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Fasika Tadesse

That awkward moment that the tax authority tells taxpayers that it will not return the money it has collected from them in excess of what they should have paid, but still expects them to pay the rest if what they already paid is found to be below what they should have paid.

That decision was made to reverse its tax estimations that relied on the bank statements of taxpayers, which scared some businesspeople away from using formal banks to use personal safe boxes at home.

"I decided not to deposit any cash in bank; I am also dealing with my customers in cash to avoid using transactions through banks," said a lady engaged in mattress wholesale at Firash Tera area. in Merkato

She came up with this decision after the Ethiopian Revenue & Customs Authority (ERCA) imposed eight million Br tax on her for the 2013/14 fiscal year, based on her bank statements, which showed a high amount of transactions within that year from her account.

"I have relatives who live abroad and send money to their families in rural areas through my account," she said. "Some fellow merchants who work in the countryside also send their money through my account to avoid carrying cash on their person."

Following her personal and business transactions from her account, the tax amount that was imposed on her was unexpected, forcing her to appeal to the Authority. She would become one of the 43 cases reviewed by the ERCA out of the 135 tax appeals under review by the Authority during the last fiscal year.

Out of the 43 claims from businesspeople, 21 of them were related to bank statements, another 16 were criminal cases and, the remaining six are under review by the Addis Abeba tax appeal committee. From the total number of claims, 17 were from Merkato, including the woman, who requested anonymity.

But the Authority revoked all tax decisions that were based on information from bank statements on August 12, 2014. which were made before the end of the 2013/14 fiscal year, with a letter issued by the signature of the director general of the Authority, Beker Shale. The bank statements were randomly employed by its staff. But that does not mean the end of the use of bank statements, which the ERCA actually says it will continue to use.

Those who already paid the tax imposed on them using their bank statements as evidence will not get a refund if it is discovered that they had paid more than they should because of an improper tax assessment. Nevertheless, if the tax they have paid is found to be less than what they should have paid, they will have to pay the difference, according to a letter issued from the ERCA .

The ERCA has been using the bank statements of traders as a source of information in the assessment and determination of the income tax amount they have to pay. The authority have been applying this based on its legally entrusted power to request, investigate and use any kind of information from the relevant sources, which can be utilised in tax administration, including for levying and collecting taxes.

The amount of tax determined this way by the ERCA. nevertheless, resulted in strong discontent from the taxpayers and led to the filing of a number of applications and appeals for revision during several meetings held between the business community and officials from the Authority. This, in turn, has made officials from the Ministry of Finance & Economic Development (MoFED) and the ERCA initiate an investigation.

A team of technical experts, comprising of audit officials and experts working at the ERCA's head office and branches, conducted an assessment, which identified a range of problems associated with the use of bank statements to determine taxes payable by the traders, following different suggestions and complaints by businesspeople.

Finally, the team that was investigating the case reported that there were no clear and uniform working procedures presented to the branch offices, which has resulted in the uneven

application and irregular use of the bank statements. A sample of seven branch offices in Addis Abeba, and other branch offices where the federal taxpayers pay taxes, showed that the system was not conducted in all branch offices uniformly.

The mattress wholesaler, disappointed by how she was betrayed by the use of her bank account, did the next best thing to using her own mattresses to stash her money; she started using a safe box that she bought last year. Ethiopia is also witnessing an increased import of these boxes from year to year. Measured in kilograms, the 2007 import totalled 4.9 billion kg for a sum of 48.2 billion Br; by 2013/14, these figures had increased to 7.3 billion kg and 205 billion Br.

"Most of my neighbouring merchants are depositing their cash in cheap safe boxes made of blocks or in imported metal safe boxes," said

Ephrem Berhanu

, an Electronics store owner at Merkato, in ftont of Cinema Ras.

He attributed that to poor work by the ERCA in teaching businesses about the benefit of separating personal and business accounts. This same reason is why it made the application of bank statements in tax assessment difficult, leading to non-uniform application, according to the MOFED-ERCA study. Out of the 24 branch offices of the ERCA that dealt with tax, only 11 branches have been using bank statements in the determination of tax payable, according to the study.

When the ERCA's branches found a difference between the income indicated in the bank statement and the income declared by the taxpayer, they not only levied more tax on the taxpayers without understanding the difference, but they also interpreted the difference differently, some as gross sales others as net sales, the finding of the study reads.

The other major finding of the assessment was that the system created a tendency of holding monetary circulation beyond the reach of banks, in addition to becoming a source for the bank's expressed concern for its negative effect on the saving culture, which threatens their deposit mobilisation capacity. These concerns were shared to the Authority from some banks, according to Yehualaeshet Begashaw, director of assistance and follow up at the federal tax affair branch office.

Despite the decision of the Authority to revoke the previous decision, those who have already paid the tax assessed are not going to get a refund, even if the amount they had paid is found to be higher than the amount they should have paid. Nevertheless, if the tax they have paid is found to be less than what they should have paid, they will have to pay the difference, according to the directive by the ERCA .

The use of bank statements will also continue with some guidelines and considerations, including income sourced through loans for businesses, if the account holders can present a document or an agreement that is signed with the lender. Another consideration includes careful identification of income from business activities, as well as the exclusion of deposits sourced from the payment of value added tax (VAT), income secured through bank overdrafts, deposits credited through transfer from other personal accounts of the traders, savings made from withholding taxes. These considerations are to be made by the auditors, while using bank statements for tax purposes. The auditors are expected to refer unclear things to the Financial Intelligence Centre and the intelligence team of the ERCA. according to Yehualeshet.

As of the beginning of the current fiscal year, 2014/15, the directive says that the cash that is found in the bank account of the taxpayer will be considered as money obtained from the business, if the taxpayer did not have proper financial records, and will be subjected to taxation. All taxpayers should also present a bank statement of their accounts, but the Authority can access the information from the banks if and only if the individual failed to bring the document, according to the directive provided to all of the branch offices of the ERCA .

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