4.1.
STRUCTURE OF ETHIOPIAN TAX SYSTEM AND ADMINISTRATION
The Federal Tax Administration
The Federal Tax Administration For a long period of time, tax administration in Ethiopia was an append
age of ministries that did not have administrative specialization over the assessment and collection of
taxes the Ministry of Trade and Industry before the Italian occupation (1936) and the Ministry of Finance
after the 86. Council of Ministers Regulations on Investment Incentives and Investment Areas Reserved
for Domestic Investors of 2003, Article 4, Proclamation No. 84, Negarit Gazeta,Year 9, No. 34
Administrative units or departments within these Ministries were charged with tax administration. The
preferred mode of organization was the organization of administrative units around the types of taxes
rather than the functions of tax administration.
One mode of organization that prevailed for a long time was an organization of tax administration units
or departments for assessment and collection of taxes on international trade (customs duties, sales and
excise taxes on imports and exports) and another one for domestic (internal) taxes or revenues (income
taxes, sales and excise taxes, stamp duties on domestic transactions). The administrative units for
assessment and collection of international trade taxes were organized under the customs departments or
customs authorities while those for the administration of domestic taxes were organized under in land
revenue departments or in land revenue authorities.
There were also times when specific taxes had their own tax administration units or departments within
the Ministries (e.g., income tax departments, excise tax departments). The separation of tax
administration for domestic and international transactions had the effect of parallel tax administrations for
those taxes that were levied on both domestic and international transactions. For example, customs
departments or administrations assessed and collected sales taxes on imports and Inland Revenue
Departments assessed and collected sales taxes on domestic transactions.
With the establishment of the Federal Government Revenue Board in1995, Ethiopian Tax Administration
was for the first time organized as a separate and autonomous government body.
The Board was established to 88. Tax administration was the domain of the Ministry of Commerce and
Customs (established in 1907) before the Italian occupation.
4.4. Stamp duty
Stamp duty ; means a tax payable on certain legal documents specified by statute; the duty may
be fixed or ad valorem, meaning that the tax paid as a stamp duty may be a fixed amount or an
amount which varies based on the value of the products, services or property on which it is
levied.
Briefly, the scheme relating to stamp duties, provided for in the
Constitution is as follows:-
Stamp duties on documents specified in Entry 91 of the Union List
(viz. Bills of Exchange, cheques, promissory notes, bills of lading, letters of credit, policies of
insurance, transfer of shares, debentures, proxies and receipts) - are levied by the Union.
Under Article 268, the State in which the Stamp duty is collected retains the proceeds, except
in the case of Union Territories in which case the proceeds form part of the Consolidated Fund of
India.
Some Definitions and concepts:
Where does the revenue provided for paying stamp duty go?
The considerable amount of the revenue from stamp duty goes to the State and with regard to
some non-commercial instruments, it goes to Union Legislature.
Instrument V/s Document
Document: It is one which is written, presented or recorded statement or condition agreed as
per the parties involved which may be evidentially used.
Instrument: As per Sec 2(14), it is document by which any right or liability, is, or
purported to be created, transferred, limited, extended, extinguished or recorded.
Judicial V/s Non Judicial Stamp
Judicial Stamp (Court fee Stamp): Stamps used in courts i.e. for
applications, petitions, etc. are judicial stamp papers.
Non Judicial Stamp: Stamp papers which would be used for execution of documents are
called non judicial stamp papers.
Types of Stamp
(A) Impressed Stamps
1) Labels affixed and impressed by proper officer
2) Stamps embossed or engraved on stamp paper (done by government printing press)
3) Impressions by franking machines generally done by the bank by depositing the necessary
amount of stamp duty with the banks. This kind of stamping is mostly preferred on instruments
(other than commercial instruments) as at times it becomes difficult to obtain stamps embossed
on stamp paper of a higher value.
(B) Adhesive Stamps
These stamps are those which are to be stuck on the instrument.
These are again categorized as Postal Stamps and Non Postal Stamps.
Postal Stamps: These are used only for transactions with post office and related functions.
Postal Stamps perform multiple roles as being paper ambassadors representing their country of
origin, thus promoting its national heritage.
Non Postal Stamps: They are of many types
(1) Revenue Stamp – are used for money related transactions (receipts).
(2) Notarial Stamp - used by the officer of Notary to certify, attest under his official seal along
with notary stamp.
(3) Foreign Bill Stamp – Generally used for bills of exchange or promissory notes drawn out of
India.
(4) Broker’s Stamp – Used for transactions through brokers or agent to his principal for
purchase or sale.
There are many types of such non postal adhesive stamps like court fee stamp, insurance
policy stamps, fiscal stamps, share transfer stamp, etc.
How to pay the Stamp Duty? All duties on instruments can be paid as mentioned
below:
(i) Payment of duty shall be indicated on such instruments, by means of stamps (sec 10 of The
Stamp Duty Act)
(ii) In cash (sec 10A of The Act)
By means of Stamps:
How can the payment be made by means of Stamps?
By purchasing the stamps, duty will be paid to the government
Payment by cash
-When there is temporary shortage of stamps in the district
-If stamps of required denominations are not available, cash payment can be done to authorized
officer-in-charge by producing a challenge evidencing payment of duty to government treasury.
4.5. Foreign Trade
• Foreign trade is the exchange of capital, goods, and services across international borders or
territories, which could involve the activities of the government and individual Basis for Foreign
Trade
• Resource Endowment
• Unequal distribution of resources
• Self-sufficiency
• Gain from foreign trades
4.5.1Custom duties
A tax levied on imports and exports by the customs authorities of a country to raise state
revenue, and/or to protect domestic industries from more efficient or predatory competitors from
abroad.
• In simple words, Customs Duty is a tax imposed on imports and exports of goods.
Types of custom duty
• Basic Customs Duty (BCD)
• Additional Duty of Customs/ Counter Veiling Duty (CVD)/ Section 3(1)
• Education and Secondary and Higher Education Cass
• Special Additional Duty (SAD) of Customs/ Special CVD/ Section 3(5)
• Safeguard Duty
• Anti-Dumping, Export Duty
• Import Duty
1.Duty Basic Customs Duty (BCD)
• Example:
Assessable Value 1,000,000
100,000
Add: 10% of AV
1,100,000
2. Additional Duty of Customs/ Counter Veiling Duty (CVD)/ Section 3(1)
It is payable only if the imported article is such as, if produced in India, its process of production
would amount to 'manufacture' as per the definition in Central Excise Act, 1944. It is calculated
on a value base of aggregate of value of the goods including landing charges and basic customs
duty
• Example:
Assessable Value 1,000,000
100,000
Add: 10% of AV
1,100,000
137,500
Add: CVD 12.5%
1,237,500
3. Education and Secondary and Higher Education Cass
• Example:
Assessable Value 100,000
10,000
Add: 10% of AV
110,000
Add: CVD 12% 123,200
Add: Edu.Cess3% 696
123,869
4. Special Additional Duty (SAD) of Customs/ Special CVD/ Section 3(5)
• Example:
Assessable Value 100,000
10,000
Add: 10% of AV
110,000
Add: CVD 12% 13,200 123,200
Add:Educe.Cass3%696 123,869
Add: SAD4% 4,956 128,852
Protective Duties: they are intended to give protection to indigenous industries, so as to
not make a glut (an excessive supply) of cheap imported articles in the market making
the indigenous goods unattractive.
4.5.2. Import procedures
Import trade refers to the purchase of goods from the foreign country.
The procedure for import trade differs from country to country, depending upon the
import policy, the statutory requirements and customs of different countries.
In almost all the countries of the world import trade is controlled by the government
Trade enquiry
Procurement of import license
obtaining foreign exchange
placing the indent
dispatching a letter of credit
obtaining necessary documents
customs formalities and clearing of goods
making the payment
1. Trade enquiry
an enquiry is a written request from the intending buyer or its agent for information regarding
the price and terms on which the exporter will be able to supply goods.
-quantity
Price
Trade Terms
Payment Terms
2 Procurement of importlicence
a person or a firm cannot import goods into India without a valid import license.
10 digit
General or specific license.
Custom Coy & Foreign Exchange Copy
3.Obtaining foreign exchange
Importer has to make payment for imports in the currency of exporting country.
The foreign exchange reserves of any country are controlled by Government and are released
through its central bank.
4. Placing indent or ordered
The order is known as Indent. It contains the instructions from the importer so as to the quantity
and quality of goods required, methods for forwarding them.
5. Dispatching a letter of credit
Exporter want to be sure that there is no risk of non-payment. Usually for this purpose he asks
the importer to send a letter of credit to him. A letter of credit is popularly known as L/C.
. Parties..Applicant, Issuing Bank, Beneficiary, Advising Bank, Confirming Bank, Negotiating
Bank etc.
6 .Obtaining necessary documents
on the receipt of letter of credit the exporter arrange for shipment of goods and send an advice
note to the importer immediately after the shipment of goods.
The exporter then draws a bill of exchange on the importer for the invoice value of goods.
The shipping documents such as the bill of lading, e, insurance policy certificate, certificate of
origin, customer invoice etc. also attached to the bill of exchange.
Such bill of exchange with all these attached documents is called documentary bill.
Documentary bill of exchange is forwarded to the importer through a foreign exchange bank
which has a branch or an agent in the importers country for collecting payments of the bill.
7. custom formalities and clearing of goods
1. File Bill of Entry with Business Identification Number.
2. Determine Rate of Duty for Clearance from Warehouse
3. File Requisite Documents with Custom Department.
4. Submit Import Report/ Manifest
5. Receive Permission to import Goods
8 Making the payment
The mode and time of making the payment is determined according to the terms and
conditions as agreed to earlier between the importer and exporter, usually 30 to90 days are
allowed to the importer for making the payment of D/A and D/P bills.
9 Closing the transaction
Last step in import procedure is closing the transaction. But if he is not satisfied with the quality
of goods he will write to the exporter and settle the matters.
In case the goods have been damaged in transit the insurance company will pay him the
compensation under an advice to the exporters. It is done by submitting the relevant documents
to Custom.
Duties on import
Basic Duty Preferential and standard
. Countervailing Duty /Additional Custom Duty (Equal to Excise) (Highest)
. Additional Duty (Equal to VAT)
. Anti- Dumping Duty
. Countervailing Duty on Subsidies Items (No in case of Research)
Safeguard Duty
Protective Duties
Education Cass and Higher Education Cass on Custom Duty
4.5.3 .Export procedures
Businesses that wish to export from Ethiopia should know the export procedures needed to
obtain export permit by commercial banks; should prepare Application for Quality Testing and
Certification to obtain Export Authorization Certificate from the Quality and Standards
Authority of Ethiopia; should fill the Customs declaration. We have included all these export
procedures in Ethiopia and also the VAT registration for exporters from Ethiopia and VAT
rate applied on goods exported from Ethiopia.
Documents required for Export Permit Approval:
Duly signed contract by seller & buyer
Undertaking letter of our customer that consignment will be settled within a maximum of
90 days from date of the Foreign Exchange Permit for Cash Against Document (CAD) mode
of payment and Authenticated message of L/C opened for Letter Credit mode of Payment.
Seller’s invoice
Export License Valid for the year
Tax registration certificate (TIN certificate)
Export permit application form duly filled, signed & stamped (as appropriate) by the
customer.
NBE (National Bank of Ethiopia) issues delinquent list of exporters periodically.
Customer’s name should not appear in the delinquent exporters list of NBE for the period. If
the name appears, there should be subsequent list indicating the given customer has cleared
all outstanding items at NBE.
4.5.4. Sur-tax
Council of ministers regulations no.. 133 /2007 council of ministers regulations to provide
for the payment of sur-tax on import of goods
These Regulations are issued by the Council of Ministers pursuant to Article 5 of the Definition
of Powers and Duties of the Executive Organs of the Federal Democratic Republic of Ethiopia
Proclamation No. 47'1/2005 and Article 4 of the International Convention on the HaFIllonized
Commodity Description and Coding system Ratification Proclamation No. 67/1993.
1. Short Title
These Regulations may be cited as the "Import Sur-Tax Council of Ministers Regulations No.
133/2007"
2. Scope of Application
the Sur-tax levied under these Regulations shall apply to all goods imported into Ethiopia except
those exempted under Article 5 of these Regulations:
3. Rate of the Sur-tax
without prejudice to Article 5 of this Regulation, 15 Sur-tax of 10 % shall be levied and collected
on goods imported.
4. Basis of Computation
The basis of computation for the sur-tax levied under these Regulations shall be the Aggregate
of:
1. Cost, insurance, Freight (CIF) value;
2. Customs duty value Added Tax and Excise Tax Payable on the good.
5. Exemption from the Sur-Tax
1. The following shall be exempted from the Sur-tax:
a) goods listed in the Schedule attached to these Regulations;
b) goods imported by persons or organizations exempted from customs duty by law, directives or
by agreement entered into by the Government.
2. The Minister of Finance and Economic Development may at his own discretion increase or
decrease the items exempted from the Sur-tax under these Regulations and issue directives for
the proper implementation of these Regulations.
.6. Effective Date
These Regulations shall enter into force as of 11 the day of April 2007.
Done at Addis Ababa, this 17 the day of May 2007
ITEMS EXEMPTED FROM SUR-TAX
1. Fertilizers;
2. Petroleum and lubricants;
3. Motor Vehicles for freight and passengers, and special purpose motor vehicles;
4. Aircraft, spacecraft, and parts thereof;
5. Capital (Investment goods)
