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

Comments are closed.