The Ethiopian Revenues & Customs Authority (ERCA) expects all share companies and private limited companies that have recapitalised their profit to report to it with supporting documents, up until February 7, 2014 . Businesses are required to pay 10pc of the dividends of their profits, according to Income Tax Proclamation No. 286/2002. They are required to make the payments from the time the proclamation first became operational, which is 2012. Dividend tax is an income tax payable on dividend payments distributed to the shareholders of a company. It became functional inEthiopiain 1979 and has been amended several times. But it was when the ERCA asked those companies who have not shared the profits to pay dividend tax that complaints were brought forward. The ERCA argued that companies should collect the tax whether profit is paid to shareholders or not, commenting that income includes all sorts of gains that a person acquires, whether it is paid, credited or received, according to the Commercial Code of 1960. The Authority also argued that sub-article one of Article 10 of the Income Tax Proclamation entitles it to regard credited income as an income for tax purposes. They then concluded that since the shareholders have rights over the profit, it falls under what is stated as "credited income" in the Income Tax Proclamation. Another cause for complaints from taxpayers was that the Authority neglected the issue of collecting dividend tax for several years, allowing it to pile up. This accumulated tax was beyond the capacity of some companies to pay, taxpayers claimed,at a meeting held on Thursday, January 16, 2014 with officials of the Authority. Part of the complaint revolved around the fact that some companies had recapitalised their profits, butfailed to present the supporting documents to the ERCA within the right timeframe. They were thus being subjected to paying dividend tax. The Ministry of Finance & Economic Development (MoFED) reviewed all of these complaints and introduced some changes, which were sent to the Authority on August 6, 2013 . The latter adopted the changes and began implementing them on August 26, 2013 . Four changes were introduced: Every company, both private limited companies and share companies, that have recapitalised their profits into any investment sector - beginning from the issuance of the income tax proclamation - would be exempted from paying dividend tax. Secondly, share companies that present supporting documents stating that they have recapitalised profits, should be free from dividend tax, irrespective of the time of recapitalisation. Companies that have neither distributed dividends nor recapitalised profits are given a three-year grace period, upfrom only one year. Share companies are required to report to the ERCA within 12 months after the end of every fiscal year. This change, which will take place from the 2013/14 fiscal year, is irrespective of whether the companies have recapitalised dividends or distributed themto shareholders. The ERCA sent a letter to its branch offices on October 12, 2013 , explaining details of the changes. This was with the view of filling gaps in these offices. Share companies should have a certificate from Document Authentication and Registration Office (DARO) that clearly shows how much the capital raised and also have a document that clearly show their capital from Ministry of Trade (MoT) or Regional or City administration trade bureaus. The Authority, which plans to collect 116 billion Br during the 2013/14 fiscal year, has collected 24.5 billion Br, in the first quarter, from business profit tax.
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