Tax Mediation Plan Sparks Concerns Over Independence

Legal and financial experts have raised concerns over a draft amendment to Ethiopia’s Tax Administration Law, warning that proposed reforms intended to ease tax disputes could instead entrench the power of the tax authority while shifting the financial burden of mediation onto taxpayers.

The Ministry of Finance convened a consultation this week with legal practitioners, financial experts and other stakeholders to gather feedback on the draft amendment to the Federal Tax Administration Proclamation No. 983/2016.

During the session, the Ministry’s tax advisor, Wassihun Abate, outlined the proposed revisions and responded to questions from participants.

Among the most consequential reforms is the introduction of conciliation as a mechanism for resolving disputes between the Ministry of Revenue and taxpayers through mediation by an independent third party.

But several participants questioned whether the process could remain genuinely impartial under the current draft, which grants the tax authority the power to appoint mediators and draft the directive governing conciliation procedures, while requiring taxpayers to bear the cost of mediation.

Mekdes Korma, a mediator and project manager at the Ethiopian Mediation and Arbitration Center, argued that the provision authorizing the tax authority to select mediators should instead designate “an independent mediation institution” to safeguard neutrality and strengthen public confidence in the process.

“If parties believe the mediator is an independent institution rather than an individual appointed by the authority, they will be more encouraged to take disputes to conciliation,” she said.

Abdulhakim Jemal, a lawyer representing the Ethiopian Milling Association, echoed concerns over the neutrality of the proposed framework. He said obliging taxpayers to cover mediation fees, contradicts the amendment’s stated objective of reducing the financial burden associated with tax appeals and disputes.

Abdulhakim proposed that an independent body, such as the Chamber of Commerce, oversee the directive and administer the conciliation process, with mediation costs shared equally between the disputing parties.

Teka Mehari, a lawyer, welcomed the introduction of mediation in principle but criticized the disproportionate influence granted to the tax authority under the proposed framework. He also questioned the system’s practicality in the absence of institutions currently equipped to independently handle tax mediation and arbitration.

“I don’t believe this could solve our tax dispute problems, as we don’t have institutions that are empowered to do this,” Teka said, adding that legal and financial professionals should formally be incorporated into the process to ensure its effectiveness.

Participants also raised concerns over proposed penalties for receipt-related violations, describing them as excessive and insensitive to taxpayers’ financial capacity. Another contentious provision was a restriction on introducing new evidence during appeals, which attendees argued could unfairly intensify the burden on taxpayers.

Responding to concerns over mediator independence, Wassihun said the draft does not envision the tax authority appointing individual mediators directly. Instead, he said, the authority would accredit reputable institutions, which would in turn assign qualified professionals to handle disputes.

Drawing on international practice, Wassihun noted that tax administrations in other jurisdictions often pre-approve mediation institutions and publish lists from which taxpayers may choose, rather than selecting new mediators for every case.

“If taxpayers are given unrestricted power to propose mediators, the authority would still have to evaluate and approve or reject each one, which could unnecessarily prolong the process and affect taxpayers’ rights,” he said.

Wassihun also acknowledged concerns about concentrating too much authority within the tax administration, suggesting that the Ministry of Finance could instead assume responsibility for drafting the conciliation directive.

Addressing criticism over tougher penalties, Wassihun said sanctions are intended to serve both corrective and deterrent purposes. “The goals of penalties are educating the offender and setting an example for others not to commit similar violations,” he said, arguing that the existing penalties had failed to achieve those objectives.

On the issue of new evidence during appeals, he maintained that negligence by taxpayers should not be rewarded. However, he said exceptions would be permitted in cases where evidence was previously unavailable, discovered later, or could not be submitted because of circumstances beyond the taxpayer’s control.

المصدر: The Reporter (Ethiopia)