A new directive has been issued requiring the Ministry of Revenues to pay interest to taxpayers if tax refunds are not processed within the time limit stipulated by law. This means that if the government fails to pay the refund on time, it is obligated to pay interest for the period of delay.
The Ministry of Revenues has issued the "Directive No. 1132/2018 to Determine the Conditions for Value Added Tax Refund," which it states is intended to lead the tax refund system in a transparent and accountable manner.
This new directive was issued following the repeal of the previous tax proclamation and its replacement by the new Value Added Tax Proclamation No. 1341/2016, and its main purpose is to modernize the tax refund service based on the risk level of taxpayers.
The directive classifies taxpayers applying for tax refunds into three main risk levels, which it states is intended to reduce the burden that audit and verification work creates on honest taxpayers.
Accordingly, a system has been established where taxpayers with a low-risk level can receive refunds in an expedited manner without undergoing extensive audits, while taxpayers with medium and high-risk levels will be subject to detailed and strict document verification and audit examinations as appropriate.
It states that this will help prevent negative impacts on government revenue and ensure that the appropriate tax refund reaches the correct taxpayer.
According to the detailed implementation of the directive, special attention has been given to manufacturers who export their products at a zero-rated tax limit, those who supply gold to the National Bank of Ethiopia, and taxpayers who have made capital goods purchases of over 100 million Birr.
In particular, an "expedited refund system" has been established where the tax paid by manufacturers selected by the Ministry of Industry and engaged in exporting for local inputs purchased before exporting their products will be refunded within seven days.
It has been stipulated in the directive that other standard refund requests will be decided upon within forty-five days after the necessary verification has been carried out.
Strict prerequisites that must be met by entities applying for tax refunds are also included in the directive, and among these are legal original receipts where the transaction was performed, bank payment confirmations, and other related documents.
Among the points the directive has set out in particular, it clearly states that from July 1, 2017 E.C. onwards, any transactions over 50,000 (fifty thousand) Birr will not be accepted for a tax refund request if they are not performed through a bank and if they exceed the cash transaction limit.
The directive orders that the tax authority (Ministry of Revenues) shall have an obligation to pay interest to the taxpayer if it fails to pay the amount to be refunded within the time limit set by law.
The interest shall be calculated for the period from the end of the relevant time when the refund should have been paid until the refund amount is paid, and the interest rate shall be based on the highest interest rate for commercial loans provided by banks in Ethiopia.
To receive the interest, a request must be submitted within 6 months of the decision, attaching proof of the decision rendered by the relevant court; the directive also stipulates that a request not submitted within the specified time shall be considered as a waiver of the right.
