The tax burden imposed on the Business Community is unwise and unjust! UDJ

August 9th, 2011 Print Print Email Email

A press statement issued by Unity for Democracy and Justice (UDJ)

Although the private sector of the economy in Ethiopia started to function with some degree of policy guidance some 60 years ago, it is still at the crawling stage. During the era of the monarchy, a somewhat conducive environment was created for domestic and foreign investors such as the Dutch, Italians and Greeks to be engaged significantly in the manufacturing sector. Viewed in the African context, the industrial sector in Ethiopia was comparatively in a better state.

When the Derg came, it slammed the door against the private sector of the industry. It nationalized the factories that were starting to bloom at the time and put a low ceiling on the amount of capital private investors could invest. The development of the industry fell fully in the hands of the government. However, towards the end of its agonizing years, the Derg had moved to do away with the ceiling on investment and to institute a brand of a mixed economy.

In 1991, EPRDF hid its Marxist cloak under and pretended to give recognition to the private sector of the economy as well as to a multi-party system. However, in practice, Marxism-Leninism, which has been its guiding ideology for many years, remains in place to the present, albeit under cover.

The Revolutionary Democracy, which EPRDF follows in tandem with its socialist ideology, compels it to take the peasant farmer and the worker as its power base and to label the middle business class as unreliable and a rival to be fought against. Thus, EPRDF’s attitude towards the private sector of the economy and the community that is associated with it has been fraught with hostility, thus making it impossible to introduce badly needed changes in land policy, to allow the financial market to be open or to allow the private investors to engage in telecommunications business. These policy obstacles have made the transition from agriculture-based to industry-based economy practically impossible.

Beginning in 2005, the government has been following State Capitalism. The objective of this strategy is to mobilize the few opportunist urban businessmen and fulfill the regime’s dream of prolonging its rule. State Capitalism, by its nature, creates an inflated government and ineffective private sector in the economy. That is why a propaganda campaign is waged to make people believe that the Growth and Transformation Plan will be fulfilled.

In a country like Ethiopia, where there is a serious structural rigidity, UDJ does not argue against the government playing a role in the economy. However, it argues that stifling the private sector is stifling the transition to democracy in our country and the hope for development. It further argues that it is better to strengthen the numerous and hardworking merchants than to cling to a few rich.

During its misguided rule of twenty years, the EPRDF regime has not enabled the Ethiopian private sector to compete in the narrow market of cheap Chinese goods dumped in the country, let alone in the wide international market. The contribution of manufacturing to the overall economy of the nation is not more than a pitiful 5 percent. The ruling regime has made the base of growth and development not creativity and hard work but opportunism and cronyism.

The ruling regime has sacrificed the private sector of the economy in order to promote its developmental state capitalism. State expenditure, which was 20 billion birr in 2005, has been raised to 75 billion birr in 2011. Had there been a sound economic base and appropriate economic policies, UDJ would have taken this significant budget growth as a positive trend. However, measures being taken are not only lacking seriousness but also are beyond the capacity of the economy to sustain. The highly inflated budget has not only exacerbated the high cost of living but it has also created a heavy burden on the taxpayer.

In 2005, the state revenue was 14 billion birr. In 2010, 51 billion birr was collected. The tax being collected, instead of encouraging business to be more productive and competitive, is exposing it to open and widespread exploitation. It is known that, according to reports issued by Transparency International, Ethiopia is one of the countries that are plagued by rampant corruption.

The taxpayers know full well that the majority of the regime’s officials are deeply mired in corruption. It is hardly possible to say today that there is no official of the regime who has not become the owner of a villa, a multi-storey building, a modern car, land or a combination of these through shortcuts. A recent report of the UNDP shows clearly that some 140 billion of the taxpayers’ birr has been plundered. Viewed in this context, who stands closer to corruption and to “parasitism and rent seeker” than EPRDF itself?

It is known that the business community is complaining bitterly and loudly against the heavy tax burden imposed on it recently. It has been asked to pay more than 40 to 50 fold of the tax it has been paying previously. The ruling regime says that it has increased the tax because the daily sale of the merchant has gone up. Not only that, it also says that the measure was based on a “conducted study”. This is no more than a cynical joke. The so-called study allows the imposition of a tax of over 8,000 birr on a shop the maximum value of whose asset is not more that 5,000 birr. Instead of working to broaden the tax base, the government seems to be bent on destroying the narrow base that already exists.

The business community is being exposed to outright exploitation in the name of the law with no recourse to justice. The officials in the revenue office do not give the overburdened merchant satisfactory answers. All they tell it is to pay at least half of the imposed tax and complain later. What is more, the statements that the officials make through the media are spreading dismay and hopelessness in the business community. The officials are saying, in a manner that is irresponsible, that if the merchants do not like the tax imposed on them, they can pay what they are asked to pay, close their shops and go home. These officials seem to forget that if the life of the business community is disrupted, theirs would not remain safe.

EPRDF lacks the habit of using each birr, that the businessman creates with his sweat, in a manner that is transparent, fair and accountable. It is repeatedly observed that the taxpayer’s money is exposed to corrupt spending. For example, public money is used for training the cadres of the ruling regime. State and party functions are mixed in a manner that is illegal. In fact, it is becoming more and more difficult to discern the difference between the budget of the state and that of the party.
UDJ believes that taxes must be paid. But it also believes that the government has a responsibility. It is not enough for the government to demand taxes from the people. It must, on its part, respect the economic, human and political rights of the people. The ruling regime does not allow free and fair elections. It does not respect the rights of citizens to free expression or association. The public mass media, although funded by the people, blindly support only the ruling regime. Party membership and party loyalty are used as criteria for gaining access to jobs, educational opportunities and other significant benefits. In a situation where there is so much injustice, it is impossible to expect people to pay taxes duly and with a sense of responsibility. A government that is not honest with the people cannot expect honesty from the people.

UDJ fears that the coming days would be worse than those of the present. The government has planned, in 2011-2012, to collect a total revenue of over 76 billion birr. According to its five-year Growth and Transformation Plan (GTP), EPRDF has set out to collect 127 billion birr in tax revenue in the next five years. It is inevitable that a heavy burden will be imposed particularly on the business community. There will be more repression. Matters will be complicated further as a result of the existence of a regime that is not genuinely elected by the people and is non-transparent and unresponsive to the will of the people.

The Business Community has no alternative but to stand united and protect its existence. It should not be made to feel unable to operate freely in its own country. Nor should it allow itself to be viewed as a second class partner in business, despite the fact that EPRDF views it as a feared rival that should be removed from the scene. The ruling regime must change the misguided policy that it is following regarding the Business Community. Thus, UDJ urges the ruling regime to pay heed to the following:

1. EPRDF is itself a merchant. It is itself a legislator and an executor. This makes it view the business community as a rival and not as a partner. The ruling party has to free itself from this unhealthy attitude, accept the private sector as the engine of the economy and encourage it in actual practice to play its role in the growth and development of the country.
2. It is dangerous to be in a blind haste to reach campaign goals. The ruling regime must move with caution and give ears to the complaints of the Business Community.
3. UDJ believes that the burdensome tax imposed on the private Business Community must be reviewed. Rather than destroying the narrow tax base that is already overburdened, UDJ urges the ruling regime to give more attention to reducing costs by improving the messy and wasteful administration and by cleansing itself from corruption.
4. It is well known that over 40 percent of the economic activities in the country is within the informal sector of the economy. It is necessary that the people involved in this sector are brought into the tax system step by step.
5. The ruling party has given priority to staying in power by any means than to genuinely promoting the overall interests of the nation. To this end, for example, it has established a repressive spying system that is costly. It must be held accountable for its extravagant expenditures in this branch. The taxpayer’s money is being used to block websites and to repress mass media such as the VOA, DW and ESAT from being heard and seen in Ethiopia. The taxpayer’s money should not be used for strengthening dictatorship.
6. It is extremely urgent that the red tape in the administration of the revenue collection system be cut and the process made efficient and responsive to the needs of the people.
7. Transparency is vital in the trading sector as it is in any other sector of the society. The all-too-pervasive, party-affiliated business enterprises established outside the legal framework should at least be audited once a year and the result made public.

UDJ believes that the private sector should play a key role in the arduous struggle to empower the Ethiopian people and to establish a government subject to accountability. Therefore, UDJ will strive to contribute its share to the strengthening of the Business Community and to the protection of its rights and interests so that it could play its proper role in the growth and development of the country.

Unity for Democracy and Justice (UDJ)
August 5, 2011
Addis Ababa

  1. Tesfa
    | #1

    A flabby whining of a weak legal opposition.

    What does one really get by such timid verbal complaint published on line?

    Everybody knows what is going on.
    We know what is going on. The regime knows what it is doing. It continues to do what it does because it knows that the legal opposition groups like UDJ do not have the courage to mount a real and stiff opposition against its outrageous policies through concerted and bold actions. I suppose everybody knows that they are hamstrung by their ‘legal’ status.

    The regime thinks it can get away with every outrage and abuse it inflicts on our people because it knows that many groups and leaders of the legal opposition are incapable of channelling the sense of injustice, deprivation, desperation and simmering anger of the people into organized massive protest and civil disobedience.

    With no such vanguard in sight and the paralysing memory of particularly the recent massacres of its youth fresh in the minds of the people, the government also thinks that it can do what it does without impunity.
    Frankly, we know that the interests of the people are not currently well served by the legal opposition such as UDJ.

    I think that they should question their sterile strategies and tactics or come to terms with their limitation and leave the scene for other bolder and better players. Indeed, it is high time that they pass on the baton, as it were, particularly to young successors with the view to allow the struggle of our people follow its own surprising dynamics.
    Meles cannot arrest that dynamics while he can and has effectively controlled the game of the legal opposition.
    History would be grateful if the legal opposition self abnegates and in that manner paves the ‘Tunisian’ or ‘Egyptian’ way for the struggle of our people particularly the massively disenfranchised and disaffected young.
    That,I beleive,is the only language that Meles would understand.

  2. aha!
    | #2

    Yekotun Awerd billa yebibituan talech aynet politka: of no change but durable democracy”, in a country where economic development precedes democracy in the East Asian style, according to to Developmental Economic theory, which is contrary to economic developent in western Europe and Noth America, whose funds TPLF/eprdf is using for human, economic and cultural development, to say the least about infrastructural development, which may come from IMF with lack of transparency and accountability. Now you are campaining for “no new taxes on the business community”, leaving on the side line all the damages that been done selectively to the business community, sounds like a political campaign to gain favor of the TPLF and TPLF affiliated enterprises, rather than to face the current regime for economic, political freedom and God given liberty of the silent majority of Ethiopians. To do that you need to change your slogan for prodemocracy movent to movement for freedom of the silent majority of Ethiopians, and focus on the non-violent struggle for freedom with the goals for unity, territorial integrity of Ethiopia and Ethiopians, rather than the subset goals of democracy, human right and justice, which are by products of a truly democratic government of free individuals from ethnic and secessionist politics and/or policies with underlying totaliarianism dismantled. This latest press release is narrowly focused, sounds like a campagn and does does not address the economic, political and humanitarian crises in Ethiopia.

  3. Anonymous
    | #3

    Lawyers in Ethiopian are saying they are facing backbreaking tax and fees. Read the following article by Belaynesh K., Ethiopian Law and Justice Society staff writer at http://www.ethiojusticeinfo.blogspot.com.

    “Private legal practice in Ethiopia: a business and a profession?”

    Background information reproduced below: በጠበቆች ምዝገባ ፍትሕ ሚኒስቴርና ንግድ ሚኒስቴር እየተከራከሩ ነው

    … more and more fees.

    For anyone who takes a hard look, it is a family squabble which uncovered a wide range of facts. Both the Ministry of justice (MoJ) and Ministry of Trade (MoT) are part of a government that is severely criticized for its authoritarian control across all levels of government and society. Not long ago, the MoJ expressed objection to a possible loss of full authority over us, private lawyers. The MoJ said MoT has crossed the fault line since it issued a directive requiring private lawyers to register and obtain business license. The directive set a deadline for the registration and license; failure to meet the deadline violates the law and bars a private lawyer like me from practice. MoJ’s contention is that private practice is not a business and private lawyers are not businesswomen and men. It argues that we are not treated as such under the law. Furthermore, for the MoJ, we are governed by a code of ethics rather than by business regulations. It considers us as partners in the provision of justice, people who assist the public with legal counsel and represent it in courts and other forums at a fixed fee or without fee. MoT, on its part, asserts that the law classifies our practice as commerce and treats us as businesswomen and men that make profit.

    Whatever argument is raised and justification offered, beneath the squabble of the bureaucrats of the MoJ and MoT lies conflict of interest and selfish showmanship. The MoJ wants to keep undiminished authority over private lawyers by issuing license and supervising us while MoT wants to issue business license and enhance income of the government. As private lawyers, we have, individually and collectively, expressed disappointment over the squabble of these bureaucrats. We pay fees to get our license from the MoJ and renew it and now we are to pay other fees to MoT to get business license and renew it. In addition to the fees, we pay heavy taxes for the income we make from our services. To subject us to two payments at two ministries of the same government is just one problems. The other problem is to subject us to two different – possibly opposed – set of regulations, procedures and practices applicable to private legal practice and business. The mandate of the MoJ to “supervise” and the power of MoT to inspect business, suspend and cancel license will subject us to undergo unnecessary and redundant processes. It might as well result in wastage of resources of the ministries and lawyers.

    The bureaucrats in the MoJ and MoT are pretending to be in some kind of standoff, but they are, reportedly, talking to solve the squabble. The widely expected outcome of their talks is the bureaucrats will emerge without a scratch from the squabble making the government a winner. The MoJ’s monopoly of control will be limited to granting “professional” license to us, private lawyers, while the MoT will register us and issue “business” license. As expected, issuing two licenses will bring more money to the government. Once this change is introduced at federal level, regional states will do the same. In addition to the vexation we will undergo, the down side of two fees, two licenses, regulations is to encourage us to accentuate further the commercial aspect of our practice and escalate the cost of justice.

    …a business?

    Big or small, law is a business. Lawyers in private practice are businesswomen and men. It is a new issue for the MoJ bureaucrats and many others, but more than eighty years ago, it was suggested (at least in the United States) that lawyering had become primarily a business, rather than a traditional profession eschewing commercialism. Justice Stone wrote in the Harvard Law Review in 1934: “The successful lawyer of our day more often than not is the proprietor or general manager of a new type of factory whose legal product is increasingly the result of mass production methods.” Even today, we are nowhere close to the United States of the 1930s, but private practice is not far behind in manifesting commercialism. In the legal world to which we are not yet a part, it is a long settled matter that private practice is a business. As usual, it is taking us time to adopt a readily available solution to our problem.

    We wonder how the bureaucrats in the MoJ overlooked that private practice is a business and entered into a squabble with the MoT. To retain their absolute authority over us the MoJ bureaucrats invoked both legal and non-legal reasons. For their legal argument they relied on article 5 of the Commercial Code enacted in 1960 (Proc. 166/ 1960). Article 5 enumerates persons who shall be regarded as traders. Private legal practice is not included in the enumeration. However, articles 6, 8 and 9 of the same Code provide exclusions of certain category of persons from being regarded as traders. The exclusions are persons in agricultural and forestry undertakings, fishermen and handicraftsmen. Private lawyers are not in the exclusion. The Code neither regarded private legal probationers as traders nor excluded them. After all, fifty years ago, there were no trained lawyers in the country. Unless they are the dumbest of the dumb, the MoJ bureaucrats should at least have said the law is silent on the issue. Unscrupulous as they are, they read article 5 of the Code separately from the exclusions in the following articles and rushed themselves to rule that private lawyers are not traders. And these are the bureaucrats who give exams and grade papers of lawyers who apply for licence.

    Unlike what the MoJ bureaucrats say, the definition of “business person” under article 2 (2) of the Commercial Registration and Business Licensing Proclamation (no. 686/2010) does not simply repeat what is provided under article 5 of the Commercial Code; it expands it to include persons who dispense services or who carries on commercial activities designated as such by law. Furthermore, Proclamation 686/2010 under its article 30 (2) specifies “the list of commercial activities for which the Ministry (of Trade) … issues business licenses shall be determined by the Ministry based on international commodity or services or industrial classifications.” The list the ministry drew (that includes private lawyers as traders) can only be challenged by invoking the elements mentioned in article 30 (2) and not by invoking article 5 of the Code. More definitions in Proclamation 686/2010 such as “commercial activity” (article 2(3) and “industry” (article 2(11) emphasize the inclusion of services such as legal services as business. The most relevant is “requirement of professional competence” and “certification of professional competence” (article 2(36) which is defined to mean “the requirements set by relevant sectoral governmental institution to be fulfilled as appropriate with respect to commercial activity for which business license is issued….” This definition relates to article 30 (3) which provides that ” the requirements of professional competence to be satisfied for licenses to be issued for commercial activities … shall be defined in the respective directives issued by the relevant sectoral government institutions.” A joint reading of the relevant provisions of the Commercial code (which is essentially silent on private legal practice) and the Commercial Registration and Business Licensing Proclamation suggests that the MoT has a solid legal ground to issue business license to private lawyers. This leaves the MoJ bureaucrats with the power to set the requirements of professional competence to be satisfied for business license or issue a professional competence certificate. Given these facts, MoJ bureaucrats cannot stall registration and licensing by raising silly legal argument.

    The other legislation the MoJ bureaucrats failed to raise is Proclamation to Provide for the Definition of the Executive Organs (no. 691/2010). Article 16 (12) of the Proclamation vests the MoJ with the power to “license and supervise advocates”. The same Proclamation under article 21 (1) (f) authorizes MoT with the power to “provide commercial registration and business licensing services…” The Commercial Code, Proclamations 686/2010 and 691/2010 read together leads to the conclusion that both the MoJ and MoT have the power to issue licenses regarding the different aspects of private legal practice. Thanks to Proclamation no. 691/2010, the MoJ, without being limited to setting requirements for business license or granting certificate of professional competence, can give “professional” license and “supervise advocates” while the MoT registers and gives business license. As mentioned above, the problem is we will be vexed by the processes we undergo in the two ministries by applying, registering and paying for two licenses. A swift measure to streamline the process will be most welcome.

    To say that private lawyers do not make profit because we are subject to a code of ethics, assist the system in the provision of justice, provide pro bono services and receive fixed fees is ridiculous. The truth is most of us collect a reasonable amount of profit for little or no expense. We sell services to clients the expenses of which are paid partly by the government (in forms of running costs of several courts and other institutions and payment of salaries to judges, prosecutors, public sector lawyers and other staff) and partly by our clients (in forms of court fees). Our expenses are logistics such as office rent, salaries for legal clerks and miscellaneous expenses. With information technology at our disposal, some of us do not need clerks. Despite the public aspect of the service we provide, our income minus our expense makes our profit. There is no other name to it. This does not, however, mean all private lawyers have reasonable amount of income. As in every other business, few lawyers have prospered while most are in the middle leaving some with low income. Over all, the income of lawyers in the country is low compared to lawyers in other countries including in other African countries. The low economic status of private lawyers reflects the poor economic level of the country.

    … a profession?

    The presence or absence of private legal practice as a profession has no bearing on issuing “professional” and business license. The truth is there are lawyers but private legal practice has not emerged as a profession in the country. If private practice which constitutes an important part of legal practice has not emerged as a profession, it can, with a fair weight of confidence, also be said that law has not emerged as a profession. The list of characteristics to determine the existence of private practice as a profession is extensive. Without claiming to be exhaustive, some studies enumerate the following: professional association, skill based on theoretical knowledge, extensive period of education, testing of competence, institutional training, licensed practitioners, work autonomy, code of professional conduct or ethics, self-regulation, public service and altruism, exclusion, monopoly and legal recognition, control of remuneration and advertising, high status and rewards and individual clients.

    Private practice in the country cannot be considered a profession because it does not meet any of the above characteristics. Law association does not exist. Experience from other countries suggest that law association is organized by lawyers themselves intended to self – govern and regulate, independent from governments – federal, state or local. A typical law association enhances the status of its members, controls entrance requirements through testing of competence, imposes code of professional conduct or ethics and sanction those who infringe the rules. There is no such association, or a variety of it for that matter, in the country. Due to refusal of the federal government to demands of private lawyers to pass a legislation allowing to establish such association, bureaucrats in the MoJ are doing what a law association is supposed to do. Bureaucrats of the MoJ, that previously shut down and froze bank account of an already weak “bar” association have now presented themselves as defenders of private lawyers. To effect the shut down, they were working closely with the newly created Charities and Societies Agency. We will be delusional to think that they are defending us now.

    The other important characteristic to determine the emerge of law as profession is the existence of extensive period of quality education in accredited higher institution(s) that give in-depth theoretical knowledge and skills to apply in practice. In the past decade, over half a dozen law schools that offer degrees have been opened in the country. Thousands have graduated from these schools and several hundred graduate every year. By the government’s own admission, the quality of university education in the country including law education is seriously questionable. Last month, Junedi Sado, minister of civil service, told AAU staff and graduating students just that. A while earlier, Addis Fortune, a weekly newspaper, wrote “higher education programmers are quickly expanding, but the quality of education may be compromised in the process.” Fortune went on to say “… law firms who employ fresh graduates as assistant lawyers, have concerns over the quality of the graduates.” It also reported that it was told by a private lawyer that “new graduates do not even know how to write criminal charges, statements of claim or defense, even though the formats are clearly stipulated in the codes.” As private practitioners and employers ourselves, we are struggling with this problem for years now.

    Combined with the impediment to association, lack of quality legal education has hindered the emergence of law as a profession in the country.

    … fear in the air?

    The federal government and its bureaucrats fear lawyers with self-governing association. Having association with independence from government control is treated as political, subversive and intended to sabotage the law and order. As a result, any association that claims independence and work towards it is not welcome. Associations of teachers, journalists and workers that asserted independence are systematically abolished and replaced by pro – government associations or associations controlled by the government. The notoriously weak, but relatively independent “bar” association which had existed for over forty years is virtually reduced to a non-existent entity by this process. It was, time and again, intimidated and harassed and its bank account frozen by the MoJ bureaucrats, now joined by the Charities and Societies Agency bureaucrats until it finally acquiesced to their pressure. The other allegedly pro-government law association is a trophy than anything else. Discouraged by this situation, unlike in many countries, lawyers in public sector such as government agencies and NGOs have not tried to organize themselves. Even judges and prosecutors who blindly enforce repressive laws including laws on the press, terrorism and charities have no associations. In effect, tens of thousands of trained lawyers in the country do not have a forum to come together and discuss simple non-political issues. Keeping thousands of lawyers to function in isolation from one another has helped the government to guard them in check. In a short time from now, however, we will begin to push for an independent association which will represent us without the blessing of the government.

  4. Dawi
    | #4

    This is our dilemma:

    As Aha – mentioned of the external support given to Meles Dictatorship, IMF and other donors also require reducing aid dependency over time

    If governments only depend on foreign aid, they will only be accountable to the foreign donors.

    You can’t create a Developmental State or any state with just aid money.

    Regardless of the Dictatorship and its enterprises, if one wants to build a viable State that is legitimate and credible it has to answer to its own tax payers.

    My friends, TAX is a necessary evil.

  5. aha!
    | #5

    Anonymous! It still falls under TPLF and TPLF affiliated busineses and enterprises, to whom land and capital are widely available to run their businesses, no matter what the squable is between MoJ and MoT, but the question is what is the concern of UDJP in this squable.

  6. amazing
    | #6

    Dear Ujd,

    Are you talking to the unenlightened over and over again? It is a waste of time. They will never give up this comfort and expolitation through the corruption that is why we the Ethiopian people gave them all these years to strengthen their military and division against us and we deserve this. The question is not talking to them rationally what to do and frankly we Ethiopians do not want to sacrifice to bring change because of FEAR. The times are dead when our true Ethiopian forefathers sacrificed themselves for us and our land. The question should be what are WE going to do to stop this?

    Franlly this kind of corruption system is spreading all of developeing nations where through corruption is only dictators survives because dictators allow lawlessness so that people exploit one another to survive and forgetting about whether they are being rule by leaders the right or wrong way. This kind of system is working very well. Growth and Transformation for TPLF/EPRDF means to completely monopolize the economic system so that only they help those who support them. that is what it means. You only discuss with rational people. Money makes a person irrational it is addiction for power. What are WE going to do about it?

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