The VAT Regime Under Ethiopian Law with Special Emphasis on Tax Exemption: The Ethiopian and International Experience
Bekure Herouy Legal Consultant March 2004
Table of Contents
1. Introduction 2. History and Description of VAT Generally 2.1 Definition 2.2 Background 2.3 How does the tax work? 2.4 How does it differ from Income Tax? 2.5 Why has the tax spread throughout the world? 2.6 Why are there different forms of the tax? 2.7 Will the Internationalization of VAT continue, stop or contract? 3. The VAT Regime in Ethiopia 3.1 Basic Notion 3.2 VAT Rate 3.3 Registration 3.4 Exemption for Specific Categories of Goods and Services 3.5 Tax Credit, Procedures for Filling Tax Return and Payment of VAT and VAT Refund or Rebate 3.5.1 Tax Credit 3.5.2 Procedures for Filling of Tax Return and Payment of VAT 3.5.3 VAT Refund and Rebate 3.6 Non Compliance with VAT Proclamation 3.7 The Implication of VAT on NGOs in Ethiopia 3.8 The Implication of Other Taxes on NGOs in Ethiopia 3.8.1 Import Custom Duties 3.8.2 Income Tax Exemption 126.96.36.199 Income Tax Exemption from Income Generation Activities and Donations 188.8.131.52 Income Tax Exemption of INGO International Staff 3.9 Others 3.9.1 Stamp Duties 3.9.2 Lease Free Land Grant 4. International Experience and Best Practice on VAT and VAT Exemption for NGOs 4.1 Africa 4.1.1 4.1.2 South Africa Kenya 1 6 6 6 7 7 8 8 10 11 11 12 13 13 15 15 16 17 17 18 18 18 19 19 21 24 24 24
26 26 27 28
4.1.3 4.1.4 4.1.5 4.2 4.3 Asia
Uganda Tanzania Rwanda
29 29 29 30 30 32 32 32 33 34 34 37 38 38 38 38 39 39 39 42 45 48 51 54
Newly Independent States 4.3.1 Armenia 4.3.2 Kazakhstan 4.3.3 Kyrgyz Stan 4.3.4 Tajikistan 4.3.5 Ukraine Central and Eastern European Countries 4.4.1 Croatia 4.4.2 Hungary 4.4.3 Latvia 4.4.4 Lithuanian 4.4.5 Poland 4.4.6 Romania 4.4.7 Slovakia European Union Countries The Rational of Tax Exemptions and for Offering Beneficial Tax Treatment to NGOs The Rational of Exempting NGOs from VAT The Precedence of Granting Tax Exemption in Ethiopia Conclusion and Recommendation Source Materials
4.5 5. 6. 7. 8.
Most NGOs in Ethiopia had their origin in the famine of the mid 1970s and 1980s. In this context, NGOs have primarily acted as agents of relief, charity, welfare and deliverers of services. Today the sector having developed currently has reached around 1500 according to Ministry of Justice and those, which are classified, as development oriented and registered with the Disaster, Prevention and Preparedness commission (DPPC) are approximately 419 (291 local and 128 international NGOs). Studies show that NGOs provide different types of services to 15% of the total population and during a five years period (1996 – 2000), they implemented projects worth Birr 5.96 billion where each year the financial contribution (for NGO projects) has increased. A break down of this shows that NGOs investment of their finance is 21% in SNNPRS, 23% in Amhara, 20% in Oromiya, 18% in Addis Ababa and 13% in Tigray. However, there are relatively few NGOs, given the size of the population and the scope of the developmental challenges. With the advent of new political and economic developments, the identity and role of NGOs has been transformed and has gradually been replaced with development activities and as a result the role of NGOs and their relationship with the community they serve, the government, donors and among themselves has undergone dramatic changes. Accordingly, NGOs are currently operating in a dynamic and fast changing policy and environment. One such dynamic policy shift involves the new tax regime namely Income Tax and the Value-Added Tax (VAT) of Ethiopia, which seems to have caught the NGO community unaware and unprepared to deal with it. The new tax regime, especially VAT, is indeed a step learning curve for NGOs and the tax authorities as well. This issue has become a common topic in Ethiopia, both for those working...
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