Jan 25 , 2020

The Ministry of Revenues lost a court wrangling it had with Faffa Food S.C. over a 5.8 million Br Value Added Tax (VAT) refund.

The Federal High Court ruled in favour of Faffa Food, reversing the verdict of the Tax Appellate Commission that ordered Faffa to pay VAT along with a fine and interest.

Two years ago, the Ministry imposed 5.8 million Br in VAT on Faffa, the half-century-old pioneer of the food processing industry in Ethiopia, for inappropriately deducting VAT from the products it sold to humanitarian agencies. The Ministry claimed that the company deducted the VAT on the raw materials it used for the products it supplied to these agencies.

By law, food products sold to humanitarian agencies to be distributed to drought-affected people are exempted from VAT.

Then the Ministry requested Faffa pay 2.2 million Br as the principal VAT along with nearly two million Br in fines and about 1.6 million Br in interest.

Disagreeing with the Ministry's decision, Faffa appealed to the Tax Appellate Commission, which started hearing grievances and appeals from businesses two years ago after taking over the role of the dissolved tax council under the office of the Attorney General.

On May 20, 2019, the Commission that reviewed the case sustained the Ministry's decision, stating that the company should not ask for VAT refunds or deductions for the raw materials while selling the products without charging VAT.

Displeased with the ruling of the Commission, on June 13, 2019, Faffa filed a statement of claim to the High Court, arguing that it had been originally supplying its products with prices that include VAT. Faffa also stated that based on the government's instruction, it offered the products to humanitarian agencies excluding VAT.

Presiding over the case, the High Court summoned the Ministry to appear with its counterargument on the issue. The Ministry, which was represented by counselor Hailemelekot Abebe, requested that the Court reject Faffa's appeal.

The Ministry's statement filed on November 6, 2019, also states that after examining the products Faffa supplied with and without VAT to distinguish the products that are tax exempt, the amount was reduced to 5.8 million Br from 12 million Br.

After hearing both sides of the argument, the High court annulled the decision given by the lower Tax Appellate Commission, stating that it should be refunded for the VAT expenses the company spent on raw materials.

Muuz Abrha, a tax law practitioner and assistant professor at Adigrat University, argues that the High Court's ruling is not correct, explaining that Faffa should not be refunded the tax.

Muuz cites a proclamation that was legislated 11 years ago stating that the tax paid on raw materials, which are used to produce non-taxable products, are not refunded.

Representatives from the Ministry declined to comment on the issues, stating their plan to appeal to the Federal Supreme Court.

PUBLISHED ON Jan 25,2020 [ VOL 20 , NO 1030]

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