Ethiopia fiscalization: Is it time for a restart?
Ethiopia wrote its fiscal law back in 2007, which was advanced at the time, and a year after that began the introduction of fiscal cash registers and fiscal printers. The basic component of these fiscal devices was an integrated and protected fiscal memory. Daily summaries were regularly sent to the tax administration’s server with the help of GPRS terminals.
The fiscalization process was successful and, therefore, attracted the attention of many authors who studied fiscalization and cited Ethiopia as a positive example in their works.
But for how long can a system (including fiscalization) stay effective?
Since 2007, however, technology, especially in the IT sector and communications, has advanced tremendously. Ethiopia’s once safe and secure system has become ineffective in its basic function: the fight against tax fraud. Many taxpayers have taken advantage of this by avoiding the obligation to forward fiscal data to the tax administration server under various pretexts. If no invoices arrive on the server, the inspector does not know whether the taxpayer issues invoices, or even whether he is commercially active at all. Checking the activities of taxpayers in the field is a rather slow and difficult job. Taxpayers usually report that they lost their fiscal cash register or that it was stolen, however, most often these cash registers continue to issue illegal invoices for them or from some other terminal.
In addition to that, apparently, most cash machines lack up-to-date technology and aren’t able to incorporate tracking features, such as a GPS system, making them untraceable. In line with this, a recent audit revealed that the whereabouts of over 26,000 cash registers remain unknown, fueling concerns about potential illicit activities associated with them.
The countries’ legislation has not helped push forward fiscalization either, as it does not oblige taxpayers to modernize their fiscal devices, nor does it oblige them to buy machines that meet international quality standards.
As a result, in December 2023, the Ministry of Revenues raised the alarm by pointing out that less than 15 percent of cash registers in the country (that is, less than 37,000 of the 285,000 cash registers) transmit daily summaries to its server. This information is extremely discouraging, and urgent action is needed.
In our article, Greece extends the use of POS terminals to all economic activities, we mention Greece’s case, which is one of the countries which pioneered fiscalization. By strengthening their legislation to act, the Greek Tax Authority established that there was a large number of taxpayers who avoided fiscalization either by not issuing invoices at all or by under-reporting their number of transactions. Greece then decided to start from the beginning, by updating the taxpayer’s registry, immediately followed by a continuous modernization of its fiscalization system. They used algorithms to determine the minimum amount that self-employed and freelancers should pay in their declarations and fostered the purchase of modern POS terminals that are compatible with cash terminals (reporting to the tax authority).
It’s obvious that Ethiopia will have to act soon. If nothing is done, 15 years of work will be for nothing and the State’s income from VAT will begin to fall. Last year, almost 25,000 new fiscal devices were imported and most of them were distributed. Nevertheless, the question remains the same: Should Ethiopia continue using a technology that everyone is abandoning?
