Lawyers Threaten Legal Action Over Controversial VAT Registration

Lawyers Threaten Legal Action Over Controversial VAT Registration

Oct 12 , 2025. By NAHOM AYELE ( FORTUNE STAFF WRITER )

Hundreds of lawyers gathered last week at the Inter Luxury Hotel, as the Bar Association voted unanimously to challenge a new tax directive requiring legal professionals to register for VAT, even if their annual income is below the two-million-Birr threshold. The Ministry of Finance's policy has brought the legal community into rare unity, mobilising an 11-member committee that threatens potential legal action.

A simmering dispute between the legal profession and the federal government is nearing a breaking point, as the Federal Bar Association, a 500-strong organisation, signalled its intent to sue the Ministry of Finance over a controversial directive that expands VAT obligations for lawyers, regardless of income level.

The decision was made during a general assembly, held last week at the Inter Luxury Hotel, on Guinea Conakry Road, marked by rare unanimity and fiery speeches, with hundreds of legal professionals decrying what they see as a fiscal overreach and regulatory mischaracterisation of their profession.

A directive issued in July 2025 mandates VAT registration for all professionals, including those earning below the two-million-Birr threshold historically used to determine eligibility. This effectively reverses previous practice and imposes a host of compliance obligations, from regular VAT filings to the hiring of accountants and auditors, on legal practitioners already wrestling with thin margins and administrative strain.

The Bar Association has formed an 11-member committee to handle the VAT dispute and other tax concerns. The group is tasked with pursuing discussion, but, if necessary, preparing for legal action. The Association's leaders want to challenge a rule that requires lawyers and other professionals to register for value-added tax (VAT) regardless of whether their annual earnings exceed the two-million-Birr threshold set by law.

Getachew Tadesse, a participant at the general assembly, warned that the directive would disproportionately harm law practices and entry-level professionals.

“Many of us earn less than two million Birr a year,” he said. “If we're forced to keep detailed books, hire accountants, and employ auditors, our costs will rise above what we earn.”

According to Getachew, an earlier amendment to the Income Tax Proclamation had already eroded margins.

“The new rule only makes an already difficult situation worse,” he said.

Many in attendance voiced concerns about what they called "bureaucratic overreach," arguing that the measure undermines the legal profession's autonomy. Frustration was evident as delegates recounted mounting difficulties with tax compliance, an administrative headache, they say, that has only intensified with recent tax reforms. The Association's members resolved to pursue further dialogue with authorities but made clear that, absent an administrative solution, legal action would follow.

“We're keeping the door open for dialogue,” one leader said after the meeting, “but our members are prepared to defend the profession’s integrity in court.”

Among the most vocal critics was Meseret Ayalew, a veteran lawyer and long-time Bar member, who insisted the Ministry’s directive mischaracterises the work of lawyers.

“The legal profession serves the justice system," he said. "It isn't a profit-making business. VAT is a tax on the value added. Lawyers provide direct services to clients. There is no supply chain or incremental production.”

According to Meseret, under the Commercial Code, only merchants engaged in trade are considered business operators, a category that excludes lawyers.

“The directive stretches the definition of commercial activity beyond legal boundaries,” she said

She urged the Bar Association to take the fight to both the ministries of Finance and Revenue.

"If necessary, to court," she said.

Meseret's worries resonated with many at the general assembly, especially younger and less established lawyers. Lawyers, such as Daniel Fekadu, a seasoned practitioner, raised more fundamental questions about the Ministry’s legal authority to impose the new rules. He argued that the directive directly contradicts the VAT Proclamation, which states that only those earning more than two million Birr a year are required to register.

“This directive goes beyond that limit and violates the principle of legal hierarchy,” he said.

Daniel also criticised the process, where the Ministry failed to publish the draft directive and invite public comment, as required by law.

“Government bodies must seek input before approving such regulations,” he said. “By excluding the very professionals it regulates, the Ministry has weakened the legitimacy of the rule.”

Tensions between the lawyers and tax authorities are not new. Bar Association president Tewodros Getachew recalled that the dispute an in three years ago, when legal practitioners were first required to keep accounting records.

“When the Income Tax Proclamation was amended, Category 'C' taxpayers were removed, and all professionals were compelled to keep books,” he said. “From that moment, lawyers have argued that they are service providers, not traders.”

According to Tewodros, earlier discussions with the Ministry yielded a promise that a separate directive would be drafted to address issues unique to legal practitioners, such as treating pro bono work as deductible.

“We're told a new directive was being prepared,” he said. “But instead, the Ministry issued a sweeping VAT rule without any consultation. It is deeply frustrating and undermines the trust between the profession and the authorities.'

Repeated efforts to obtain an official comment from the Ministry of Finance proved unsuccessful. However, an advisor to the Ministry, speaking on condition of anonymity, defended the directive, calling it a practical solution to close a regulatory loophole left by the elimination of the turnover tax.

“The amendment to the Income Tax Proclamation left a gap,” the advisor said. “The directive ensures all professionals operate under a consistent tax framework.”

The advisor rejected claims that the Ministry exceeded its mandate, citing the VAT Proclamation’s provision for interpretation under the Tax Administration Proclamation.

“The Ministry of Finance sets the rules, while the Ministry of Revenue implements," the advisor told Fortune. "That is clearly established by law.”

The advisor argued that VAT registration could, in time, prove advantageous to lawyers as many large organisations, embassies, and foreign clients require VAT receipts. The advisor insisted that registration enhances credibility and opens professional opportunities, arguing the measure was about fairness.

“Income level alone should not determine compliance," the advisor said. "Everyone providing professional services must play by the same rules.”

Support for the directive’s underlying logic came from tax consultant Dawit Kejela, a former Ministry of Revenue official, who recognised its intent but also acknowledged its flaws. He recognised the compliance burden on small law firms, which compels them to keep accounts, hire auditors, and file periodic VAT returns, as an expensive process.

“When the turnover tax was removed, those previously under it needed a new mechanism," he told Fortune. "The VAT directive fills that gap and provides administrative continuity.”

However, Dawit conceded that the implementation was lacking.

“The Ministry should have sought public input and taken time to explain the implications," he said. "That omission has caused unnecessary backlash.”

Despite these misgivings, Dawit maintained that the directive rests on solid legal ground. The VAT Proclamation mandates the Ministry of Finance to issue directives. According to him, extending VAT registration to those earning less than two million Birr is consistent, given that the turnover tax no longer exists.

“Even if they are not merchants, professionals still earn income, and that makes them part of the system,” Dawit told Fortune. "The conversation should now move from confrontation to clarity. Lawyers should press for a specific accounting directive for their profession rather than contesting the Ministry’s authority.”

PUBLISHED ON Oct 12,2025 [ VOL 26 , NO 1328]