The Ethiopian Customs and Revenues Authority (ERCA) has introduced a new tax reform program dubbed the tax transformation program, which is set to be focused in five major areas, one of which is the collection of 15 billion birr in overdue tax.
Kebede Chane, director general of ERCA, said that the reform program, which is about to be implemented in the coming three years, will prioritize tax arrears which have been accumulating for years. Hence, out of the 15 billion birr overdue tax, 10 billion birr will be collected in the coming one year. But, the total overdue tax is assumed to be more than the 15 billion the authority has targeted under the new program. However, according to kebede, the new reform program will do much more than recover the overdue tax; it will significantly reduce if not eliminate future overdue tax arrears.
In addition to that, reform on tax auditing, changes to the ways Large Tax Payers (LTOs) are treated, changes in its human resources capacity (which they call organizational health) and change in the application and utilization of IT are the major targets to reform the way ERCA has been operating for years. These are the dynamic changes Prime Minister Hailemariam Dessalegn directed ERCA to implement, Chane said. The PM chairs a tax transformation committee that monthly report on the implementations and outcomes of the reform program.
On matters of tax audit, ERCA is considering some changes that involve external auditors. In a deviation from its customary approach, the tax administrator has announced that it will accept audit outputs conducted by certified external audit companies hired by the taxpayer.
In relation to large tax payers, which accounts for 70 percent of the tax and customs revenues, will be treated in a different manner than before. The LTPs will be treated on the basis of their sectors where tax auditors of ERCA are required to be well accustomed and specialized in the various sectors such as leather, textile, pharmaceutical and the like.
In addition to that LTPs will have a special taxpayer accounts which ERCA will issue. Some 20 LTPs will be the first to receive these special accounts. Among other things, the accounts will serve ERCA to send notification for LTPs regarding their tax returns; including advance notifications. Not only that, but electronic tax payment systems will also be implemented starting from this fiscal year. The authority had already introduced electronic filing system few years ago. LTPs will also be segmented on the basis of risks they pose to the tax collection systems. Hence, those large tax payers who have the perceived potential for transfer pricing or tax evasion or fraud will be segmented and will be monitored accordingly.