Legal Advocates Grouchy Over Tax Obligations

Sep 24 , 2022. By BERSABEH GEBRE ( FORTUNE STAFF WRITER )

A committee comprising tax authorities, officials from the Finance Ministry, and legal professionals is conducting a study to address misgivings from lawyers and legal advocates over what their leaders say is “unfair” tax obligations and a lack of consistency in the tax regime.

Legal advocates claim that tax rates are inconsistent and have petitioned officials of the Addis Abeba Revenues Bureau for a change. The latter argue changing the law is not within their mandate.

A letter issued by the Ethiopian Federal Advocates Association two months ago claims the absence of clear regulations for the legal profession is the root of inconsistency in fulfilling tax obligations. The Association has been lobbying officials at the ministries of Finance, and Justice to address the problems its leaders say have been a headache for over a decade.

Nearly 5,000 legal professionals hold permits from the Justice Ministry that allow them to practice in federal courts.

Lawyers and attorneys were not allowed to form law firms until last year. A new law approved paved the way for two or more lawyers with advocacy service permits to establish entities considered businesses. Law firms can be organised under a limited liability partnership (LLP) arrangement. Unlike the unlimited liability legal structure, LLP limits the liability of the partners to their financial interest in the partnership.

For over six decades, lawyers and legal advocates have been lobbying for the amendment of the commercial code, which had restricted the establishment of law firms as business entities.

“The confusion began when legal service began to be seen as any other business activity,” said Tewodros Getachew, the Association’s vice president.

Law firms and legal advocates can be subject to presumptive taxes.

Tax authorities classify businesses based on annual turnover. Those with less than half a million Birr in annual turnover fall under Category ‘C’. They pay tax based on the presumptive valuation method, as they are not required to keep accounts of their income.

Businesses listed under categories’ A’ and ‘B’ are legally required to use cash register machines and file audited financial reports. Practising lawyers do not hold trade licenses; however, officials want them to file financial reports if their annual turnover qualifies them for either of the two categories.

Over 124,000 taxpayers registered in the capital are under categories ‘A’ and ‘B’ and must comply with tax filing guidelines. The Bureau collected 55.7 billion Br in taxes last year, exceeding its target by 7.2 billion Br.

Wondemagegehu Kassaye, head of tax assessment and collection at the Bureau, has acknowledged the complaints from legal professionals about the tax regime. He says there is little in the way of solutions except to propose that lawyers declare taxes by filing audited accounts or produce receipts they issue.

“We can’t write a new law specific to a particular taxpaying category,” he said.

Tax authorities have granted a short-term solution, allowing legal advocates to pay taxes based on the method that best suits them for a year.

Lawyers say that tax authorities do not recognise miscellaneous expenditures in law offices.

In April this year, Habesha Legal Advocates became the first law firm registered by the Ministry of Justice a year after Parliament legislated a proclamation governing the commercialisation of advocacy services. The firm paid taxes without wrangling with the authorities. However, it faced challenges when tax auditors rejected claims for expenditures such as fuel and administrative costs, according to Wubshet Demissie, Habesha’s general manager.

Tax experts argue that subjecting law offices to taxes based only on annual revenues is unfair considering their expenses. Lawyers are compelled to provide pro bono services for three cases a year to charity and civil society organisations, as well as community institutions and individuals with low income.

Yehualashet Tamiru, a legal expert, observes gaps in determining what it costs to run a legal office. He urges tax authorities to understand the nature of the law profession.

PUBLISHED ON Sep 24,2022 [ VOL 23 , NO 1169]