Indian Firm Appeals to Supreme Court Over Withholding Tax

Addis Fortune (Addis Ababa)

Eden Sahle

23 May 2011

Technofab Engineering, an Indian company engaged in engineering and construction, is appealing to the Supreme Court to contest the decision by the Federal High Court, Eighth Civil Bench, that denied the company a little over two million Birr.

The company had sued the Ministry of Water Resources (MoWR) and the Ethiopia Revenues and Customs Authority (ERCA) for two per cent withholding tax.

Technofab had won the tender announced by MoWR for a water supply project and installation in Harar Town. The required materials were paid for with a letter of credit (LC) from African Development Bank (AfDB) worth 9.2 million dollars opened by MoWR. It was paid through a bank in India, despite the equipment being imported duty-free in MoWR’s name.

During the installation stage, Technofab was required to have a trade licence and registered for one with the Ministry of Trade (MoT); the company also paid its tax dues, Mohammed Yaqout, lawyer for the plaintiff, alleged in the charge filed in June 2010.

MoWR deducted two per cent withholding tax for palming equipment while the plaintiff was not obliged to pay tax, he argued, citing the tax proclamation. Any person or company must be a resident of Ethiopia or have its principal office in Ethiopia to be liable for paying withholding duties, according to the proclamation, and the plaintiff is neither, he argued.

The charges were contested by MoWR and ERCA.

The court does not have jurisdiction to hear the case, they claimed, citing the tax collection proclamation that authorises the ERCA’s Federal Appeal Committee to deal with cases from taxpayers who has paid taxes they allegedly do not owe the ERCA, argued Mekonen Ayele, public prosecutor for the tax authority.

He also refuted the plaintiff’s claim that Technofab is free from withholding tax duties, citing the tax proclamation that stipulates a company with an effective management in Ethiopia or which is registered under local licensing laws, can be viewed as residing locally, making it obliged to pay duties.

In January 2011, the presiding judge, Muluken Teshale, closed the case in the High Court, ruling that it should have been filed at the ERCA, in accordance with the tax proclamation.

Following the verdict, the plaintiff appealed to the Supreme Court. The case was adjourned to June 3, 2011, for a verdict.

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