Insurance companies objected paying more than 300 million birr taxes

Insurance companies in Ethiopia has reported an objection to the Ministry of Revenue,  regarding request that has been made by the ministry to pay tax on the profits invested in capital raising, to the insurance companies. Knowing that no tax should be paid on the profits invested in capital, the Ministry of Revenue has asked the insurance companies that have invested their profits in capital raising to pay additional tax on the profits invested in capital raising.

Pointing out that it is not appropriate to ask them to pay additional tax on the profits they invested in capital raising, they are appealing to the relevant government body. The Ministry of Revenue is urging them to pay the amount of money that they should pay to the insurance companies within the time limit set by the Ministry of Revenue.

 

 

The Ministry of Revenue has been doing a timely reminder to the insurance companies to pay the amount of money they should pay within the time limit. However, the insurance companies said that they are notifying the request of the Ministry of Revenue to pay tax on the profits they invested in capital raising is inappropriate. In reply to this, the Revenue Ministry’s Office of High Tax Payers is saying that if the insurance companies fail to pay the amount requested by the specified time, they will take action.

The Additional tax pay request is for insurance companies who increased their capital and investment 

 

This minister’s reminder is for all those who have increased their capital and invested their dividends for this capital increase.

 

The insurance companies that have been asked the question are waiting for a response from the relevant governmental bodies through their associations, saying that the surplus used for capital raising is not subject to tax.

 

According to the insurance companies, the fact that those who were asked to pay on the profits invested in capital raising were pressured to make the tax payment within 21 days has complicated the matter.

Some insurance company officials contacted by the reporter suggested that the Ministry of Revenue’s request was unexpected and illegal. He also mentioned that all the insurance companies who invested their dividends for capital raising in the past years are worried about the Ministry of Revenue.

Most of the insurance companies that received the notice have been asked for more than 30 million birr, the officials of the insurance company said.

 

Union Insurance, one of the insurance companies said to have paid the “illegal” tax, has been found to have demanded an additional tax of 46 million birr on the profit invested in capital raising. Tsehay Insurance 13 million Birr, Nib Insurance 41 million Birr are mentioned for example.

It is also indicated that the total amount of money requested by the companies from the profit for capital raising will be more than 300 million birr.

According to the CEO of Union Insurance, Mrs. Meseret Bezabih, the question is not only inappropriate but also a challenge for the companies.

Mrs. Meseret Bezabih stated “If the minister takes the company’s profit every year when your capital grows, there is a rule of 10 percent taxation of the dividend,” she said, but if the company reinvests the gained profit, there is clearly stated declaration that the company will not be requested to pay any tax. and since there is no state provision for investing in dividends on the Ministry of Revenue regulation, the request that the shareholder should pay ten percent of the dividend tax even if the shareholder does not take the dividend is inappropriate said Mrs. Meseret Bezabih.

 

On the other hand, the Ethiopian Insurance Providers Association, based on the petition submitted by the members of the association, investigated the matter and found that the income request was not appropriate, and directly addressed to the Minister of Finance, Ato Ahmed Shide on May 29, 2015. According to the letter from the association, the revenue ministry’s demand for additional tax on capital gains is inappropriate. the associate pointed out that the current request is not legal because insurance companies are using the profit they get every year for capital increase according to the regular and emergency meetings of the shareholders.

He also pointed out that the current request is not legal as they are following the procedure of the National Bank and are investing in capital raising.

The association informed in the letter that many insurance companies are investing their profits for capital raising in a manner approved by the regulator, the National Bank of Ethiopia.

 

Therefore, the Office of the High Tax Payers of the Ministry of Revenue said that the capital growth was not considered within the time limit (12 months) given for the renewal of the business license. They also mentioned that it is inappropriate to ask the companies to pay additional tax, assuming that the profits they have invested for capital growth are not undistributed.

In addition to requesting that the Minister of Finance look into and resolve the question of tax which is said to have no legal basis, and show that the request of the Ministry of Revenue is not appropriate, the Association has submitted evidence to the Revenue as proof that the same request was submitted to the banks in the past and the Ministry of Finance rejected the request.

The letter of the association also reminded that the Revenues had previously submitted the same request to the banks and according to the Banks Association’s request to the Minister, after the matter was reviewed by the Ministry, the provisions of the Federal Income Tax Proclamation No. 979/2008 and the purpose of Article 61 were properly interpreted, and the request of the Revenues was not enforced.

 

 Mrs. Mesret urged the minister to give an immediate response to the issue of additional tax presented to the insurance industry in the same situation, stating that it is on the profit spent on stock raising and is not a relevant question.

Instead of dividing the profit earned by the shareholders of insurance companies as it was done in the past if it is proven that they are used to increase the amount of their shares, they will not be affected by the share of the undistributed share profits.

The association has requested that this be stated and written to the Ministry of Revenue. Apart from the letter written to the Ministry of Finance, the association also informed the National Bank of Ethiopia about the problem. May 29, 2015

In a letter to the National Bank, the association reminded that insurance companies have invested and are currently investing their annual profits for capital raising according to the rules of the National Bank, as determined by the shareholders’ regular and extraordinary meetings.

In addition, many insurance companies are using their profits for capital raising in a legal way known to the National Bank of Ethiopia, thinking that the profits they have invested for capital raising are not distributed profits, so it is not right for them to ask for an additional tax to be paid.

The association urged the National Bank to find a solution by talking to those concerned about the issue. The officials of the insurance companies that the reporter talked to said that they were very concerned that the request of the Ministry of Revenue was presented especially at a time of severe financial shortage.

According to Mrs. Meseret, this question was presented to the banks in the past and it was stated that it is not possible to collect tax on reinvested profits from the perspective of the law.

 

Still, when our association wrote a letter to the Ministry of Finance, it was sent with a letter containing the decision given to the banks because the matter would be resolved easily, the Mrs added that they believe that the Ministry of Finance will give a positive response.