Tax Audits Unnerve Farm Cooperatives as Liabilities Mount

Tax Audits Unnerve Farm Cooperatives as Liabilities Mount

Jul 6 , 2025. By BEZAWIT HULUAGER ( FORTUNE STAFF WRITER )

Fetena Shifa never imagined that an audit would threaten the future of the Bench Maji Farmers Association Union, one of 110,584 primary cooperative unions in Ethiopia. As General Manager of the Union that represents 114,000 farmers organised under 112 primary cooperatives, he found himself staring at a tax bill of 6.8 million Br, largely the result of uncollected withholding taxes dating back three years.

When authorities froze the Union’s bank accounts and assets, operations ground to a halt. He managed to pay only 25pc of the debt this month, and the rest depends on whether any funds are left after essential expenses.

What started as a routine audit has blossomed into a full-blown crisis for cooperative unions across Ethiopia. Officials of the Ministry of Revenues informed Parliament that nearly all cooperative unions failed to collect and remit the representation tax, one of several obligations they are required to fulfil, despite being exempt from profit tax. That exemption did not extend to withholding tax on crops such as oilseeds and pulses, nor to employee income tax, dividend distribution levies or mandatory government service fees. The result is a growing pile of liabilities that many unions are ill-equipped to manage.

“We're suddenly told we owe millions," Fetena told Fortune. "But, there was no clear circular or guideline we could refer to.”

The corporate cooperative system was designed to support farmers by pooling resources and marketing produce. Over time, these unions built warehouses, negotiated export contracts and helped smallholders secure fertiliser and other inputs. However, the tax code never fully accounted for their unique structure, resulting in confusion over what they owed and when. Cooperative leaders say they received little guidance from the authorities.

Government officials acknowledge the communication breakdown.

According to Zeleke Yibeltal, head of the Ethiopian Cooperative Commission’s legal department, unions often hear “no tax” when tax officials say “no profit tax.”

“When we tell them there is no income tax, they hear no tax at all,” he said.

Many remain unaware of their obligations to register for value-added tax (VAT), or to collect and remit withholding and employee income taxes from the 28,000 people they employed. The Commission has since begun working with the Ministry of Revenues to offer deadline extensions, tax relief and targeted training for union leaders and field officers.

Despite those efforts, resistance within the unions has grown.

In the Dawro Zone of the Southwest Regional State, one cooperative union’s warehouse was shut down after its debt swelled fivefold to 100 million Br due to penalties and interest. The case demonstrated that without clear guidelines, unions risk insolvency and threaten the livelihoods of millions of farmers they support.

However, Aynalem Nigusse, minister of Revenues, has struck a firmer tone. She reminded lawmakers that the regulation is clear on its requirement for VAT registration.

“They don't have a VAT certificate,” she told Parliament.

The Minister also noted that audits predate newly issued legal frameworks, but that tax obligations extend back up to five years for any entity with a valid Tax Identification Number. Still, she warns her office may escalate cases with serious social implications for higher-level review.

Some cooperative leaders feel caught in the middle.

Dejene Dadi, general manager of the Oromia Coffee Farmers’ Cooperative Union, says his organisation has no outstanding withholding or employee income tax debts. His Union is one of the largest of 403 corporate cooperatives. Organised under five federations, they have 1.9 million members commanding an aggregate capital of 12 billion Br.

However, Dejene fears that provisional exemptions granted during the COVID-19 pandemic could be retroactively overturned, leaving a new generation of liabilities that unions cannot absorb.

In the Parliamentary Standing Committee for Plan, Budget & Finance, ruling party MP Wondwesen Admassu has voiced concern that audit demands in some cases exceed the unions’ capital, imperilling their survival.

“These unions exist to support farmers,” he said. “They must be supported.”

Legislators are now pushing to distribute responsibilities more broadly, arguing that the state should shoulder a share of the burden, especially for social services and fertiliser distribution.

Behind the headlines lies a deeper challenge, such as an awareness gap among both cooperative leaders and tax officers that stretches back to the unions’ founding.

In its recent report, the Revenue Ministry disclosed that individual taxpayers underpaid 2.72 billion Br, while 68 companies accounted for around 200 million Br in underpaid dues. Together, those amounts returned 2.91 billion Br to state coffers. Customs duties over the same period totalled 378 billion Br, above the 363 billion Br plan, and contraband seizures reached 19 billion Br, an increase from the previous year.

The revenue surge, up 74pc year-on-year, displayed a government keen to broaden its tax base, even as it tightens the screws on entities once considered exempt.

For cooperative unions, however, the stakes could not be higher. These organisations remain lifelines for hundreds of thousands of farmers, providing inputs, marketing support and critical infrastructure. Experts warn that if they collapse under the weight of tax liabilities, the social and economic fallout could reverberate across rural communities. Union leaders stress that they stand ready to comply, but only with clear, consistent guidelines and transitional measures that recognise their dual social and commercial missions.

Biruk Nigusse, a former tax advisor at the Ministry of Revenues, recalled that the lack of clarity has persisted for years.

“That does not excuse noncompliance,” he told Fortune, “but many tax officers do not fully grasp the knowledge gap or have the patience to address it.”

Biruk urged comprehensive campaigns to educate unions, tax collectors and farmers alike. Only commission fees, charged on gross transaction values, should count as union income, he argued.

"The rest belongs to individual farmers and should not inflate cooperative tax liabilities," he said.

PUBLISHED ON Jul 06,2025 [ VOL 26 , NO 1314]