The Ethiopian Revenues and Customs Authority (ERCA) is the body responsible for collecting revenue from customs duties and domestic taxes. In addition to raising revenue, the ERCA is responsible to protect the society from adverse effects of smuggling. It seizes and takes legal action on the people and vehicles involved in the act of smuggling while it facilitates the legitimate movement of goods and people across the border. The ERCA traces its origin to July 7, 2008 as a result of the merger of the Ministry of Revenues, the Ethiopian Customs Authority and the Federal Inland Revenues into one giant organization.
The pre-merger study proposal
The pre-merger study proposal
The pre-merger study (Business Process Reengineering) proposal
A study called "Business Process Re-engineering" took place before any steps were
taken to effect the merger of the foregoing administrations. The study was
undertaken for a year and half beginning from November 2007 by teams of
officials selected from within the administration. The study has looked into the
selected key business processes and identified inefficient organizational structure
and unnecessary complicated procedures that permitted insufficient service
delivery. The study also identified that there was corruption within the
administrations and that smuggling and tax evasion were serious problems. These
problems have thwarted the attempt of the administrations to be successful in
achieving their objectives. Owing to the depressing problems that worked against
efficiency, the former administration has failed to deliver efficient service to its
customers such as importers, exporters, taxpayers, the federal government, the
society etc. For instance, international trade participants (importers, exporters)
were unable to deliver their goods to domestic and international market on time.
Every import or export goods and their documents must be processed through the
former tax and customs administration and due to the inefficient procedures these
goods were subject to delay at exit or entry points of the former customs
Authority. Owing to it, importers or exporters viewed the former customs
procedure with disfavor or as an impediment that blocked the movement of
international trade. The former tax and customs administration also has long been
criticized for lack of efficient system to control tax evasion. The administration
had inefficient system to control taxpayers who fail to declare their actual income
in order to reduce their tax bill and the federal government?s revenue. The former
administration was also far behind in protecting investors from adverse effects of
contraband. It was a daily occurrence to see contraband goods displayed on and
being sold in the streets of major towns of the country. These and other myriad
problems call for solutions or significant change and in response to them, the study
team has made problem-solving proposal.
In its proposal, the team suggested merger of the above-mentioned three
institutions. The team could not see the necessity of three entities or
administrations as long as their main purpose is indistinguishable i.e. collecting
tax revenue for the government and preventing tax evasion. The study team
believed that it would be better if the three administrations merged, forming a
single large powerful organization so that the base for modern and equitable tax
and customs administration system, effective resource utilization and quick service
delivery could be laid down. The merger was eventually put into effect with the
knowledge, participation and approval of the employees and senior management
members and taxpayers.
According to article 3 of the proclamation No .587/2008, the Authority is looked upon as "an autonomous federal agency having its own legal personality". The Authority came into existence on 14 July 2008, by the merger of the Ministry of Revenue, Ethiopian Customs Authority and The Federal Inland Revenue Authority who formerly were responsible to raise revenue for the Federal government and to prevent contraband. Reasons for the merge of the foregoing administrations into a single autonomous Authority are varied and complex.
Some of those reasons include:
To provide the basis for modern tax and customs administrations
To cut through the red tape or avoid unnecessary and redundant procedures that results delay and are considered cost-inefficient etc.
To be much more effective and efficient in keeping and utilizing information, promoting law and order,resource utilization and service delivery
To transform the efficiency of the revenue sector to a high level.
A long process of study called "Business Process Re-engineering" had taken place before any steps were taken to effect the merger of the foregoing administrations. The study was undertaken for a year and half beginning from November 2007 by teams of officials selected from within the administration.
The study has looked into the selected key business processes and has come across inefficient organizational structure and unnecessary complicated procedures that permitted insufficient service delivery. The study has also indicated that there was corruption within the administrations and that smuggling and tax evasion were serious problems. These problems have depressed the attempt of the foregoing administrations to be successful in achieving their objectives. Owing to the depressing problems that worked against efficiency, the former administration has failed to deliver efficient service to its customers such as importers, exporters, taxpayers, the federal government, the society etc. For instance, international trade participants (importers, exporters) were unable to deliver their goods to domestic and international market on time.
Every import or export goods and their documents must be processed through the former tax and customs administration and due to the inefficient procedures, these goods were subject to delay at exit or entry points of the former customs Authority. Owing to it, importers or exporters viewed the former customs procedure with disfavor or as an impediment that blocked the movement of international trade. The former tax and customs administration also has long been criticized for lack of efficient system to control tax evasion.
The administration had inefficient system to control taxpayers who fail to declare their actual income in order to reduce their tax bill and the federal government’s revenue. The former administration was also far behind in protecting investors from adverse effects of contraband. It was a daily occurrence to see contraband goods displayed on and being sold in the streets of major towns of the country. These and other myriad problems call for solutions or significant change and in response to them, the study team has made problem-solving proposal.
In its proposal, the team has suggested merger of the foregoing three administrations. The team could not see the necessity for three entities or administrations as long as their purposes are indistinguishable i.e. collecting tax for the government and preventing smuggling. The study team believes that it would be better if the three administrations merged, forming a single large powerful organization so that a base for modern and equitable tax and customs administration system, effective resource utilization and quick service delivery can be laid down. The merge was eventually put into effect with the knowledge, participation and approval of the employee and senior management members and taxpayers. The pre-merger project such as the pilot program, carried out for six months beginning from November 2008, has revealed that all the newly designed tax and customs procedures test have been carried out to everyone's satisfaction i.e. it was successful and has produced very beneficial effects to both the authority and its customers or stakeholders. Presently, the Authority is exercising the powers and duties that were granted to the Federal Inland Revenue Authority and the Customs Authority by other existing laws.
Objective of Authority
The ERCA has the following objectives:
To establish modern revenue assessment and collection system; and provide customers with equitable, efficient and quality service,
To cause taxpayers voluntarily discharge their tax obligations,
To enforce tax and customs laws by preventing and controlling contraband as well as tax fraud and evasion,
To collect timely and effectively tax revenues generated by the economy;
To provide the necessary support to regions with a view to harmonizing federal and regional tax administration systems.
Vision, Mission and values
To be a leading, fair and modern Tax and Customs Administration in Africa by 2020 that will finance Government expenditure through domestic tax revenue collection.
ERCA will contribute to economic development and social welfare by developing a modern Tax and Customs Administration that employs professional and highly skilled staff who promote voluntary compliance amongst individuals and businesses, and take swift action against those who do not comply.
ERCA will understand its customers and their needs, treat them with trust and respect and help them meet their obligations. We will act with integrity, transparency and professionalism, and enforce customs and tax related laws. We will work closely with stake holders and ensure the participation of women.
The key business drivers have been identified as follows:
Reliable data and statistics
Process oriented management
Enforcement and security
Power and Duties of Authority
The ERCA shall have the powers and duties to:
establish and implement modern revenue assessment and collection system;
provide, based on rules of transparency and accountability, efficient, equitable and quality service within the sector; properly enforce incentives of tax exemptions given to investors and ensure that such incentives are used for the intended purposes;
implement awareness creation programs to promote a culture of voluntary compliance of taxpayers in the discharge of their tax obligations;
carry out valuation of goods for the purpose of tax assessment and determine and collect the taxes;
conduct study and research activities with greater emphasis to improve the enforcement of customs and tax laws, regulations and directives and the collection of other revenues; and based on the result of the study and research initiate laws and policies and implement the same up on approval;
collect and analyze information necessary for the control of import and export goods and the assessment and determination of taxes; compile statistical data on criminal offences relating to the sector, and disseminate the information to others as may be necessary;
organize a training center wherein to build employees’ capacity; and design appropriate training schemes;
examine goods and means of transport entering into or departing from Ethiopia through customs ports, frontier posts and other customs stations, and ensure that customs formalities are complied with;
provide information and appropriate support to the Federal Police in the control of illicit trafficking of goods and combating contraband; and cause appropriate actions be taken in accordance with the law;
investigate customs and tax offences, institute and follow up criminal proceedings in courts; for the discharge of such responsibilities, organize its own prosecution and investigation units and supervise their performance ;
inspect and seize documents under the possession of any person that are required for the enforcement of customs and tax laws; organize and operate modern laboratory inspection of goods and documents;
decide the place where import and export goods are to be deposited; establish warehouses, issue warehouse licenses; supervise duty-free shops; control the handling and care of deposited goods; suspend or revoke warehouse licenses;
collect license and service charges;
delegate, fully or partially, its powers of investigation, prosecution, prevention and control of customs and tax offences as well as tax assessment, collection and execution powers to justice departments and revenue collecting agencies of regional states; and provide the necessary support for and follow up its implementation;
oversee and supervise the activities of the National Lottery Administration;
provide appropriate capacity building support to regional revenue collecting agencies with a view to harmonizing federal and regional tax administration systems;
enter into contracts and international agreements regarding tax and customs administration;
exercise the powers and duties that were granted to the Federal Inland Revenue Authority and the Customs Authority by other existing laws;
own property, enter into contracts, sue and be sued in its own name;
perform such other related activities as required for the attainment of its objectives.
Organizational Structure and Manpower
The ERCA has its headquarters in Addis Ababa. It is led by a Director General who reports to the Prime Minister and is assisted by five Deputy Director Generals, namely D/Director General for Program Designing of Operation and Development Businesses; D/Director General for Branch offices’ Coordination and Support; D/Director General of Enforcement Division; D/Director General, Corporate Functions Division; Change Management and Support Sector; and Enforcement Sector. Each deputy director general oversees at least four directorates. Both the Director General and the Deputies are appointed by the Prime Minister.
Directorates at the head office level
The ERCA, at the headquarters level, has 23 directorate, (see 23 Business_Processes) . One for the list of the directorate. As shown on the organizational chart, the directorate report to the deputy director generals and a director heads each of them. Law Enforcement Directorate is just one of the directorate ERCA has. To carry out its duties, the directorate is entrusted with broad powers. It investigates customs and tax offences, institute and follow up criminal proceedings in courts and this has resulted in the arrest and trials of hundreds of offenders and smugglers. The directorate works in close collaboration with the federal police to prevent criminal offences committed in violation of customs and tax laws.
Besides, the headquarters has the office of the director general which is led by a director and comprises three positions, namely Tax and Customs Affairs, Strategic Intelligence Affairs, and Communication and Human Resource Development Affairs.
Apart from the foregoing directorates, the ERCA has 32 field offices, of which two of them are coordination offices located outside of Ethiopia at the port of Djibouti and at the port of Burbera, Somalia. The primary function of the foregoing coordination offices are affording/ providing transit service for the goods imported into or exported from the country. However, the latter coordination office is presently not operational. The 30 branch offices in Ethiopia comprise 22 Customs Control stations, 50 Checkpoints and 153 Tax Centers. Tax Center means a tax collection station administered under a branch office and located in the vicinity of taxpayers while Customs Control Station means a station administered under a branch office where customs formalities are complied with and collection of taxes and duties take place on imported and exported goods; checkpoint is a place where customs examination is conducted by machine and/or manually for the purpose of ascertaining that there is no variation between the goods to be imported-exported and the goods specified in the customs declaration.
Each branch office is directed by a manager who is accountable to the D/Director General for Branch offices’ Coordination and Support Sector. For the list of branch offices see (see Branch Offices) .
Manpower and Budget
Up to June 2011, the ERCA has about 6095 employees and its workforce is projected to rise to 12,000 in the future. Until June 2011, the ERCA’s annual operating budget is 458 million birr and is appropriated by Ministry of Finance and Economic Development.
Since 2006, great strides in automating ERCA’s operations had been made, hence ERCA’s daily operation has become improved and service delivery to importers, exporters, taxpayers and other customers has become a lot easier. The ERCA has witnessed success in revenue collection over the past five years beginning from 2006. During this period, the ERCA has tripled revenue collection from 11.2 billion birr in 2006 to 35.6 billion birr in 2010. Consequently the contribution of the revenue to covering the federal government’s expenditure had considerably grown from 37.54 percent in 2006 to 55.35 percent in 2010.
In this article, we are going to discuss the automated operation in ERCA and the benefits both ERCA and its customers obtained.
Automating foreign trade procedures
Thanks to Automated System for Customs Data (ASYCUDA), ERCA has automated most of its foreign trade procedures carried out both at the head office and branch offices level. The system came into operation in the year 1998 and has accelerated customs clearance and simplified procedures through computerization. This cuts costs of businesses and shortens the time it takes to process goods or has helped importers to receive their goods quicker.
ERCA has managed to collect more revenue and to compile reliable and timely statistical information which enables government agencies to take politically and economically important decisions in the light of the most recent trade development.
The automation of ERCA’s operations has also opened the door to the eventual exchange of cargo data and goods declaration by electronic means, thereby preventing traders from shuttling back and forth to the various offices concerned and thus has further facilitated trade.
ERCA succeeded in implementing ASYCUDA with the assistance of UNCTAD.
Automating the examination of import-export cargo
ERCA examines import-export cargo to verify whether the details declared on the customs declaration are actually in conformity with the goods that are imported or exported. To speed up the examination of the goods, ERCA uses scanning machine at Millay check point and at the Addis Ababa Airport Customs branch office. This has enabled ERCA to detect a wide variety of illegal goods concealed in the import-export cargo, to safeguard revenue and to meet the social obligations to protect the society while facilitating legitimate trade. ERCA has recently installed scanning machine at various branch offices including Gallafi Checkpoint, Moyallay Checkpoint and Metema Checkpoint. The newly installed scanning machines are expected to be fully operational soon.
Automating the Administration of Domestic Taxes
ERCA has equipped itself with a computer system to administer almost all domestic taxes including: Value Add Tax (VAT), Turnover Tax, Withholding Tax and others. The computer system that enables ERCA to administer the taxes mentioned above is called Standard Integrated Government Tax Administration System (SIGTAS). The system allows ERCA to administer all aspects of most domestic taxes including: registration, assessment, cashing, and auditing in one easy-to-use integrated system. The system was introduced in ERCA in December1997 and is presently operational both at the head office and branch offices level.
Cash Register Machine
To safeguard revenue collected from tax, ERCA has made many entrepreneurs buy obligatory Cash Register Machine imported by some recognized suppliers. The machine helps entrepreneurs to record their sales of goods and services and value added tax on a daily basis. The machine is connected to the central computer of ERCA and allows it to be more accurate in its tax estimates and to trace tax evasion.
The machine was introduced in Ethiopia in Feb.2008. Up to the first week of June 2011, it is revealed that 20,039 businesses in Addis Ababa are made to own/buy 22,747 cash register machines.
Other modern technologies to be deployed soon
ERCA has also a plan to set up a call centre with computerized system. A call centre is an extensive open office for the purpose of giving a response promptly to various requests from stakeholders. The call centre will have capable and competent officers with computers, a telephone set/head set connected to a telecom switch and supervisor station. The call center officers are expected to have a through knowledge of tax and customs procedures of ERCA and competent enough to give quick response to customers who put their question over a telephone. The call centre is one of the modern approaches to solving the problems of customers.
Electronic Cargo Tracking system is the other modern system which ERCA is going to deploy soon. This system is consisted of (1) a road map which shows the route the cargo truck should take (Geofence), (2) electronic seal, or a device which is to be mounted on the cargo and used to provide ERCA information about the cargo, and (3) Global Positioning System (GPS), a device which is to be mounted on the truck so that it can provide ERCA information about the status of the truck and cargo. Through this system, ERCA ensures the security of the cargo thereby preventing kisheba (cargo theft) and trafficking of smuggled goods. The cargo tracking device delivers real-time visibility of all the import-export cargo conveyed by sea and land so that ERCA can manage to control them with ease and facilitate legitimate trade.