By Hilina Alemu And Addisu Deresse | Addis Fortune
ADDIS ABABA, Ethiopia — More than 40 businesses, mainly in Merkato and Piazza areas, have been shut down over the last nine days after intelligence officers of the Ethiopian Revenue and Customs Authority (RCuA) allegedly caught them red-handed violating the Value Added Tax (VAT) Law, officials of the authority disclosed.
Over 100 individuals operating in these businesses (shops) were arrested under the surprise secret operation the authority started on April 4, 2009; close to 21 of them appeared before the Real Time Dispatch – the Authority’s own judiciary system for those caught red-handed – within 48 hours and the cases have been adjourned for this week (within 10 days of their arrest).
By the time Fortune went to press late last Friday afternoon, big names in the jewellery business around Piazza, near Cinema Empire area of the Arada District, along Hailesellassie Street, such as Africa, Lion, Tana, Eyerusalem and Gebremariam were some of those shops still closed as a result of the shut downs that began on April 4, 2009.
For instance, in Merkato, the largest open-air market in Africa, shops remained closed by press time after the secret investigators had paid them a visit.
“First, four people [intelligence officers] got into the shop,” an eyewitness said describing what happened in one of the shops that was closed and the people who run it arrested. “Then, one [of the officers] asked for jewellery, while the others looked around. The deal on the price went good till the [disguised] buyer asked for a receipt.”
To the surprise of the intelligence officers, the shopkeeper refused to give the undercover buyer a receipt because the price would include VAT; the “buyer” then went out, called the police and pressed charges against the shop, according to the eyewitness who insisted on remaining anonymous.
That was the climax of situation in the shops visited by the investigators that were in breach of the VAT Law; those that allegedly violated the VAT Law by not issuing VAT invoices landed in the authorities detention centre in Lagar customs facility.
“Three individuals who went into the shop together with the buyer served as witnesses,” the person who had observed the situation told Fortune.
Prior to this operation, the RCuA had initiated another tax move which the tax authorities tagged “desk audits.” For the past few weeks, these are some of the major tasks that kept RCuA’s Law Enforcement Department busy.
The desk audit is a form of review and appraisal of accounting books of private and share companies under the federal/large taxpayers category. It has targeted more than 1,000 companies for three years revision and appraisal of their accounting books on transactions from 2006 to 2008, and crosschecking these with the authority’s books, especially documents at its customs branch. There are six audit teams the RCuA has formed to conduct the desk audits.
The audits they conduct are to reconcile documents companies have self-declared during the three years (2006, 2007, and 2008), reports they have obtained from fiscal printers, and data collected from customs.
In yet another move, the authority is dealing with those it alleges are VAT registered entities but do not duly collect the tax as they sell goods without issuing a receipt, thereby prejudicing the government of the due to it.
This VAT proclamation breach issue has been something the authority planned to have dealt with long ago; now it is started and will continue with the operation, a source in the Law Enforcement Department of the Authority told Fortune.
“This is a daily routine task,” the source said. “The authority has been vested with the power and responsibility to collect tax and it has to do so, whatever it takes.”
The law enforcement intelligence team is under the supervision of Gebrewahed Weldegiorgis, former deputy head of Customs Authority, who has now become one of the four deputy directors of the RCuA.
The department has more than 100 intelligence officers. Verifying the expenditure and revenue of the targeted tax payers is part of the main duties of the intelligence team. They are responsible for following up targeted taxpayers suspected of declaring income much less than what their businesses are actually worth, or not registering at all, denying the government the taxes due to it.
There are two aspects of VAT included in Proclamation 609/2008, a law that amended the proclamation for VAT. One deals with the failure to register for VAT, while the other focuses on the failure to use VAT invoices, although registered.
“Any taxpayer who is required to register for VAT commits an offence if found not complying with such obligation and shall, upon conviction, be punished with a fine of not less than 10,000 Br and not more than 50,000 Br and imprisonment for a term of not less than one year and not more than two years,” states Article 50 (a) of the law.
Sub-Article (b) of the article reads, “Any person who is registered for VAT commits an offence if carries out transactions without VAT invoice and shall, upon conviction, be punished with a fine of not less than 10,000 Br and not more than 100,000 Br and imprisonment for a term of not less than two years and not more than five years.”
Nevertheless, if the tax due to the government computed based on the amount shown on the illegal invoice is in excess of 100,000 Br, then the fine shall be equal to the tax amount.
Contrary to these articles, which also state the penalties for breaching them, Tigist Abebe (not real name) a jewellery shopkeeper around Merkato, Werk Tera (a market place for gold jewellery), strongly believes that the sales volume on gold (jewellery) is diminishing as life gets costly. She believes that inclusion of VAT in the price would mean pushing the buyers away from the shop.
“If, for instance, we sell a 21 karat golden ring that weighs 1.15g for 225 Br without VAT and 258.75 Br with VAT, for such a society where paying tax is not much understood, the additional 33.75 Br is a waste,” Tigist told Fortune.
Most people do not buy jewellery for luxury these days. Rather, they consider it a way of saving money; therefore, the buyers think that paying additional money (VAT in this case) is like throwing the money away, she said.
“They can save the money in cash without incurring the cost equivalent to the VAT amount,” the shopkeeper said.
But that is not something tax authorities consider.
“We have no intention of making people lose their businesses and money,” Gebrewahed, the intelligence team leader told Fortune. “We only want to give lessons on the need to pay VAT.”