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Wild guess?

The protests of small business owners against the inflated tax assessments of the Ethiopian tax authority have made the headlines recently. In my view, the protest is a justified one.  Being a small business owner is no luxury in Ethiopia. Small businesses struggle with a list of factors to survive and stay in competition. The undifferentiated nature of the goods and services they provide, the inflated monthly store rents they have to pay and the shortage of finances needed to make meaningful investments are some of the factors limiting the growth potentials of these businesses. So it is no surprise if the inflated assessments of the daily business incomes used as tax basis sparks outrage among the owners. This makes you wonder, what is really the basis on which the inflated tax assessments were made? Are the inflated assessments based on the historical sales of the businesses? Are they based on a proper and well documented inventory of the items being sold? Or are the assessments simply based on wild guesses say for instance depending on the looks of the stores?

Although both the tax payers and the government contribute to the inefficiency of the tax system, I am of the opinion that the government should take the lead responsibility. Without a tax system that is transparent, equitable and free of corrupt tax employees it would be naïve to expect people to abide by tax laws. Take for instance Value-Added-Taxes. Many commodity stores are reluctant to charge VAT on some of their goods because this would drive customers away to stores that do not charge the tax. Two stores selling for the most part the same goods would be classified differently under the tax system, i.e. as a VAT registered one and a non-registered one. Although the justification for this classification is the daily sales of the businesses, experience shows that the assumed daily sales are only vague assumptions. The result is a vicious cycle of millions of birr uncollected, inadequate funds for investments on public infrastructure, frustration of the tax payers, and again millions of birr of uncollected taxes.

I believe that it is not only the inefficiency with which taxes are collected that discourages people from willingly paying their taxes. The way that tax money is being spent plays its own significant role as well. Although one needs to conduct a thorough research to pass judgment on tax paying behaviors of tax payers, a great deal can be said based on experience. It is true that the government is exerting multisectoral efforts to bring economic prosperity to the nation. But despite such efforts, minimum necessities of the society such as access to uninterrupted electric power supply and clean water supply remain unfulfilled.  A government system of social security providing assistances such as unemployment income and income to disabled people who are unable to work are unthinkable. Theoretically, taxes are money from the people to the people. But much may be needed to be done to further convince taxpayers of the theoretical purposes of taxes.

 It is good news that the government has decided to reconsider its stance on the tax assessments of small businesses and allow the later to pay taxes that the owners deemed to be fair.  The price to be paid as a result of overtaxing these business can be dire. On top of the lost taxes that will result from the closure of these businesses, the government and the society in general will have to face the additional burden of unemployment, crime and gruesome exiles. Government decisions should be supported with thorough research and should not be based on wild guesses. Decisions made based on wild guesses are expensive experiments that are doomed to fail.