The country has to take in to consideration the introduction of citizenry taxation and tax for agriculture sector, so disclosed scholars approached by The Ethiopian Herald .
Regarding the tax revenue of the country, Lecturer at higher learning institutions, Dr. Teklu Kassu said that even if modern tax in Ethiopia is about 78 Years old, its revenue productivity is low because of policy and administrative bottlenecks. And tax to gross domestic product ratio could not exceed 12 percent which is by far less as compared to the case Sub Saharan countries.
“Ethiopia is a country that should take into consideration whether it is better to introduce citizenry taxation to finance projects of the country. It must also ponder on the issue of whether Ethiopia can generate adequate Tax revenue without bringing the 80 percent farmers into progressive taxation,” he added.
As to him, the country has to deal on whether it is the right time to start taxation
in the agricultural sector. It as well has to assess the effect of taxing agriculture. Policy, administration, tax agents, authorized accountants, tax consultants and other related issues are the main challenges to reform the tax system in Ethiopia.
Adding he noted that when two or more countries claim tax based on source, resident, both source and resident principles, double taxation takes place. Therefore, exemption, credit and deduction are the best methods of providing relief from double taxation. Unfortunately, Ethiopia has preferred Credit method. But this is not uniformly implemented well.
Concerning transfer pricing and its challenges to Ethiopian Tax Administration and Revenue Mobilization, President & CEO of Afro-Global Consultancy Services, Professor Fisseha-Tsion Menghistu on his part noted that transfer pricing is termed as a manipulation of prices of goods and rendering services by related as well as associated companies. Transfer prices are used when individual entities of a larger multi-entity firm are treated and measured as separately run entities.
They argue that a transfer pricing can also be coined as a transfer of hidden costs with the intention of shifting profits from a high tax jurisdiction/ country to a lower tax jurisdiction.
He further pointed out that in its broadest sense, transfer pricing means setting a price for a mutual settlement of accounts between the organizational entities of the same and related companies. Transfer Pricing is an obscure and complex subject involving an inner secret of the commercial world because companies can sell assets to each other at prices they can modify for reaching and justifying their commercial objectives.
Adding he remarked that today transfer pricing has become not only a very important part of study in taxation, but it has also become one of the most actual and controversial topics in the global tax avoidance debates and its ramifications on, revenue mobilization , financial crisis and on finance and development related issues. Above all, because it has the possibility of reducing the tax due to the government where such companies operate or do business. In short, it is because transfer pricing has become one of the biggest tax avoidance scheme of all.
“Since taxes are seen as a burden and as a cost to doing business, there is a tendency that many companies seek to take advantage of the variable levels of taxation imposed by different tax jurisdictions,” he added.
As to him, generally accepted solution to transfer pricing is the arms length pricing. An arm’s length transaction refers to a business deal in which buyers and sellers act independently without one party influencing the other. These types of sales assert/assume that both parties act in their own self-interest and are not subject to pressure from the other party. Furthermore, it assures others that there is no collusion between the buyer and seller.
Transfer pricing is not an accounting, economics and business strategy issue only. It is also a legal issue as well. Many developed countries and their respective tax authorities have had a great deal of problem determining market price of goods and services. When transfer pricing do not reflect market forces, it creates market disruptions and payment of lower taxes at the state which charges high tax rates.
Market forces govern most of the transactions in an economy. It has become a norm. Hence it is appropriate to treat intra-group transactions as equivalent to those between independent entities.
“Allocation of income and deductions to a permanent establishment in Ethiopia of a non-resident or to a permanent establishment of a resident of Ethiopia outside the Ethiopia shall be made in accordance with a Directive issued by the Ministry of Custom and Revenue.” He underscored.
The Ethiopian Herald January 12, 2020
BY MEHARI BEYENE
