Taxpayers will be granted an extension period without producing bank guarantees if a directive drafted by the Ministry of Revenues sees the light of day.

The draft directive responds to taxpayers' complaints that banks subject them to service charges when issuing guarantees against collateral to secure tax extensions, according to Birara Litgeb, the Ministry's director for tax debt management.

Taxpayers with frozen assets were obliged to produce guarantees from banks to get an extended period. The draft directive allows them to file for an extension after freezing assets and report to the Ministry or settle half of the corporate tax without requiring a guarantee while paying the balance in due course.

The Ministry would freeze taxpayers' assets until the settlement of tax arrears two months after the extension period is expired. The bar of classifying taxpayers for extension is also raised to five million Birr for high-income taxpayers, half a million Birr for middle-income and 50,000 Br for low-income taxpayers.

''This was made due to the decline in purchasing power of Birr," Birara told Fortune.

Businesses listed under categories "A" and "B" must use cash register machines and file audited financial statements. Those with less than half a million Birr in annual turnover pay on the presumptive valuation method, as they are not required to keep accounts of their income.

Over 124,000 taxpayers are registered in the capital under high and middle-income taxpayers. The Ministry planned to collect 360 billion Br last year, meeting 93pc of its plan. Close to 140 billion was collected from foreign trade.

Established in 1977, Moriya Construction produces input materials. The company is among the high-income taxpayers and did not settle 42 million Br in tax arrears.

The Ministry has ordered them to produce a bank guarantee.

Seyoum Meshesha, a Moriya Construction representative, argues that a bank guarantee exposed taxpayers to needless hassle and delayed time. His company attempted to approach two banks only to be told to wait until their respective credit committee decided on the request.

"The bureaucracy takes time," Seyoum told Fortune.

Incorporated in 2012, and in the import and export business, Adiabos Plc is another company with 70 million Br in tax arrears.

Semere Leake, the company's general manager, says the requirement to accept extension requests could never be met. Access to bank loans presupposes obtaining a clearance from the Ministry that cannot be issued before tax obligations are met.

"We can't even work, let alone pay our taxes," he said.

Birara pledged that the door for clearance is open, provided taxpayers use their extension period to make regular and timely payments. He recalled cases where taxpayers took advantage of getting the clearance and disappeared for a while, forcing tax authorities to restrict the procedure.

The Tax Debt Management Office collected 36 billion Br from tax arrears in the last budget year. In the first quarter of this budget year, the Office collected 12.8 billion Br. Businesses which requested tax payment extension period paid a total of 9.8 billion Br last year and 2.9 billion Br in the first quarter of the current fiscal year.

For Girum Tsegaye, president of Birhan Bank, the number of clients approaching his Bank to get guarantees is insignificant, implying that the effect is inconsequential. The commission Birhan Bank earns for issuing guarantees for tax extension represents less than one percent.

PUBLISHED ON Dec 10,2022 [ VOL 23 , NO 1180]

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