunch has impacted most businesses.
However, the imbalance between the source of tax revenue upsets public servants, who pay their taxes loyally.
Solomon Argaw, 57, a father of two, working as a human resource clerk at one of the civil service bureaus, is one of them.
Solomon, who earns a monthly gross salary of 3,277 Br, receives a net salary of 2,695 Br after deduction of seven percent pension contribution and income tax of 352.90 Br.
“With such amount of money, it is difficult to manage four family members,” Solomon said, “while rent, foodstuff, education fee and others prices are climbing all the time.”
Experts in the area justify that there are many businesses that are not in the tax system.
“The city tax authority has failed to bring thousands of businesses into the tax system,” he said. “There is also no comprehensive reform or initiative from the Authority in bringing untaxed businesses on board.”
For this current fiscal year, the Authority targets to collect 36.2 billion Br in taxes, only a four billion Birr increase from the last fiscal year’s revenue.
“There is a potential of collecting between 50 billion Br and 80 billion Br in tax revenue in the city,” said the expert. “Thus, the city needs to work on bringing more businesses into the tax system.”
PUBLISHED ON Aug 24,2019 [ VOL 20 , NO 1008]
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