Fortune News | Jun 26,2021
Impassioned speeches against the proposed property tax proclamation echoed through the deserted meeting hall at the Ministry of Finance on King George VI St. last week.
The Ministry’s call for public consultation on the machinations of the looming tax about a month ago could only gather 17 participants, mostly from the corporate landscape. Attendees attributed the dismal turnout to a 'half-hearted' announcement, which was limited to certain digital platforms.
The acting legal affairs head Tewedaj Mohammed claims the absence of a formal entity to make public pronouncements was the cause for the few number of participants. After pushing the kick-off schedule by 40 minutes, he commenced the processions stating his disappointment.
"I expected at least 200 attendees," he said.
Indeed, the looming property tax which is pending ratification, had many talking about it and enquiring the details. Residents had been raising affordability, transparency, and relevance of imposing property tax during galloping inflation through their representatives asking officials for explanations.
A fiery debate ensued within minutes following the opening remarks by the senior advisor to the Ministry, Wasihun Abate. He explained that the proposed tax be levied to repatriate earnings from appreciated values of private possessions against the backdrop of built infrastructures which are public property.
While indicating that the collected tax would bring "fiscal independence" to regional administrations and increase tax revenues, Wasihun explained to the befuddled audience that the tax would be a sum of levies on both land-holding rights and the buildings while the precise rates on each would be decided when the draft reaches the Council of Ministers.
The federal government is eyeing 441 billion Br in tax revenues for the current fiscal year. Expanding the tax bases has been the preferred strategy with property tax, value-added tax, and excise taxes taking the front.
The mandate to collect the property tax was given to regional states in a joint session of the two legislative houses in January.
Wasihun revealed that governmental institutions would also be subjected to the tax in the form of free public service.
"There is no free lunch," he told Fortune.
When ratified by Parliament, the property tax proclamation will replace the 1976 "Wall & Roof Tax", which recently brushed its specks of dust from the archives and was amended by officials at the Addis Abeba City Administration; a move that had caused the Ethiopian Federal Advocates Association to demand an explanation of the legality a fortnight ago.
Exemption from the tax will be given for those who meet the criteria of living on less than 15sqm in cities, 30sqm in peripheries and senior citizens unable to pay at the time of collection.
Meanwhile, properties bestowed by them will be subject to a five-year tax retrogressive obligation. Regional states will also be mandated with the authority to extend the extent of their exemptions based on their respective property evaluation.
"Land is not as scarce in regional states," said the tax advisor.
A public consultation on the proposed property tax proclamation at the Ministry of Finance.
According to Wasihun, the total taxable value will not exceed a quarter of the commercial value of the property, with a uniform application across the country. The 'commercial' property value is established on estimations of the rent value of the property for a single year by experts drawn from several offices.
Property taxes will be collected annually by regional administrations on buildings and land holdings. Both commercial and residential properties will be subjected while improvements to land in the form of parking lots, waterproofing walls and floor tiles in compounds are not spared.
Considered a silver lining by officials is an alternative payment modality to be made every three months.
Despite the veteran tax advisor’s suggestion that collection and implementation differed across countries, the ensemble of consultants, lawyers and businessmen in attendance had a lot to contend with.
Eyasu Girma, a finance consultant, told the representatives from the two ministries the poor timing of introducing new taxes while wages remain stagnant.
"It will only worsen the inflation while contributing little to tax revenues," he said.
He recommended the adoption of a tax on bonds, shares and luxury vehicles to increase tax revenues instead of going after the prized property of citizens.
As the federal government has indicated plans to collect up to 60pc of its 801.6 billion Br budget for the year through taxes, the likelihood of public prostration curbing the rising wave of taxes is slim.
Officials insisted that the new tax will enable further construction of infrastructure.
Zenith Ibrahim, who represented the Ministry of Urban & Infrastructure, pointed at the session that the 2,500 cities in the country relied on World Bank grants and federal subsidies managing to finance a mere 24pc of their capital infrastructure needs.
Real estate developers have a special bone to pick in their proposition due to their line of business.
Owner and manager of the decade-old Upper Nile Real Estate, which was incorporated with six million Birr capital, Firew Zewde was utterly unimpressed by the timing of the consultation.
"Is this a joke?" he enquired recalling how the Addis Abeba's Tax Bureau had been collecting a wall and roof tax this year. Firew, who owns two large residential properties in Addis Abeba expects the price of rent to shoot up due to the imposition of the tax.
In a "free market", owners can raise the rent on their respective property with public servants and regular employees absorbing the blowback, according to Firew.
The real estate developer is concerned about inflated property value. He remarked that consumers will bear the brunt in an alarming tone.
"I will increase sales prices,” said Firew, pointing to unsold properties on his two developments. The response from the tax advisor: "We can't do anything about that."
Despite the draft proclamation hovering in public consciousness over the past year some in the legal circle have continuously questioned its legitimacy.
The veteran lawyer Yohannes Woldegebrie emphasises the importance of redefining property rights before expanding taxation obligations. He is puzzled about how property tax could be imposed when land is under government possession.
"Do they have plans to privatize?" he jovially enquired.
Academics who attended the session also shared a similar sentiment.
Indicating the unlikelihood of proper collection was Sisay Zeru, a former lecturer on property taxes at Addis Abeba University who currently works as a consultant. He raised concerns over whether or not the number of plots in the capital let alone the country was identified.
"It is quite difficult to identify formal landholdings," he said.
The consultant pointed to the fact that only 27pc of the 600,000 plots in Addis Abeba had been incorporated into the cadaster system with the rest being under the Land Development & Management Bureau.
He fears many people might resort to counterfeit documents in a bid to fall under the exempted class of citizens.
"At least increasing the exempted area to 75sqm is necessary," he recommended.
The enquiries continued.
Treatment of landholdings labelled "undocumented" as the current system neither issues blueprints nor deems them illegal was brought up by a legal representative of the energy multinational company TotalEnergies, Tigist Assefa.
Total has been in operation in Ethiopia since the 1950s as a petroleum product distribution company. It acquired Mobil Oil East Africa assets in 2006 and operates through 142 service stations and four depots with 105,000 employees nationwide.
"Stations are not incorporated as property by the proposed proclamation," Tigist expressed her puzzlement.
She indicated that the tight regulations on the fuel market mean they will not be able to raise profit margins while incurring higher costs.
“Our case should be seen separately,” she said.
Tigist enquired the officials in attendance how an accurate evaluation could be obtained in a property market largely powered by broker speculations.
Amidst the drizzling questions, the official from the Ministry of Urban & Infrastructure quickly attempted to address the lawyer's concerns by indicating that they have proposed a bill to outsource the responsibility of property valuations from federal institutions to private entities.
She revealed that training has been given since July across regional capitals in the country. The representative from the Ministry, Zenith pointed to the expansion of valuation capacities through a computerised system that will estimate value by factoring only the length and width of a property.
As a former employee at several land-related bureaus, Asrat Kelemeworq has witnessed all too many instances of mishandling of land title documents throughout his long career.
He pointed to the lack of coordinated engagement with the population in the creation of new legislation as a pervasive challenge.
"The basis for taxation are these documents," Asrat noted.
Economists such as Alemayehu Geda (Prof) recognise the importance of broadening the tax base while questioning the timing due to the galloping inflation.
"It also won't fill the budget deficit," he told Fortune.
The professor indicated that citizens already pay a capital gain tax when the property is transferred through sales for the appreciation in value.
"People will be paying without the increase in property value this time around," he said.
The two Ministries had been engaging in similar discussions with selected members of the banking, evaluation, brokerage industries and parts of the civil service over the last few months, with the latest being at Adama (Nazareth), Oromia Regional State, with representatives from finance and revenues bureaus.
Another public meeting is scheduled within 60 days which officials hope will have a better turnout.
PUBLISHED ON Oct 14,2023 [ VOL 24 , NO 1224]
Fortune News | Jun 26,2021
Fortune News | Sep 16,2023
Viewpoints | Apr 01,2023
Commentaries | Jan 04,2020
Radar | Jul 23,2022
Fortune News | Jun 08,2019
Commentaries | Feb 06,2021
Fortune News | Jan 07,2024
Agenda | Aug 28,2021
Editorial | Apr 10,2021
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