DEBRE MARKOS UNIVERSITY

SCHOOL OF LAW

TAX DISPUTE SETTLEMENT UNDER THE AMHARA

NATIONAL REGIONAL STATE TAX LAWS: APPRAISAL OF
THE APPEAL PROCEDURE

BY;

Thame G/kidan

Advisor

AlmeuTaye (LL.B, LL.M)

DEBRE MARKOS ETHIOPIA

December 2017
Thesis approval page

The thesis entitled “Tax Dispute Settlement under the Amhara National
Regional State Tax Laws: Appraisal of the Appeal Procedure” by Mr. Thame
G/Kidan is approved for the degree of Bachelor of Laws (LL.B)

Examiner

Name Signature

Advisor _____________________ ______________________

Examiner _____________________ ______________________

Date: ________________
Declaration
I, the undersigned, declare that the thesis comprises my own work. In compliance with widely
accepted practices, I have duly acknowledged and referenced all materials used in this work. I
understand that non-adherence to the principles of academic honesty and integrity,
misrepresentation/fabrication of any idea/data/fact/source will constitute sufficient ground for
disciplinary action by the University and can evoke criminal sanction from the State and civil
action from the sources, which have not been properly cited or acknowledged.

____________________

Signature

____________________

Name of Student

______________________

Date

i
Acknowledgments

First, my sincere appreciation goes to God Almighty who has been my help in ages past and who
is my hope for future years. I am enormously grateful to my senior thesis advisor Mr. Alemu
Taye, for his generous and thoughtful comments. I thank my parents for their endless love and
support throughout this and every other stage of my lengthy student career. My special thanks to
my sisters and brothers for their valuable support and pleasure. Finally, my friends deserve a
special appreciation for giving me valuable research ingredients during the preparation of the
thesis.

Table of Content

Contents page

ii
Declaration...................................................................................................................................................i
Acknowledgments.......................................................................................................................................ii
Table of Content.........................................................................................................................................iii
Acronyms.....................................................................................................................................................v
ABSTRACT...................................................................................................................................................vi
CHAPTER ONE..............................................................................................................................................1
1. Introduction.........................................................................................................................................1
1.1. Background of the study..............................................................................................................1
1.2. Statement of the Problem................................................................................................................3
1.3. Research questions...........................................................................................................................4
1.4 Objectives of the Study......................................................................................................................4
1.4.1 General Objectives......................................................................................................................4
1.4.2 Specific Objectives......................................................................................................................4
1.5 Significance of the Study....................................................................................................................4
1.6 Scope of the study.............................................................................................................................5
1.7 Research Design and Methodology...................................................................................................5
1.7.1 Research Approach.....................................................................................................................5
1.7.2 Methods of Data Collection........................................................................................................5
1.7.3 Method of Data Analysis.............................................................................................................5
1.8 Organization of the Study..................................................................................................................5
CHAPTER TWO.............................................................................................................................................7
2. Literature Review....................................................................................................................................7
2.1. Historical development Tax dispute settlement in Ethiopia.............................................................7
2.2 Assignment Of Taxation Power under the FDRE Government..........................................................9
2.3 Taxation and Tax administration.....................................................................................................10
2.4 Canons of Taxation..........................................................................................................................13
2.4.1 Canons of equality....................................................................................................................13
2.4.2 Canon of Certainty....................................................................................................................14
2.4.3 Canon of Convenience..............................................................................................................14
2.4.4 Canon of Economy....................................................................................................................14
2.4.5 Canon of Elasticity....................................................................................................................15
2.4.6 Cannon of simplicity.................................................................................................................15

iii
 2.5 Tax Assignments under the FDRE Constitution................................................................................15
2.6 Rights and Duties of taxpayers........................................................................................................17
2.6.1 Rights of taxpayers...................................................................................................................17
2.6.2. Duties of taxpayers..................................................................................................................18
2.7. Powers and Responsibility of Tax Authority...................................................................................19
2.8 Tax dispute settlement....................................................................................................................21
2.8.1 Methods of Tax Dispute Settlement.........................................................................................21
2.9. The experience of other countries in the adjudication of tax disputes...........................................22
2.10. The role of administrative tribunals and regular courts in settling Tax Dispute in Ethiopian-.....24
2.10.1 Tax dispute Settlement at the Review Committee..................................................................24
2.10.2 Tax dispute Settlement at the Appeal Commission................................................................26
2.10.3. Tax Dispute settlement in Regular Courts..............................................................................28
CHAPTER THREE...................................................................................................................................30
3. Channel of Tax Dispute Settlement and Requirements under the Amahara National Regional State
Income Tax Law........................................................................................................................................30
3.1 Review committee...........................................................................................................................30
3.1.1 Establishment, Composition and Accountability......................................................................30
3.1.2 Impartiality and Independence..................................................................................................30
3.2 Tax appeal commission...................................................................................................................33
3.2.1 Establishment, composition and Accountability of appeal commission....................................34
3.2.2 Impartiality and Independence of Appeal Commission............................................................36
3.3 The Regular Courts..........................................................................................................................39
3.4 Challenges and Prospects of Tax Dispute Settlement in Practice....................................................41
3.4.1 Challenges of Tax Dispute Settlement in practice.....................................................................41
3.4.2 Prospects of Tax Dispute Settlement........................................................................................43
CHAPTER FOUR.....................................................................................................................................45
4.................................................................................................................................................................45
4.1 Conclusion.......................................................................................................................................45
5.2 Recommendation.............................................................................................................................47
Bibliography..............................................................................................................................................49

iv
Acronyms
VAT Value Added Tax

ADR Alternative Dispute Settlement

TAC Tax Appeal Commission

v
FDRE Federal Democratic Republic of Ethiopia

HOF House of Federation

TOT Turn over Tax

TIN Tax Identification Number

IRS Internal Revenue Service

USA United States of America

ABSTRACT
This study deals with the tax dispute settlement under the Amhara National Regional State tax laws with
appraisal of the appeal procedure. The major objective study is to of this investigate tax dispute
settlement and problems faced by both taxpayers and the tax authority. The study employed both primary
and secondary data as a source. The primary data are laws and policies. The secondary data collected
were from various published and unpublished materials such as, book, journal article, government
report, literatures and internet sources. The secondary data were analyzed using qualitative, descriptive

vi
and legal analysis. Research as it’s concluded that in any kind of modern tax system disagreements
between the taxpayer and tax authority cannot be avoided.As a result, the tax system of a given country
should be able to come up with a grievance handling system which needs the consideration of taxpayers’
right carefully. Whatever the cause of these disagreements, they need to be handled properly before they
have their repercussions on the economy, since taxation is an important wheel to a country’s economy.
Countries have been working on ways of handling disagreements and the same is true for our country
Ethiopia spread institutions and legislative framework in order to settle tax grievance. The objective of
this research paper is to ascertain that tax disputes settlement procedure under the Amhara National
Regional State tax laws sufficiently implemented with related to infallibly and impartiality settling tax
grievance, the right to bring ones case to judicial or quasi-judicial organ and the right to get justice or
not. The researcher examined in the practice tax dispute settlement procedure under the Amhara National
Regional laws favored for the tax authority. Therefore, methods of tax dispute grievance do not assure the
right to get justice. In so far as, there should be impartial tax dispute settlement mechanism in order to
affirm taxpayer’s right to get justice and bring ones case to appropriate organ. Therefore, evaluating and
reform current tax dispute settlement mechanisms are essential.

vii
 CHAPTER ONE

1. Introduction
1.1. Background of the study
Tax is defined as a compulsory contribution payable by an economic unit to a government
without expectation of direct and equivalent return from the government for the contribution
made. There are many purposes for collecting revenue through taxes. It includes giving
government power to allocate resources; to enable government to provide/support social
development; to stabilize the economy; and to encourage optimal economic growth.1
To that end, immediately and directly, any government’s priority is the generation of revenue
money by means of which it can procure such services and goods necessary for the performance
of its functions. In the past, government sought to undertake this duty through numerous ways
amongst which tributes and booty, feudal services, grants, aids, military duty and cultivation of
crown lands are known to be the most prominent ones. Later on, with civilization and the
modernization of states, governments started to procure revenue indirectly by means of revenue
collected in the form of money from the citizens of the state in which the government in question
exercises its functions.A tax levied by central and regional government consists of direct and
indirect taxes. Direct taxes are taxes including employment income taxes, taxes on royalties and
chance winnings while indirect taxes are mainly composed of value added tax (VAT) excise
taxes and customer duties. The FDRE Constitution provides that the Federal Government and the
States all collect taxes and shall share revenue, taking the federal arrangement into
account.2Hence, proper assessment and collection of tax is one of the factors that enable the
government to achieve its goals and programs. Besides, it reduces the countries dependability on
the foreign loan and donations.
In the day-to-day operations of Tax Authorities, disagreements with the taxpayer cannot be
avoided. Such disputes inhabit taxpayers and the tax authority from working together in so doing making the
whole aims of taxation and the business transaction ineffective. As a result, the tax system of a given

1
Lisa Kayaga; Tax policy challenges facing developing countries: a case study of Uganda (2007)
(www.collectionscanada.gc.ca ) last visited on 13/01/2015
2
Constitution of the Federal Democratic Republic of Ethiopia, (1995), Article 95, Fed, Neg, Gaz , Year 1, No. 1

1
country should be able to come up with a grievance handling system, which needs the
consideration of taxpayers’, right carefully.3 The taxpayer has a guarantee against unfairness or
error in the administration of taxes and the right to appeal to competent, impartial authorities
when he disagrees with the determination of the assessing officer. 4 Countries may have different
institutional makeup to handle disputes between Tax Authorities and the taxpayers but generally,
this case could be entertained before administrative tribunals, regular courts or by alternative
dispute resolution (ADR) methods.5 Ethiopia has many laws which regulate different kinds of
taxes such as income tax, vat, turn over, and the like, even if the nature of tax vary from one
another they have communality in channel of dispute settlement and appeal procedure.

Tax disputes between the tax authority and the taxpayer largely relate to tax declaration,
assessment, and collection.In fact, if there is well methods of tax dispute settlement, tax dispute
can even be healthy as it helps to identify problems which need resolution, to bring adjustment
without threating the stability of the relationship among the two parties. Hence, effective and
efficient ways of tax dispute resolution benefits not only the tax authority and taxpayer also the
public at large.

Anybody that feels his rights are jeopardizing by revenue authority can bring his case before
competent organ. Appeal is a constitutional right as far as made in accordance with the law. A
tax payer who is aggrieved by the decision of tax authorities may lodge his complaint to a body
competent to hear and decide on such application. The Tax law in Ethiopia has put in place a three
tier system to resolve tax related controversies. The first opportunity taxpayers have to resolve
disputes exists with the tax administration itself—with the assessors, where most of the errors or
misunderstandings should be resolved. Taxpayers who find themselves in disagreement with the
tax administration have another opportunity once again within the tax administration, but this
time a body set up within the tax administration composed of four members drawn from the
different units of the tax administration will entertain their case the Review Committee.6 Members
of the “Review Committee” are different from the tax assessors or inspectors, and in that sense

3
AschalewAshagre, የግብርከፋዮችቅሬታዎችአፈታትሥርዓትበኢትዮጵያ; አዲስአበባዩኒቨርሲቲ፣የህግናአስተዳደርትምህርቶችኮሌጅ;
unpublished, p 1
4
Encyclopaedia Britannica Ultimate Reference Suite.Chicago: Encyclopædia Britannica.
5
Aschalew , cited above at note 3, p 1
6
FDRE Constitution, cited above at note. 2 Art. 104

2
they enjoy a certain level of autonomy and independence. However, they are appointed by the
head of the Tax Authority (and are still part of the Tax Administration in a way). Taxpayers
dissatisfied with the recommendations of the Review Committee or the decisions of tax
authorities may appeal to the Tax Appeal Commission (TAC), a tribunal set up within the
executive branch under the Ministry of Justice. 7An appeal from the decisions of the Tax Appeal
Commission lies to the regular Court—the first opportunity the regular courts have to entertain
tax cases; even then, only when an error of law (rather than fact) is found in the judgment of the
Tax Appeal Commission.8

1.2. Statement of the Problem

It is indicated earlier that the country earns a great deal of money from tax collection; this being
the case it will be necessary to make sure the taxpayers are treated well and their rights are
respected. No matter how good a tax system might be, disputes between the Tax Authority and
the taxpayers are unavoidable, and this necessitates putting in place legal and institutional
frameworks that regulate such disputes and give adequate remedies to aggrieved taxpayers. In
Ethiopia both the FDRE Constitution give recognition to bring a justiciable matter to, and to
obtain a decision or judgment by, a court of law or any other competent body with judicial
power9and Tax Proclamation in particular embodied provisions on tax dispute settlement with a
view to providing for the right of taxpayers to be heard. 10The current tax appeal procedures
include the Review Committee under the auspices of the Tax Authority Thus; the paper tried to
evaluate the fairness and neutrality of decisions passed by the channels of tax dispute resolution
institutions in hearing grievance of taxpayers, opportunity to be heard of the taxpayers and the
right to get reasoned decision. As examined by the researcher laws applicable in Ethiopia in
relation to tax dispute settlement mechanism give much favor for revenue authority that affects
the fairness and neutrality of decision passed by the channels of dispute resolution institution.
This issue was seen in impact on the impartial decision-making.
According to the researcher view, in order to assure the right to be heard of the taxpayer and
getting justice there should be impartial channel of tax dispute resolution mechanism. Therefore,
evaluating the existing tax dispute settlement mechanism is needed.

7
Income tax proclamation, 2002, No.286, FedNegGaz.Year 8 No 34 Art.
8
Id. Art. 112(1)
9
FDRE Constitution, cited above at note. 2, Art 37
10
Value Added Tax (VAT) proclamation (2002) Proc.285 8'" Year No. 33, Art 41

3
1.3. Research questions
 What looks like the tax dispute settlement channel under the Amhara national regional
state tax laws?
 What is the legal requirement that the taxpayers should fulfill for an appeal?
 What are the challenges and prospects of tax dispute settlement under Amhara national
regional state tax laws?

1.4 Objectives of the Study

1.4.1 General Objectives
The overall objective of this research was to investigate tax dispute settlement and problems
faced by both taxpayers and the authority.

1.4.2 Specific Objectives

 to identify the channel of tax dispute settlement under the Amhara national regional state
tax laws;
 to assess the legal requirement that the taxpayers should fulfill for an appeal;
 to pinpoint the possible challenges and prospects of tax dispute settlement under the
Amhara national regional state tax laws;

1.5 Significance of the Study

As it was well evident that the revenue gained from tax is a great contribution to a country’s
economy, respecting the rights of taxpayers was imperative. Having a well-established tax
administrative system that protects the due process right of tax payers will create a suitable
environment for taxpayers and potential business men. Given its great importance, the issue of
dispute settlement has to be addressed with due care. This paper tried to see tax dispute
settlement and problems attached with tax appeal procedure. By doing so, this paper tried to
identify the reasons behind the above enumerated problems and the possible recommendations.
This could help interested parties to get some idea about the problems observed in the area and
how to tackle them. In addition to this, it can also be an inspiration for further research in the
area.

4
1.6 Scope of the study
The research focuses on studying tax dispute settlement under the Amhara national regional state
tax laws: critical analysis of the legal and institutional framework. Hence, our area of the study
was limited on tax dispute settlement critical analysis of the different legal framework.

1.7 Research Design and Methodology

1.7.1 Research Approach
This research adopted qualitative approach of the study so that we used both primary like
interviews, laws and policies were utilized and secondary dates like books, journals, articles and
different written materials on the issue were utilized which relating to our research question and
makes their analysis critical evolution of the legal and institution framework of tax dispute
settlement.

1.7.2 Methods of Data Collection

To obtain the required data with required quality, the researcher used primary source like laws,
policies and secondly sources of data. The study being analytical we focus mainly on secondary
sources of data so that our study was accomplished mainly via reading materials, journal article,
government report, literatures and searching data from internet sources and other references. This
method made it possible for the researchers to inquire the tax dispute settlement.

1.7.3 Method of Data Analysis

As far as data collected was an obligatory to be analyzed so that to ensure its validity and
suitability with the study data were analyzed qualitative, descriptive and legal analysis

1.8 Organization of the Study

Four chapters construct this paper. Chapter one contains an introduction remarks and here an
effort is made to draw the historical background of the study, to show statement of problem,
research question , objectives of the study, significance of the study, organization of the study,
scope of the study and methodology of the study.

The second chapter discussed the general overview of taxation, tax administration, tax dispute
settlement, types of tax dispute settlement, powers and responsibility of tax authority, rights and
duties of taxpayers, rationale for conflict arise between taxpayers and the administration,
historical development tax dispute settlement in Ethiopia, tax dispute settlement in FDRE
government, tax dispute settlement by Review committee and appeal commission, establishment
5
of tax appeal commission, the right to appeal for appeal commission, procedure to bring appeal
and application, opportunity to be heard of the taxpayers and the right to get reasoned decision
and tax dispute settlement in ordinary courts. The third chapter iscomposed of analysis. The last
chapter, chapter four was about the brief analysis of the law and the practice.

6
 CHAPTER TWO

2. Literature Review
2.1. Historical development Tax dispute settlement in Ethiopia
In the history of Ethiopia, it is not exactly known when taxation has begun. It is difficult to get
documents, which tell when, and how tax payment started. However, some Ethiopian kings such
as, king Zerayacob’s (1434-1468) and king Zadangel introduced and declared. 11 Based on this
legislation the people obliged to be soldiers and land owners to pay taxes. During Emperor
Menelike established different ministries in the year 1900 E.C to carry out different government
functions, among them the ministry of finance, which had an obligation to collect government
revenue.12 The concept of grievance handling introduce in modern tax system by establishing a
forum to solve disagreements between the taxpayer and the tax authority. For instance, the 1936
income tax proclamation encompassed an appeal committee which was empowered to entertain
cases submitted to it by the taxpayer within 21 days after receiving the tax assessment
notification, similar to this the 1948 & 1956 proclamations also included grievance handling
system. Appeal commissions established by the 1956 proclamation contained 5-7 members
including representatives of the taxpayers. The taxpayer could bring his/her case to these
commissions within 30 days after the receipt the tax assessment notification. The commissions
had the power to confirm, adjust, or change a decision rendered by the revenue authority after
entertaining the complaints before them. If the taxpayer was not still satisfied with the decision
rendered by the commission, he/she had the right to bring the case to the high court within 30
days on issues of law. The last option for a taxpayer was his majesty’s court. 13 The 1960s tax
reform had also played a major role in the history of modern grievance handling in tax cases. The
reform, which was in, practiced until 1994, dedicated certain provisions for tax grievance
handing. It provides that a tax appeal commission will be established containing at least five
members including the team leader and his deputy. Taxpayers were represented in this
commission. To bring the case to this commission the taxpayer was expected to fulfill certain
conditions which stated under 1953 proclamation like payment of at least 75% of the assessed

11
Vander Lindon, an introduction to the Source of Ethiopian legal History, from 13th C, J. E. L Vol.3 No 1. P.229
12
Budgetary growth of Ethiopian which Emphasis Empirical study ministry of finance, (April, 1989) P.23
13
Aschalew cited above at note 3, P 202- 204

7
amount beforehand though are exceptions when only 50% had to be paid when the taxpayer pay
tax for the first time, the appeal had to be in writing and copy will be sent immediately to the tax
authority and the appeal has to be taken to the commission within 30 days after the receipt of the
assessment notification. If the taxpayer did not present his claim and did not pay the assessed
amount within 30 days, it presumed that the assessed taxcorrect and final. Therefore, it was
immediately executed. The commission had the power to confirm, adjust or change a decision
rendered by authority after entertaining the revenue authority after entertaining the complaints. If
either the taxpayer or tax authority is dissatisfied with the decision, they had the right to appeal
to the mandate court on the issue of law within 30 days. They were also allowed for a second
appeal to the next appellate court again on issues of law. 14 The revolutionary government (Durg)
had overthrown Emperor H/Selassie in 1967. Even if Durg had made remarkable change in the
country economic and political environment, the government prefers to continue by reforming
tax laws but it did not mean the revolutionary government didn’t made tax laws. For instance,
rural land usage and agricultural income tax proclamation issued. The proclamation contained
grievance handling system. Taxpayers had the right to bring cases to Wereda’s Tax Appeal
Committee within 30 days after the authority gave decision but the taxpayer was expected to pay
75% of the decided amount of tax. If the taxpayers dissatisfied by the decision of Wereda’s tax
appeal committee want to appeal the court only regarding issue of law s /he could do so after
paid the full amount of tax that the committee decided. The court would only deal with the issue
of law and retrieve the case to the committee and the decision of the court is final. In addition to
rural land usage and agriculture income proclamation, durg issued stamp duty tax in 1979. The
proclamation dedicated tax grievance handling system which was different rural land usage and
agriculture income proclamation. If the taxpayer dissatisfied by decision of the tax authority,
taxpayers had the right to appeal for the high court within 21 days. 15 The transitional government
(1990-1994) come up with different political and economic ideology but there was no major
change in tax laws but it didn’t mean that the transitional government didn’t made tax laws. For
instance, sales and excise tax proclamation issued in 1985. The proclamation contained
grievance handling system like that of previous governments. Taxpayers had the right to take

14
Aschalew cited above at note 3, P. 204-206
15
Aschalew cited above at note 3, P.207

8
cases to the commission within 30 days and the proclamation stated that the 1953 amended
proclamation used to settle tax dispute.16

2.2 Assignment Of Taxation Power under the FDRE Government

The fundamental authority to tax is derived from the FDRE Constitution of 1995, tax power
share between the Federal Government and Regional States. 17 The constitution classifies taxation
powers as “taxes exclusive to the Federal Government,” taxes exclusive to the Regional States,”
“taxes concurrent to both the Federal Government and the Regional States,” and “taxes
undersigned.” Taxes are divided into parts by the FDRE Constitution, shared between the
Federal Government and the regional States by taking into consideration principles such as
ownership of revenue, regional character of revenues source, convenience for administration,
population, and wealth distribution. The FDRE Constitution clearly specified the revenues of the
federal government such as, customs duties, taxes and other charges levied on the importation of
goods; income tax collected from employees of the Federal Government and international
organization; income, profit, sales and excise taxes collected from Federal Government and
owned enterprises; taxes collected from national lotteries and other games of chance; taxes
collected from income generated through air, rail, and sea transport services; taxes collected
from rent house and Federal Government owned properties, charges and fees on licenses issued
and services rendered by the federal government; taxes on monopolies, and Federal stamp
duties.18 The regional governments of the country have their own revenue source such as,
income collected from employees of the regional states and private enterprises; fees collected
from land usufruatuary rights; taxes collected from the income of private farmers incorporated in
cooperative associations; profit and sales taxes collected from individual traders operating within
states territories; taxes on income from water transportation within state territories; taxes collected
from rent of houses and State Government owned properties; profit, sales, excise and income taxes
collected from State owned enterprises; taxes on income, royalties, and land rentals from mining
operations; charges and fees on licenses issued and services rendered by the State Governments; and

16
Aschalew cited above at note , P.208
17
TasseseLencho Income Tax Assignment Under The Ethiopian Constitution: Issues To Worry About Vol 4 No.1, P
38

18
TesfayeMergia (2005) Tax Assignment to Subnational Governments in a Decentralized Fiscal System of Ethiopia:
P 36

9
royalties for use of forest resources. 19 Furthermore, both Federal and Regional States governments
share certain source of revenue including profits, sales, excise and income taxes on enterprises jointly
established by the Federal and Regional state governments; profit ; of companies and dividends of
shareholders; income and royalties derived from large-scale mining operations and all petroleum and
gas operations.20 Finally, there are taxation power which have not been explicitly stated in the FDRE
Constitution like VAT, power administering VAT determine by a two-third majority vote in a joint
session conducted by HOF and HPR, thus subjecting the exercise of this called “ undesignated
power”.21 Both the Federal Governments and Regional States enjoy full legislative, executive, and
judicial powers with respect to taxation powers reserved to them 22 while Regional States are reluctant
in making their legislation rather they prefer using federal tax laws to levy and collect regional taxes.
Many of the regional states that have issued federal their own tax laws have used federal tax laws as
models with the result there is virtually no difference in substance between federal tax laws and
regional tax laws.23 For instance, tax legislation of both federal and regional governments like
income tax, turn over tax, VAT, and excise tax 24 follow similar tax dispute resolution method.
Therefore, we can understand that there is no difference between federal and regional states taxes
laws. In so far as, there are three institutions in settling tax grievance in the country such as, Review
Committee, Appeal Commission, and Courts.25

2.3 Taxation and Tax administration

Many scholars who studied it as a separate subject matter have defined taxation. Different
scholars come up with different lines of reasoning as to what taxation means and its relationships
with the government. For instance, H.L Bhatia, defines the term tax as “a compulsory levy and
those who are taxed have to pay the sums irrespective of any corresponding return of services or
goods by the government”.26

19
Ibid P. 50
20
Id P.49
21
Id. 50
22
TaddeseLencho The Ethiopian Tax System: Excesses and Gaps; Michigan State International Law Review
VOl 20:2, (2012), p 331
23
Ibid P. 331
24
MisganawGashaw, ‘The Room for Alternative Dispute Resolution (ADR) Process in Tax
Disputes: A Message to the Ethiopian Tax Administrations,’ in YazachewBelew (ed.), The
Resolution of Commercial/Business Disputes in Ethiopia: Towards Alternatives to
Adjudication? Ethiopian Business Law Series, Vol.5, P 8
25
Aschalew cited above at note 3 P 210
26
H.L. Bhatia Public Finance, New Delhi, Vikas Publishing House Pvt. LTD, 18thED, 1995, P 39

10
This definition shows that the major characteristic of tax is its obligatory nature. A tax payer
may, not necessarily get proportional benefit for its contribution. In other words a tax-payer may
not receive a definite and direct quid pro quo, meaning something given or taken as equivalent to
another from the government. Note the word direct here, it is not a price paid by the tax-payer for
any definite service or a commodity supplied by the government.

Black’s Law dictionary defines the term tax as:-

“………… a charge by the government on the income of an individual, corporation……. as well

as the value of an estate or gift. A particular Burden lay upon individual or property to support
the government, and it is a payment exacted by the legislative authority.”27

From the above definition we can understood that tax is essentially laid upon a person who
engaged on business activities and gain income from it. Additionally the payment of tax
concerns not only natural persons but also legal persons or corporations, which carry business
activities.

However not all payments made to the government are taxes. We seek of income tax, sales tax,
property tax, business tax…….however transfer of value to the government are taxes if they
don’t have the following two character sticks. 28Firstly, if they are not paid directly in the
exchange of specific service as user fees. Second, if they are not levied particularly to regulate
behavior, such levy has to be revenue.

Prof, Boris l Bittker said taxation is one of the most single sources of revenue for the state and
local government. It is levied compulsory on such properties as land, commercial, building and
automobile. It is an inherent and indispensable power of sovereign; it is power to coerce
individuals to give part of his property or wealth without his consent. 29 The reason for doing by
the state or local government is that if the state has no resource, it cannot carry out its mission.

27
Hennery Campbell, Blacks Law Dictionary, 4thed, (1954), p. 1662

28
Daniel ShaviroFederalism in Taxation (1993) P. 10.
29
Boris. L. Bittker. Taxation of Foreign Income, (1960). P. 160

11
“Taxes are to the government taken as food”30 the government has to use some of money for its
operations of public purposes. For which it leaves and to keep it self, through involuntary
contributions administered and enforced by the subject taxation.31

Therefore, it can be understood as mechanism that enables the government to determine the
amount to be generated, the manner in which it is regulated, how to implement the imposed tax.
As we see above in all definitions the main source of finance, in order to bring the social and
economic development of the country. It is a legal obligation imposed by the law the non-
fulfillment entails civil and/ or criminal liability.

Before summarizing the general definition, I would like to see how the concept of income tax
under the income tax laws of Ethiopia as the following:-

“…….every sort of economic benefit including non-recurring in cash or in kind, from whatever
source derived and in whatever form paid credited or received”.32

As we see from the above definition, the term “income” has defined any economic benefit in the
form of cash or in kind from business, or investment activities or from other source. The law
gives power to the tax authority to impose tax on the gain of persons like emoluments and
profits. The income of natural or legal/artificial person may be from any source, so according to
the income tax law, the person who gain income are under the obligation to pay tax and support
the government revenue. Tax administration refers to the identification of tax liability based on
the existing tax law, the assessment of this liability, collection, prosecution and penalties
imposed on recalcitrant taxpayers. Tax administration covers a wide area of study, encompassing
different aspects such as registration of taxpayers, assessments, returns processing, collection, and
audit.33Since taxes are an involuntary payment for government services, taxpayers take measure to
minimize their tax liabilities through either tax avoidance or tax evasion. A government should keep
taxpayers from doing these activities, and thus successfully ardent tax evasion depends on nature of

30
Patricia. D. White Tax Law Vol.1.P.10
31
Encyclopedia American Vol.26.P.316
32
Income Tax Proclamation 2002, Proc no 286 Fed, Neg, Gaz. Year 8 No art 2 (1) as amended by income tax
(Amendment) proclamation, 2008, Proc. No. 608, Neg., Year 15, No.15, ( hereinafter the Income Tax Amendment
Proclamation)
33
Kangave, 2005, Improving Tax Administration: A Case Study of Tax Revenue Authority, Journal of
African Law, P145-146

12
economy’s actual tax base. Therefore, tax administration should aim at improving on laws regarding
registration, assessment, collection revenue, and exploiting fully taxation potential of a country 34 .

The legal rules required for effective tax administration might be categorized under the following
comprehensive headings:-

 rules establishing a system of appeals from the initial tax assessment;

 rules for the establishment of an individual’s tax liability
 rules for the tax collection that have been established to be owing; and
 rules relating to tax offences and their punishment.

The importance of a sound legal structure and incorporating principles are necessary for effective tax
administration and further tax compliance design based on the legal structure. In order to achieve a
significant improvement in the overall effectiveness of the tax administration each element of the legal
structure needs to be designed for maximum effectiveness.35

In addition to the legal structure of tax administration, obviously, the organizational structure of
the tax administration is also crucially importance.

2.4 Canons of Taxation

Taxation has certain principles. They are the basic philosophies of taxation that every country
must follow in order to design and have a good tax system (that is, the set of all taxes). These
principles are the rules to be followed when taxes is assessed.36

2.4.1 Canons of equality

This principle of taxation deals with the issue of equality among taxpayers, even if there may be
other difference like geographical seating, ethnic difference, color, and religion. Every taxpayer
pays the tax towards the support of the government in proportion to their abilities. This principle
tries to address the objectives of economic justice. The taxpayers are obliged to pay tax due, for
all perform their activities, under the equal protection of the state. But according to the justice,
payment of tax shall be on the bases of the income gained. Even if the rich man who gain more
income and who gain less get equal protection from the state, the person who got more income
should pay the higher proportion of its income and the person who gets less income should be
obliged to pay in proportion of his income. Generally canon of equality deals with equal
34
World Bank, 1999
35
Asian Development Bank, 2001
36
MisrakTesfayeEthiopian Tax Accounting p. 48

13
taxation in proportion of their income or ability to pay but it does not mean equal amount of
tax.37

2.4.2 Canon of Certainty

The principle of certainty is aimed at protecting the taxpayers from unnecessary harassment by
the tax officials, because in every good tax system, Tax payers should not be harassed by tax
officials. There is a number of ways that would help to achieve the certainty of taxes. In many of
countries the tax laws dictate and stipulate provisions how to govern the relation between the
taxpayer and the tax authority. More over the tax law has to make it clear as to who is obliged to
pay the particular tax, by indicating the mode of payment, the quantity to be paid and the time of
payment by clearly and known. If these important points are clearly identified, taxpayers
wouldn’t be subjected to the discretion of the tax officials. If the right and duties of the taxpayers
are to be determined by the discretion of tax officials would create a room for corruption. The
corruption practice of tax officials would make taxpayers lose their trust in the tax system.
Therefore, tax laws should reflect certainty.38

2.4.3 Canon of Convenience

The principle of convenience is another principle of taxation. According to this principle, the
mode and timing of tax payment should be, as far as possible, convenient to the taxpayers. The
time of payment highly related with the opportunity of the taxpayer to get money from their
client and to pay tax authority before it is spent other purpose. In addition, the tax notice and
other technological ways of assessing shall write in simple language, by considering the
understanding of the taxpayer. Hence, the above principles should be designed in way that would
be convenient to the taxpayer.39

2.4.4 Canon of Economy

The principle of economy deals with relation between the costs of collection of taxes and the
revenue generated from the tax. Every tax has a cost of collections. Some of these costs are like
the salaries of the tax office personnel and the cost of maintaining the office. The principle of
economy dictates that the cost of collection so taxes should take in to consideration and should
not cause additional administrative expense.

37
Id. P. 49
38
Id. P. 53-54
39
Id. P. 55

14
2.4.5 Canon of Elasticity
The principle of elasticity deals with every tax need to be elastic in nature. The tax revenue
should be capable of increasing or decreasing according the requirement of the country or the
necessity of state expenditure. Therefore, tax rate increases when the amount of tax revenue
needs to be increased. So far the effective and procure economic and social development, the tax
authority shall apply the above principles of taxation and other taxation principles. To apply this
principles the tax officials has to obey for the tax laws and expected to avoid a complex tax
administration.40

2.4.6 Cannon of simplicity

The principle of simplicity states that the tax system of country should be simple and clear to
understand by both the taxpayer and the tax authority and should not confronted with accounting,
administrative and other difficulties which emanates from failure to understand tax laws. 41

2.5 Tax Assignments under the FDRE Constitution

The fundamental authority to tax is derived from the FDRE Constitution of 1994, tax power
share between the Federal Government and Regional States. 42 The constitution classifies taxation
powers as “taxes exclusive to the Federal Government,” taxes exclusive to the Regional States,”
“taxes concurrent to both the Federal Government and the Regional States,” and “taxes
undersigned.” Taxes are divided into parts by the FDRE Constitution, shared between the
Federal Government and the regional States by taking into consideration principles such as
ownership of revenue, regional character of revenues source, convenience for administration,
population, and wealth distribution. The FDRE Constitution clearly specified the revenues of the
federal government such as, customs duties, taxes and other charges levied on the importation of
goods; income tax collected from employees of the Federal Government and international
organization; income, profit, sales and excise taxes collected from Federal Government and
owned enterprises; taxes collected from national lotteries and other games of chance; taxes
collected from income generated through air, rail, and sea transport services; taxes collected
from rent house and Federal Government owned properties, charges and fees on licenses issued
and services rendered by the federal government; taxes on monopolies, and Federal stamp

40
Id. P. 56
41
Id. P. 54
42
Taddese cited above at note 17 P 39

15
duties.43 The regional governments of the country have their own revenue source such as,
income collected from employees of the regional states and private enterprises; fees collected
from land usufruatuary rights; taxes collected from the income of private farmers incorporated in
cooperative associations; profit and sales taxes collected from individual traders operating within
states territories; taxes on income from water transportation within state territories; taxes collected
from rent of houses and State Government owned properties; profit, sales, excise and income taxes
collected from State owned enterprises; taxes on income, royalties, and land rentals from mining
operations; charges and fees on licenses issued and services rendered by the State Governments; and
royalties for use of forest resources. 44 Furthermore, both Federal and Regional States governments
share certain source of revenue including profits, sales, excise and income taxes on enterprises jointly
established by the Federal and Regional state governments; profit ; of companies and dividends of
shareholders; income and royalties derived from large-scale mining operations and all petroleum and
gas operations.45 Finally, there are taxation power which have not been explicitly stated in the FDRE
Constitution like VAT, power administering VAT determine by a two-third majority vote in a joint
session conducted by HOF and HPR, thus subjecting the exercise of this called “ undesignated
power”.46 Both the Federal Governments and Regional States enjoy full legislative, executive, and
judicial powers with respect to taxation powers reserved to them 47 while Regional States are reluctant
in making their legislation rather they prefer using federal tax laws to levy and collect regional taxes.
Many of the regional states that have issued federal their own tax laws have used federal tax laws as
models with the result there is virtually no difference in substance between federal tax laws and
regional tax laws.48 For instance, tax legislation of both federal and regional governments like
income tax, TOT, VAT, and excise tax 49 follow similar tax dispute resolution method. Therefore, we
can understand that there is no difference between federal and regional states taxes laws. In so far as,
there are three institutions in settling tax grievance in the country such as, Review Committee,
Appeal Commission, and Courts.50

43
Tesfaye cited above at note 18, P. 49
44
Tesfaye cited above note 18, P. 50
45
Taddese cited above at note, 17 P 40
46
Ibid P 40
47
TaddeseLencho The Ethiopian Tax System: Excesses and Gaps; Michigan State International Law Review
VOl 20:2, (2012), p 331
48
Ibid p. 331
49
Misganaw cited above at note 24 P 8
50
Aschalew cited above at note 3 P 210

16
2.6 Rights and Duties of taxpayers
Rights and duties are two important and indispensable elements in a good tax system. So, it is
possible to say a commitment that give a right and take duty between the taxpayers and the tax
authority.

2.6.1 Rights of taxpayers

a) The right to confidentiality and secrecy

The information available to the tax authorities on the affairs of a taxpayer is confidential and
will only be used for the purpose specified in the legislation. 51 Tax legislation usually impose
very heavy penalties on tax officials who misuse confidential information and the confidentiality
rules that apply to tax authorities are far stricter than those applying to other government organs.

b) The to pay no more than the correct amount tax

Taxpayers should pay no more tax than is required by the tax legislation, taking into account
their personal circumstances and income. Thus whilst it is acceptable to reduce tax liability by
legitimate tax planning, government make a distinction between this from tax planning and
forms of tax minimization. Taxpayers also entitled to a reasonable measure of assistance from
the tax authorities so that they receive all the reliefs and deductions to which they are entitled.

c) The to get information/notice

The right to receive income tax assessment notice or other notice which is issued by the tax
authority52 such as, gross income and deductions, taxable income, rates applied on the tax, or
percentage, tax expected to pay any administrative penalty, TIN, the name of the taxpayer,
address and a brief explanation how to assess the tax and statement of the taxpayers rights.53

d) The right to lodge once case

A taxpayer has the right to submit application for reconsideration to review committee within ten
days from the notice served.54

51
Income Tax Proclamation 2002, Proc no 286 Fed, Neg, Gaz. Year 8 No 34 Art. 39.
52
Ibid Art. 73. (1).
53
ALKA, GUPTA, Public Finance and Tax Planning, 5thed, (2001) P. 153
54
World Tax Series Taxation in France, Chdcago, (1966) P 157

17
e) The right to appeal

The right to appeal against any decision of the tax authorities applies to all taxpayers, and to
almost all decisions made by the tax authorities, whether as regards the application of the law or
administrative ruling, provided the tax payers is directly concerned. 55 For instance, the rights
appeal on the decision on the appellate commission, if it has error of law to the competent court 56
while the right to appeal to appellate commission does not require error of law element.

f) The right to privacy

All taxpayers have the right to expect that the tax authority will not intrude unnecessarily upon
their privacy.57 In practice, is interpreted as avoiding unreasonable searches of their homes and
requests for information, which is not relevant for determining the correct amount of tax due.
Furthermore, taxpayers have so many rights which do not mentioned in this paper.

2.6.2. Duties of taxpayers

The law has also imposed a duty or an obligation on the taxpayers:-

2.6.2.1 The obligation to be honest

If most taxpayers did not pay most of their taxes most of the time, a tax system would be placed
under a severe compliance strain and government would be unable to finance the expenditures
voted for by citizens. Taxpayer honesty is therefore fundamental to the operation of any tax
systems have investigatory powers with penalties and sanctions in place to cater for instance
where a taxpayer is does not comply. Accordingly taxpayers should always exercise reasonable
care and diligences in attempting to honesty comply with their tax obligation.

2.6.2.2 The obligation to keep records

To provide accurate information to the revenue authority taxpayer should keep reasonable
58
contemporaneous records of their financial transactions except category c. such records also
allow the revenue authority to verify that the information provided by a taxpayer is accurate. A
side benefit is that record keeping also makes good business sense and assists taxpayers with
their financial planning and decision making, increasing their likelihood of success.

55
Id 158
56
Ibid
57
Constitution of the Federal Democratic Republic of Ethiopia, (1995), Art 26
58
Ibid Art. 48. (1)

18
2.6.2.3 The obligation to be co-operative
Modern tax systems can only function effectively if there is a high degree of voluntary
compliance, keeping the need for enforcement activity to a minimum. Cooperative behavior on
the part of most taxpayers allows the government to run the taxation system at relatively low cost
and minimizes unnecessary intrusion into taxpayer’s affairs and those of third parties. Hence
taxpayers are encouraged to co-operate with relevant revenue authorities in attempting to comply
with their tax obligations.

2.6.2.4 The obligation to provide accurate information and documents on time

All taxation systems use information provided by taxpayers to identify the taxpayer and their
address and to account for tax paid or payable. Thus taxpayer should provide accurate
information to revenue authorities in accordance with the laws like notify any change of business
address, cessation within thirty days.59

2.6.2.5. The obligation to hold TIN

Taxpayer has the duty hold identification number this incorporated by income tax proclamation.
The taxpayer also prohibited from obtaining more than one TIN. 60

2.7. Powers and Responsibility of Tax Authority

As previously stated high amount of government budget covered by tax, therefore, the
government should establish effective tax authority is unquestionable. Now a day’s tax
authorities established in both federal and regional states with the function of administration
which known as revenue and custom authority.
The tax Authority under the income tax proclamation is defined as the following,
“Tax Authority” shall mean the federal Inland Revenue head office or any its
branch offices established in any part of Ethiopia and the tax authorities of the regional
states.61
The definition indicates constitutional right of states in which has vested power to collect taxes. 62
The federal government in which vested power to collect taxes, 63 So as we see the definition of

59
Ibid Art. 49
60
Icome Tax Proclamation cited at note 50 Art 43
61
Income Tax Proclamation 2002, Proc no 286 Fed, Neg, Gaz. Year 8 No 34 Art 2(13) as amended
62
Constitution of the Federal Democratic Republic of Ethiopia, (1995), Art 97
63
Ibid, Art 96

19
tax authority it includes federal in land revenue, regional states and both Addis Ababa 64 and
Diredawa city. From this, the tax Authority shall have the following powers:
To implement and enforce the tax proclamation and regulation issued to implement the income
tax proclamation. To investigate any statements, records and books of account submitted by
taxpayers. To investigate any statements, records and books of account submitted by taxpayers
and response of inspectors who check any vouchers, stocks of other material items of the
taxpayers65. Enter into agreement with other government for the avoidance of double taxation on
activities or transactions liable to tax in the territories of both parties. 66 Asses the tax by
estimation, if no records and books are kept where the books are rejected the reason, the records
and books of accounts are unacceptable, within in the time prescribed by the proclamation. 67
Require a withholding agent to submit the records to be maintained under sub-Article (1) of Art
56 of proclamation No.286/2002.68 If every person fails to comply with any condition to the
approval to fulfill, impose penalties, if taxpayers do not declare the truth income he/she gained 69,
the power to impose penalty by the tax authority by the tax authority is supported by said
“Effectiveness of the collections is largely empowered when adequate penalties are provided. 70

2.8 Tax dispute settlement

Disputes are an inevitable feature of any tax system. Accordingly, revenue authorities have
become aware of the need to manage disputes in a timely manner, both for the benefit of the
taxpayer involved and in order to maintain public trust and confident in the tax system.71

There are different source of tax dispute such as self- motivated aggressive tax assessment, tax
administration policy and bureaucracy encouraging tax assessment officials by offering
incentives to carry out undue collection of tax through aggressive assessment, complex and
unclear tax laws, cultural attitudes of tax payers to dispute tax administration findings,

64
Addis Ababa city Government Revised Charter Proclamation No. 361/2003, Fed, Neg, Gaz, 9th year No. 86. 52
65
Amhara National Regional State Income tax Proclamation (2009) Art. 38(2), Proc. No.240 zekereHeg 9th Year
66
Addis Ababa city Government Revised Charter Proclamation cited at note 64, 42. (A)
67
Ibid Art. 69. (1).
68
Ibid Art. (3).
69
Ibid Art. 86 & 87.
70
S.k SINKHPublic finance in the Theory and Practice, ed. 2004 p. 257.
71
Andrew Mills, It’s time for tax (administration) reform’ ( Speech delivered at the 27th Australasian Tax Teachers
Association Annual Conference, Adelaide,20 January.2015)

20
challenges to the legality and constitutionality of tax administrative decisions and civil litigation
enforce unpaid taxes.72

Where the cause of these disagreements, there need to handle properly before they affect the
economy, since taxation is an important wheel to the country’s economy. Countries have been
working on ways of handling dispute and the same is true for our country Ethiopia since the
introduction of modern taxation system.

The goals of tax dispute resolution should not only be punishing deviant practices to secure
payment, but also improving the efficiency of the tax collection process and building trust and
voluntary compliance

2.8.1 Methods of Tax Dispute Settlement

In order to reduce conflict escalation, improve their relationships with taxpayer and consequently
enhance voluntary compliance, countries utilized different methods tax dispute settlement
mechanisms. In line with this notion, there are two different paths of tax dispute resolution
systems currently practiced in various countries. These are:-

 Resolving tax disputes by way of protest/appeals system

 Resolving tax disputes by way of Alternative Dispute Resolution (ADR)
system.73

Under the category of settling tax dispute through the protest and appellate system, there are
three possible ways such as, protest within Tax administration Authority that should be
established as best practice, appeal to quasi-judicial Tax administration tribunal outside the tax
authority but belonging to the executive branch not to the judiciary, and appeal to the regular
courts which is a constitutionally required option for taxpayers. 74 The policy decision to make
these options alternative, simultaneous or consecutive is left to countries; it is advisable to make
tax administrative review a precondition to appeal before the main reason is efficiency. 75 On the
other hand ADR refers to an alternative ways of solving disputes, which differs from the
traditional protest/appeals mechanisms and involves negation. The essence of ADR is that a third
72
Victor T horanyi and Isabel Espajo, How can an Excessive volume of tax disputes be dealt with? (2013)
International Monetary Fund at p.1
73
Ibid P 21
74
Ibid p 21
75
Id P 22

21
party is brought in with the agreement of both parties, either to determine the dispute or facilitate
bilateral agreement. Tax dispute settlement through ADR includes resolving tax resolving tax
disputes by negotiation, mediation, arbitration and tax ombudsman methods. 76 The increased
perception about the benefits of ADR and the possibility to frame ADR scheme in variety of
modalities to secure public interest, the ADR has gained momentum and it has been adopted in
various forms in the tax administration of many states.77

2.9. The experience of other countries in the adjudication of tax disputes

United States of America
When the taxpayer does not agree with the tax assessment, the taxpayer may request a meeting or a

telephone conference with the supervisor of the person who issued the findings. The protest must be

sent within the time limit specified in the letter received by the taxpayer. If the taxpayer did not

satisfied by the decision of the supervisor has the right to appeal to tax appeal office. The Appeals

Office is the only level of administrative appeal within the IRS, separate from - and independent of –

the rest of the IRS. Conferences with Appeals Office personnel are held in an informal manner by

correspondence, by telephone or at a personal conference. Most differences are settled at this level.

To ensure independent Appeals function, ex parte communications between Appeals personnel and

other Internal Revenue Service personnel are prohibited. If the taxpayer does not appeal to the IRS

Appeals Office, the taxpayer will receive a formal Notice of Deficiency which allows going to the

Tax Court within 90 days (as a general rule) from the date of the notice. If the taxpayer does not file

a petition with the Tax Court within this period the IRS will assess the proposed liability sending the

bill to the taxpayer, and this assessment can no longer be appealed in the Tax Court.

Appeals to the court

In USA taxpayers have three judicial options to take their case if they do not want to use
administrative appeal options to the appeals office either directly through the order of the tax

76
Ibid P, 31-39
77
MisganawGashaw, cited above at note 24 P 2

22
court.78When controversies continue between taxpayers and IRS (internal revenue service),
taxpayers follow two ways. In the federal court system, taxpayers may elect to pay their taxes
and file a refund suit in the U.S District Court in whom they reside or in the Court of Federal
Claims optionally whose judges are less technical experts in tax matters as they are generalist
judges.79When district court decides the case, appeal goes to the circuit court of appeals
governing that court. Similarly, when the court of Federal Claims decides the matter, appeal goes
to the court of appeals for the Federal circuit. On the other hand, if the taxpayer seeks to settle
the tax dispute service without first paying tax to internal revenue, he may seek are
determinations by the Tax court by filing compliant there. Appeals from the decision of the tax
court lie to the court of the appeals where the taxpayer resides or carries out his business. The US
tax court is a specialized court composed of 19 regular tax expert judges who are appointed by
the president with the consent of the senate solely on the ground of their fitness to perform the
duty of the court. Tax courts and appellate courts in expertise of tax court judges. But there is
scholarly debate between deferential review by generalist courts as it is decided through
specialized judges of tax courts entertain both error of law and error of fact as finding of fact
does not require special expertise of court judges. But there is scholarly debate between
deferential review and denovo on the tax law decisions of court not be reviewed by generalist
courts as it is decided through specialized judges of tax court.

Tax Disputes settlement Germany

In Germany, tax grievance primarily settled by the tax authority if taxpayer bring his/her grievance

within one month from its notification. The tax authority tries to solve the problem in a formal

manner by openly discussing the case with the taxpayer. Most protests are disposed of as a result of

this kind of tax grievance resolving method.80 If the taxpayer dissatisfied by the decision made before

he/she can bring directly to appeal section, at the same hierarchical level as other sections in the tax

office but independent from them and whose only function is reviewing appeals. This also works in a

78
stevenledgerwood, Modern tax litigation: how to gain tactical advantage from the initial transaction through case
resolution, (2006) Aspetrelnk at p. 7-8

79
Ibid
80
http://www.bundesfinanzministerium.de/Content/DE/Monatsberichte/2012/10/Inhalte/Kapitel-3-Analysen/3-4-
einspruchsbearbeitung-in-finanzaemtern.html?__act=renderPdf&__iDocId=283580

23
very and speedy manner. Furthermore, the appeal section discuss with the taxpayer personally or by

phone. Only when taxpayer is not satisfied and willing to go court, is there formal reasoned decision

on the protest notified who is allowed to go to court within one month. Furthermore, the court can be

appealed to directly if the public authority agrees to this or if the tax authority fails to respond with a

decision on an objection within reasonable period and without giving an adequate reason for failing

to do so. The court is a specialized line in the judiciary consisting of the Fiscal Courts and their upper

review level: the Federal Fiscal Court. Ruling of the fiscal courts may be appealed on points of law to

the Federal Fiscal Court if the appealed granted by the Fiscal Court or the Federal Fiscal Court.

Either the taxpayer or the tax authority may appeal.

2.10. The role of administrative tribunals and regular courts in settling Tax
Dispute in Ethiopian-
2.10.1 Tax dispute Settlement at the Review Committee
Grievances are unavoidable in every activity people especially between the taxpayer and the tax
authority. Both internal and external mechanisms needed to handle such kind of grievance. The
review committee in our system is one type of internal controlling mechanism. 81 The internal
mechanisms process must safeguard a taxpayer’s right to challenge an assessment resulting from
tax audit. The process should be based on a legal framework that is known by taxpayers, is easily
accessible and independent and resolve tax disputed matters in a timely manner. Therefore, the
first system should be protest within the tax administration, which is the speediest and least
expensive way for taxpayers, at the same time giving the tax administration the opportunity to
review its decision and correct possible mistakes or reconsideration. This procedure should be
free of charge and without the taxpayer needing a representative or tax advisor. 82 In the first
instance, taxpayers should attempt to settle their final tax assessment with the tax authority
within the prescribed time. Currently, different tax legislation which is applicable in both federal
and regional governments of Ethiopian empowers the review committee to settle tax grievance.
Therefore, tax disputes during tax declaration, assessment and payment primarily entertain by
review committee. The review committee is accountable for the tax authority, which is
81
Aschalw cited above at note 3 P 211
82
Victor Thoranyi and Isabel Espanjo cited at note 33 P 22

24
established in both Federal Government and Regional Governments. Member of the “Review
Committee” are different from the tax assessors or inspectors, and in that sense they enjoy a
certain level of autonomy and independence. However, they are appointed by the head of the tax
authority.83 The committees examine and decide on applications submitted to it by taxpayer for
compromise or waiver of penalty, interest, and waiver of the tax liability. The review committee
review determination made by the tax authority for accuracy, completeness, and compliance with
the Tax Law. The review committee review determination made by the tax authority for
accuracy, completeness, and compliance with the Tax Law.
But the head of the tax authority must approve the decision of the committee; the head can
remand the case to the committee with his observations. 84 There is no considerable requirement
like that of appeal commission and ordinary courts rather the only requirement of the law is to
submit the application to the review committee with in ten days after receiving the assessment
notification from the tax authority.
Powers and duties of the committee are:-
 to examine and decide on all applications submitted by the taxpayers for compromise of
penalty, interest, and wavier of tax liability;
 to gather any written evidence or information relevant to the matter submitted;
 to summon any person, who directly or indirectly has dealt with the assessment, to appear
before it for questioning him about the case under its investigation;
 coming up with a recommendation after investing appeals made regarding tax
assessments;
 confirming whether decisions rendered by tax authority are in line with the proclamations
and regulations;85
The committee is expected to prepare a recommendation after receiving tax grievance of
taxpayers. If the taxpayer doesn’t satisfied by the decision of the committee, the taxpayer has the
right to bring his/her appeal to the commission which is the second channel of dispute under
Ethiopian tax laws.

83
Taddese cite above at note 25 P 373
84
Income Tax proclamation cited above at note 25, ART. 105(5)
85
See for example, Ibid Art. 105

25
2.10.2 Tax dispute Settlement at the Appeal Commission
If the taxpayer is dissatisfied with the decision or recommendation of review committee, he/she
has the right to appeal to the Tax Appeal Commission within 30-days. The TAC is still within
the executive branch of the government, the Tax Appeal Commission enjoys relative autonomy
and independence as it is organized outside the tax administration. 86The TAC is established at
federal, regional, zonal, woreda and in each woreda administrative town. The Federal Appeal
Commission shall be accountable to the Ministry of Justice; City administration appeal
commissions to the executive organs of city administration, region, zone, woreda depending on
the level of establishment.87 The members of the TAC are to be appointed from among person
having good reputation, acceptability, integrity, general and professional knowledge, and from
among persons who have not committed any offence in connection with tax and tax
administration. The TAC may have more than one panel and each panel contains five members
including the chairperson. The members serve for 2 years. 88 The composition of the TAC is to
reflect the interests of the major stakeholders in tax administration the government and
taxpayers.89
The powers and responsibility of the TAC are:-
 to confirm, reduce, or annual any assessment appealed against on the basis of established
factual grounds and the law, and make such further consequential thereon as may seem
just and necessary for final disposition of the matter;
 to instruct the Tax Authority or the taxpayer to submit new facts, if any; and
 to order the Tax Authority or any other person or governmental department or agency, as
the case may be, to produce supporting evidence relevant to the taxpayer’s allegation90
Appeals are accepted by the TAC up on the fulfillment of the following requirements:-
 a deposit of fifty percent (50%) of the disputed amount to the Tax Authority
 Appeal must be lodged within 30 days following the day of receipt of the assessment
notice or from the date of decision of the Review Committee.91

86
Taddese cite above at note 25 P 373
87
See for example, income Tax Proclamation Art. 113 (1) (3)
88
See for example, income Tax Proclamation Art. 114 (1) as amended by income tax (Amendment) proclamation,
2008, Proc. No. 608, Neg., Year 15, No.15, ( hereinafter the Income Tax Amendment Proclamation)
89
Taddese cited above at note 25 P 374
90
Income Tax proclamation cited above at note 25, Art. 115
91
See for example, Id Art 107

26
The taxpayer has to prepare a memorandum of appeal which shall be served on the tax authority
by the appeal commission. The memorandum of appeal is submitted in multiple copies and
should include:-
 A statement of the specific subject matter of the appeal and the reason for the appeal
 The taxpayer’s name, address, and TIN
 Any other relevant supporting documents and a photocopy of the receipt for the appeal
deposit should be attached.92
If any one of the above requirements are not fulfilled the commission will reject the appeal if the
taxpayer did not make the correction within 5 days. 93 The TAC will review the case after
checking the fulfillment of the legal requirements of the appeal. The commission will pass its
decision after hearing the case. The decision could be confirming, reducing or annulling the
assessment appealed.94 The decision of the commission is expected to include the TIN of the
appellant and the date of decision, the names of the panel members and the panel’s chairperson,
and a statement of the decision. The statement of the commission decision shall include:-
 The holding ( whether the appellant’s claim is justified and accepted partly or wholly,
whether the claim is remand with instructions to the Tax Authority; and the amount the
appellant is required to pay, if any, and other necessary details of appellant’s liabilities);
 The factual findings, citation to the applicable law, legal interpretation, a conclusion on
each relevant issue presented; and any dissenting opinion.
 A summary of the appellant’s rights.
 Signature of the panel member and seal of the commission95
The TAC may pass decision, ex pate when any appellant fails to give counter reply when
necessary or to appear before it on two occasions, after lodging appeal; or the Tax Authority,
after receiving the memorandum of appeal, fails to give reply or to appeal before it on two
occasions.96

2.10.3. Tax Dispute settlement in Regular Courts

After protesting to the tax administration or to the quasi-judicial committees mentioned above,
the taxpayer can still disagree with the result, in which case the taxpayer can appeal before the
92
See for example, Ibid Art 109 (1) (2)
93
See for example, Ibid Art 109 (3)
94
See for example, Id Art 115(1)
95
See for example, Id Art 111 (1, 2, 3)
96
See for example, Ibid Art 111(4)

27
courts. Appeals of tax grievance to the courts are the last step in the tax dispute resolution
mechanism. There can be one, two and three levels/tier of courts, which case the first judicial
decision can be appealed before the second and third judicial instance. Different countries in the
world use three types’ courts which entertain tax dispute such as, general courts reviewing tax
cases/dispute, general courts with specialized benches in charge of tax cases and specialized
courts in taxation.

2.10.3.1. General Courts Reviewing Tax Dispute

These are general jurisdiction courts whose judges have general knowledge on all areas of law
and whose caseloads cover broad fields of the law. Hence, generalist judges of such courts
engage in reviewing complex tax administration decisions. 97 There are different problems in
general courts reviewing tax dispute such as, the decision of general courts on difficult tax issues
are unlikely to be technically sound and tax cases are complex , general courts tend to avoid
dealing with tax cases leaving them for latter moment resulting in case backlog. 98

2.10.3.2 General Courts with Specialized Benches in charge of Tax Dispute

These type of courts contain specialized chambers in general courts consists of judges without
prior specialized expertise in taxation. But they can learn how to tackle tax cases by practice
after assignment to that bench better than general court judges. Yet, if specialized judges are
assigned to such benches no problem will occur in settling complex tax disputes.99

2.10.3.3 Specialized Courts in Tax Dispute

These are particular courts which have exclusive jurisdiction in adjudicating tax cases with
specialty judges on tax law and hence they have the following benefits over general courts:-
 give expeditious court decision using tax expert judges on tax law
 reduce case backlogs by solving legally and factually complex tax disputes quickly
 decreasing court’s time required to settle intricate technical tax subject matter
 Ensuring judicial and legal system efficiency, uniformity, expertise, and improved case
management.

97
Markus B. Zimmer, Overview of specialized courts, (2009) International Journal for Court Administration at p. 2
98
See Ibid
99
See Ibid

28
Concerning jurisdiction of courts on tax matters they may have first instance jurisdiction to
entertain issues of fact and issues of law on tax cases in some countries or they may be precluded
from reviewing question of fact depending on the legal system of countries. Courts can also have
appellate jurisdiction to review both questions of law and fact despite it is preferable to limit
them to reviewing errors of law alone.
While in Ethiopian regular courts, excluding first instance courts, are provided as last forum
available to resolve tax grievance.100 If any party either the taxpayer or the tax authority
dissatisfied with the decision of the Appeal Commission, both the taxpayer and tax authority
have the right to appeal to the regular courts; though only on issue of law. Therefore, the regular
court cannot pass its decision on questions of fact rather interpretation and application only
questions of law and refer the case back to the TAC. 101 A party can bring his/her appeal to the
court (high court) within 30 days from the date of receipt of the written decision from Tax
Appeal Commission. Any party can apply to the next competent court if he/she still dissatisfied
with the decision of the lower court within 30 days. But submit this appeal he/ she should pay the
remaining 50%.102 Thus, like that of Supreme Court the second appellate court (Supreme Court)
entertains case only issue of law in the judgment and remand the case. The last bench the parties
could resort to after this the cassation bench, as it is a constitutionally recognized right to take a
case on fundamental error of law to the cassation bench.103

100
Misganaw cited above at note 24, P 12
101
See for example, Ibid Art 112(2)
102
See for example, Ibid Art 112(4)
103
FDRE Constitution cited above at note 182, Art. 80(3) (a) and The Federal Courts Proclamation (1996), Art10
Proc. No. 25 Neg. Gaz 2nd year- No. 13

29
CHAPTER THREE

3. Channel of Tax Dispute Settlement and Requirements under the Amahara

National Regional State Income Tax Law
3.1 Review committee
3.1.1 Establishment, Composition and Accountability
The Amhara national regional state Income Tax Proclamation and Tax Administration
Proclamation stipulates on the establishment of the review committee could be established both
in the Head Quarters and branches (werda and keble) containing three to five members.
Furthermore, the tax authority shall establish a review committee as a permanent office within
the authority104. The General Director or his representative appoints the members of the review
committee established at the Head Quarters. The Manager appoints members of those
committees established in the branch offices. They will have two years in office and can be re-
elected only once.105. The review committee shall be accountable to the general director of the
tax authority or his representative found in each level of tax institutions. The law does not
indicate who shall be the member of the committee. Practically, it is witnessed that members of
the review committee are the employees of the tax authority. The taxpayer is not represented in
any way in the committee.106 The review committee has the mandate to prepare a
recommendation after entertaining the case which shall contain the claim; issues entertained,
collected and evaluated information/evidences documents, statement of witnesses, dissenting
opinion on the presented recommendation, if any and signatures of the members of the Review
Committee.107 The recommendation will be decided by majority vote.108

3.1.2 Impartiality and Independence

Whatever the status of the law in a given country, the mandate of tax authority should be
provided by the law and it should be broad and comprehensive. Tax authority institutions are
mandated to protect and taxpayer’s rights. An effective tax authority will be one, which is
104
Interview with AtoDessalgneMelsew, Chair Person of the tax authority in Debremarkos town as interviewed on
26/02/2010, 08:34 A.M. the powers of Review Committee include entertaining and recommending on matters
relating to tariffs and price determinations, complaints from the assessment of tax auditors and also see article 54
of Proclamation No. 240/2008
105
Ibid
106
Ibid and Aschalew cited above at note 3, p.210
107
የኢትዮጵያገቢዎችናጉምሩክባለስልጣንየአቤቱታአጣሪኮሚቴማቋቋሚያናየአሰራርመመሪያቁጥር 91/2006 Art.13
108
Id, Art.8

30
capable of acting independently of government and of all other entities and situations, which
may be in a position to affect its work. Furthermore, the institution can be trusted to act with
integrity and impartiality in the conduct of their business. Administrative tribunals like the
review committee are criticized for not being impartial. This impartiality and independency will
be reflected in the following mechanisms.
 Independent and impartial through composition
As provided under the Amhare National Regional State income tax proclamation, the
composition of the review committee does not open a room for other stakeholders. 109
Furthermore, the law remains silent on the number of the committee but practically the
committee composed of three individuals who are employees of the tax authority. Since number
of the committee is minimum in number it opens room to raise question on the independency and
impartiality committee because it does not include individuals form justice, trade and other
institutions.
 Independent and impartial through appointments
One way of checking independence and impartiality of a forum could be referring to the
appointment of the members. The method of selection or appointment should be on personal
capability and merit and should not be to represent any personal relationship. The Amhara
National Regional State income tax proclamation stipulates members of the Review committee
and to committee established as permanent office within the tax authority. 110The law does not
indicate who shall be the member of the committee and the criteria for the appointment. As a
result of this, so many taxpayer and researcher raised the question of partiality of the review
committee. Despite this argument from the side of taxpayers and some researcher, the partiality
of the review committee seems unavoidable since the law is silent about the composition of the
committee and the practically the members of the review committee are the employees of the tax
authority under the office of customer service. Unlike the appeal commission, the taxpayers are
not represented in review committee. This situation further makes question on the impartiality
and independence of the committee even if the review committee (customer service office) are
not the auditors. According to the Amhara national regional state Income tax Proclamation
provides that the committee can only entertain applications submitted to it within 21 days of

109
Amhara National Regional State Income tax Proclamation (2009) Art. 55(1), Proc. No.240 zekereHeg 9 th Year
110
Ibid

31
receipt of tax assessment notification. 111 The application for review will not be accepted after 21
days are over. Some argues that the 21 days requirement is vanishing the right to appeal of the
taxpayers. However the tax authority officer may add 10 days if there is justifiable reason. 112 The
tax authority advocates that those 21 days are enough for taxpayers who fulfill their duty in
accordance what prescribed in the law. Many number of taxpayers and some researcher claims
that those 21 days are not enough to present their grievance. As the researcher examined the
practical situation in Debremarkos town, the time limit is not sufficient to bring tax grievance,
since the taxpayers needs to prepare his application with evidence which it takes more time.
Furthermore, justifiable reason, which results adding additional 10 days, determine by employees
of the tax authority or the review committee. The only thing expected from the taxpayer is
coming up the assessment decision, documents which will help as evidence, stating the reasons
of his disagreement with the authority’s decision.113 Unlike the appeal commission, the review
committee is in better position since there is there is no prior money paid to get a review. In
relation to this, we can see the customs Proclamation No.622/2009 and Proclamation No.
612/2008 of Stamp Duty (Amendment) which forward more days to present a grievance to the
review committee. The stamp duty proclamation puts that any person who is dissatisfied with the
amount of stamp duty assessed by the Authority may, within 30 days of the receipt of the
assessment notifications, appeal to the committee. 114 The customs proclamation provides that a
person with grievance may appeal to a review committee, within 15 days after the date of
payment.115 Thus, it does not seem right to make a difference between tax payers to allow them
exercise their right to present tax grievance. If we are to respect the right of the taxpayer we shall
makes sure such hindrances are avoided. So many taxpayers and researcher advocates the time
limit as such not needy but in my point view the time limit is important since tax is the main and
the ultimate source of government source. Therefore, government used it without any kind of
grievance

The positive side of Review Committees:-

111
Id. Art. 54
112
Interview with AtoDessalgneMelesew, chairperson of the tax authority in Deberemarkos town as interviwed on
04/03/2010, at 10:09, there are possibilities to add additional time for bring tax grievance if there is justifiable
reason and art.54(7) (a) & (b)
113
Ibid
114
Stamp Duty Proclamation (2008) (Amendment) , Art.2(2), Proc. No. 612, Neg. Gaz. 15th Year No. 9
115
Customs Proclamation (2009) Art. 87(2), Proc. No.622, Neg. Gaz. 15th Year No.27

32
  The Review Committee includes members of different profession so as to technically
help it reach meaningful decisions.
 The Committee calls up on experts needed for their decision for technical explanations.
 The term of office for their members is determined by directive to be two years with
reappointment possible depending on performance.

Weakness of the Review Committee:-

 They have no permanent personnel and their members meet up on arrangement of programs
with their regular jobs. Causing delay of decisions.
 The law does not clearly specify the professional composition and work experience of its
members leaving this to the discretion of the Director General.
 They cannot give binding decision; rather their value is only recommendatory to the Director
General.

3.2 Tax appeal commission

Technically speaking, judicial power/function is the primary is the primary function of courts.
The FDRE Constitution expressly vested judicial power, both at the Federal and State powers.
However, it does not necessarily imply that only regular courts shall exercise judicial power.
These are possibilities where judicial power may be delegated to other bodies falling outside the
structure of ordinary courts. To begin with the advantages, judicial power is usually delegated to
administrative tribunals with the purpose to provided cheap, accessible, informal, speedy and
specialized justice. Concerning the paramount advantages of administrative adjudication over
adjudication by ordinary courts,116

They (administrative tribunals) could offer speeder, cheaper and more accessible justice,
essential for the administration of welfare schemes involving large number of small claims… The
process of courts of law is elaborate, slow and costly…it (court process) is to provide the highest
standard of justice; the public wants the best possible article and is prepared to pay for it… In
administrating social justice, the objective is not the best article at any price but the best article
is that consistent with the efficient administration. Dispute must be disposed of quickly and
cheaply for the benefit of the public purse as well as for that of the claimant.

116
Philps, Jackson and Leopold : P 886

33
As can be inferred from this, the argument summarized as follows:

 Expediency: administrative tribunals are better than ordinary courts on disposing case
timely.
 Is cheaper than court adjudication
 Administrative adjudication is more convenient and accessible to individuals compared to
ordinary courts.
 The process of adjudication in administrative tribunals is flexible and informal compared
to the rigid, stringent and much elaborated ordinary court procedures.
 Another justification, which is, not include in the above suggestion that is related to the
special expertise knowledge administrative tribunals manifest as compared to ordinary
court judges. Administrative tribunals are filled a panel of persons vested with special
skill and expertise related to the complicated dispute they adjudicate. Whereas ordinary
court judges are generalist in law and lack such expertise knowledge on the needs of the
administration in this technologically advanced world.

3.2.1 Establishment, composition and Accountability of appeal commission

Tax Appeal Commission, a tribunal set up within the executive branch under justice office at
regional level. Although the Commission is still within the executive branch of government, the
tax appeal commission enjoys relative autonomy and independence as it is organized outside the
Tax Administration. The members of the Commission are to be drawn from “among persons
having good reputation, acceptability, integrity, general and professional knowledge, and from
among persons who have not committed any offense in connection with tax. 117 The composition
of the Commission is to reflect the interests of the major stakeholders in tax administration – the
government and taxpayers.The members of the TAC are drawn from the Ministry of Trade and
Industry, the Ministry of Finance and Economic Development (MOFED), the Ethiopian Customs
and Revenue Authority (ERCA), the Ministry of Justice and representatives from the taxpayers
and the Chamber of Commerce. The main advantage of non-legal specialization is they will
assist the decision maker to give effect to the policy behind the legislation in a way that makes
sense of the realities of matter regulated by the legislation and reflects current social

117
Income Tax Proclamation No.286 art. 114(1) as amended by income tax (Amendment) proclamation, 2008,
Proc. No. 608, Neg., Year 15, No.15, ( hereinafter the Income Tax Amendment Proclamation)

34
conditions.118 The Commission’s composition from stakeholders in tax administration is in large
measure designed to address in ways that satisfy the interests and demands of the various
stakeholders, even if that sometimes means going off the beaten path of judicial procedure. That
is why the Commissioners in some instances make up their own rules as they go along
particularly in cases where the law is silent. The Amhara national regional state income tax
proclamation provides if a taxpayer disagree with redetermination decision of the Review
Committee and wish to appeal it, the appeal must be taken to the Appeal Commission. 119 The
commission established for reviewing the decision passed by the Review Committee and
discretionary power of the authority on tax assessment. The basic function of commission is to
confirm, reduce, or annual any assessment appealed against or adjudication at appellate level.
The commission has the power reconsider the decision passed by review committee and pass
another decision when the committee made error. 120 The appeal commission established in
different levels such as Appeal Commission, at the Federal level; Regional level, in each
Regional Government town; Zonal Appeal Commission, in each Zonal town; and Woreda
Appeal Commission, in each Woreda Administrative town. The Regional Appeal Commission
shall be accountable to the Regional State Minister of justice; city administration, appeal
commissions to the executive organs of city administration, region, zone, worea, depending on
the level of establishment.121

Criteria for the selection members of Appeal Commission:-

 Persons have good reputation, integrity, general and professional knowledge,

 from among persons who have not committed any offense in connection with tax and tax
administration

According to article 114(3, 4) of the IT proclamation and its amendment Proclamation 608/2008
article 2(13) the Appeal Commission's President shall be appointed by the appropriate organs
from among persons referred to under 114(3). Each appeal commission may have more than
panel and each panel contains five members including the chairperson. The members including

118
Peter Cane; “Administrative Law”: Clarendon Law Series (4th ed., 2004),p.p392-95
119
Income Tax Proclamation cite note 6. Art. 56 (1)
120
Amhara National Regional State Income Tax Administration Proclamation No.241 art. 87
121
Income Tax Proclamation cited note 14 Art. 113(3)

35
the chairperson serve for 2years.122Article 2(12) of proclamation 608/2008, an amendment to
proclamation 286/2002, stipulates that sub article 1 of 114 of IT proclamation is repealed and
replaced by:
“Members of the TAC at every level shall be appointed from among persons, including
representatives of business communities having good reputation acceptability, general and
professional knowledge and who have not committed any offence in connection with tax and tax
administration” Since most of the members of the TAC are from the government, the
representatives of the taxpayer tries to will help the TAC consider the taxpayer’s perspective.
The representatives of the taxpayer should be people who are trusted by the taxpayer for their
performance paying tax.123 The law provides that taxpayers who have not committed any offence
in connection with tax and tax administration should not represent the taxpayer in the
commission. However, this does not seem correct since a person who commits other economic
crimes should not qualify to represent the tax payer community. 124As this is one way of showing
their honesty, hard work and integrity. However, they stipulate that the only thing the TAC can
do is ask the taxpayers to send their trusted representatives. Thus, it is up to the tax payers to
check the credentials of the representatives, since; the TAC cannot say it won’t accept a
representative.125

3.2.2 Impartiality and Independence of Appeal Commission

The independence of administrative tribunals is critically important to Tax Appeal Commission.
Independence promotes public trust and confidence in the tax system. It is generally not
contentious that tribunal’s members must act impartially, without inference from persons or
institutions that have an interest in the outcome of particular dispute. The institutional,
administrative and structural independence enjoyed by a tribunal will affect the degree of
impartiality. The principle of separation of power is ground in the Ethiopian Constitution where
the powers of each branch of government, the executive, the legislature and the judiciary, are
separated and non-interference each other. In Ethiopia Federal system, administrative tribunals
like Appeal Commission are part of the executive branch of government. They are said to bring
to their task the benefit of familiarity of the operation of the executive and at the same time, the
122
IT proclamation cited above at note 114,Art. 114(5,6)
123
Interview cited note 1
124
AschalewAshagre, የግብርከፋዮችቅሬታዎችአፈታትሥርዓትበኢትዮጵያ; አዲስአበባዩኒቨርሲቲ፣የህግናአስተዳደርትምህርቶችኮሌጅ;
unpublished, p 25
125
Interview cited note 1

36
ability to decide matters fairly, justly and free from interferences. The mode of appointment of
tribunal chairpersons and members and the organization structure of the tribunal system can help
to foster independence. External review is more likely than internal review to make complaints
feel that public power is subject to substantial check and to make individuals feel that they are
being treated fairly. Independence is essential to the effective operation of tribunal as it is an
external check on government’s decision-making. External review is more likely than internal
review to make complaints feel that public power is subject to substantial check and to make
individuals feel that they are being treated fairly. The provision of an independent dispute
settling mechanism may make people more willing to accept change in substantive rules they do
not like. Appellate tribunals have been seen as alternatives to courts for the adjudication of
disputes between citizens and government. Tribunals allow complaints to participate in the
decision making process and providing an assurance of impartiality. 126 However, complete
impartiality is impossible to realize. The law therefore has to compromise and has done so by
distinguishing between different kinds of decisions and different kinds of biases. The rationale is
not only that of fairness to the parties but also of public confidence in the integrity of the
decision making process. A decision maker who becomes aware that he or she is subject to a
biasing factor must disqualify him or herself, irrespective of the cost, delay or inconvenience that
may result. Financial interest, however small will automatically disqualify the decision maker,
the law conclusively presuming bias. Personal connections social family or professional
relationship with the parties, previous involvement with the same decision making process. 127 We
need to secure the independence of the personnel of tribunals from the agencies concerned. Thus,
the appointment of members of tribunal should not rest with the mayor concerned with the
subject matter of the adjudication. Not only the mode of appointment but also the organizational
structure of the tribunal system needed to be designed to foster independence. Independence is
demonstrable if the following conditions are met:

 The appellate decision makers should not have any connection with the department or
office responsible for initial decision;
 The relevant department or agency should not appoint the decision makers;
 the agency should not train them;

126
Peter“Administrative Law”: Clarendon Law Series (4th ed., 2004), p389-92
127
John Alder,Constitution and Administrative Law, (2007), p.410-11

37
  Nor should it provide them with advice or other assistance;
 Nor administer the appeals system.128
It has been discussed previously under this section of establishment, composition and
accountability; some argue that the impartiality of the commission might be in doubt since the
Commission included those representatives of civil service institutions, trade and industry, road
and transport office and ERCA as its members. This argument based its reason on the fact that,
the decision from which the appeal came is rendered by the tax authority; thus if the
representatives of this authority are members of the appellate tribunal, this would be like being a
judge on your own case.129 When we see this in relation to natural justice, the first principle of
natural justice is ‘No man shall be a judge in his own cause’; meaning the deciding authority
must be impartial and without bias. No man can act as a judge for a cause in which he himself
has some interest, pecuniary or otherwise. This argument also explains that, trade office
representatives should not be members of the TAC since the institution responsible for the
issuance of tax related directive and also interpret ambiguous terms. 130Furthermore, the
independent existence, impartiality is in question since the appeal commission has not permanent
staff, experts and judges. Rather its members as a matter of practice are represented from the
justice’s office, trade and industry, civil service, road and transport, tax authority and two
representatives from taxpayers. These persons have their own regular job that they employ in the
business of the commission as an extra load. Ato Desalgne Melsew, the chairperson of the tax
appeal commission said that the existence of representatives from civil service and road transport
institution may affect somehow the impartiality of the commission since they lack knowledge
with the subject matter.

A Taxpayer aggrieved by the assessment decided can appeal to the TAC only if he deposits fifty
percent (50%) of the disputed amount and the appeal is lodged within thirty (30) days following
the day of receipt of the Assessment Notice or from the date of decision of the Review
Committee.131 Some argue that, like other countries this requirement of deposition on the part of
the tax payer is not surprising. In the first place, it is an indication of the taxpayer’s obligation to

128
MelkamuBelachew (May,2003) Powers And Functions of The Federal Inland Revenue Authority and
The Position of The Tax Appeal Commission , p. 68
129
Aschalew cited above at note 21, p.24
130
Ibid
131
IT proclamation cited above at note 14, Art. 107(2)

38
be ready to discharge his tax obligation as a citizen. Secondly, there seems to be presumption
that to whatever extent the taxpayer objects the amounts of the tax assessed; it may not go down
below 50% of the amount upon the decision of TAC. Third, the deposited amount serves as a
security for the supposed liability of the taxpayer. If otherwise is true upon the decision of the
tribunal, the excessive assessed amount will be refunded to him. 132 Furthermore, tax is the one
and major source government revenue. Therefore, government utilized the collected money
without grievance. The other argument suggested by taxpayers and some researchers is that,
though this requirement seems easy to implement it will have its own effect on the taxpayer. It is
practically witnessed that the tax debt imposed on the taxpayer would be too much for him that
the tax payer would not be able to pay even the 50%. Practically, as the researcher examined
huge number of tax payers faced difficulty due to this requirement since it is not consider ability
to pay principle and economical position of taxpayers.
Thus, many numbers of taxpayers suggest that the 50% should be reduced to a lesser amount in
order to enable the taxpayer to better use of his right to appeal. Getting the chance to appeal in
the TAC is also a get way to further appeal to the regular courts on issues of law, if the taxpayer
is not satisfied by the decision rendered in the TAC. 133 The other prerequisite to appeal to the
TAC is, the fact that the application should be delivered to the commission within 30 days from
the date of decision of the Review Committee. 134 Some say the 30days are not enough for the
taxpayer to take his case to the TAC fulfilling all the needed perquisites and documents. 135 This
concern seems valid since one of the requirements to take a case to the commission is to pay
50% of the tax debt assessed. As a result the tax payer needs more time to prepare the 50% and
other documents required for the case. Thus, to make sure the taxpayer uses this forum it is
necessary to avoid hindrances like this.

3.3 The Regular Courts

From the idea of separation of powers, it is understood that government powers are divided
between the legislative, executive and judiciary having. In the current Ethiopian system to the
Constitution of 1995 provides that the Federal government and the States shall have legislative,
executive and judicial organs with judicial power vested on courts. In respect to tax issues it can

132
Melkamu cited above at note 25, p. 70-71
133
Aschalew cited above at note 21 ,p.26
134
IT proclamation cited above at note 14, Art. 107(2b)
135
Aschalew cited above at note 21, p.27

39
be deducted that courts have power to interpret laws and settle misunderstanding in case if
disputes arise in the due course of enforcing the tax laws. Judicial review is different from appeal
in that in case of an appeal the court is allowed to see the merit of the case decided by the lower
court, while in the case of judicial review the court is concerned on the legality of the decision.
Regular courts, excluding first instance courts, excluding first instance courts, are provided as a
third forum available to resolve tax disputes. Any taxpayer or tax authority dissatisfied with the
decision of the appeal commission can appeal to the competent court of appeal on the ground
that the decision is erroneous on any matter of law within 30 days from the date of receipt of the
written decision of the appeal commission and paying 75% tax liability determined by the
Appeal Commission.136 This point makes it clear that regarding question of fact the verdict of
TAC is final and non-appealable. As provided under Civil Procedure Code, the court could
dismiss the appeal without calling the respondent if it thinks there is no error of law and agrees
with the judgment appealed from. The other possibility is the court could fix a day for a hearing
and summon the respondent to determine the error of law. After the court entertains the case it
may confirm, vary or reverse the decision of the TAC. 137 The court has no final says regarding
tax issues as they are required to return the case to the commission after determining whether
there is error of law or not. Thus, if the High Court finds an error of law in the judgment of the
TAC, it will identify the error and remands the case to the Commission for review based on the
error of law identified. The High Court cannot go into the determination of the merits of the
case.138 The court of appeal shall hear and determine any question of law arising on appeal and
shall, after reaching its decision thereon, return the case to the commission. Any party
dissatisfied with the decision of the lower court of appeal can appeal to the next tier of court
within 30 days of the decision of the lower court appeal. 139 However, the next courts of appeal
could only review issues raised before the lower court of appeal. This narrows the chance of the
taxpayer to get better justice through adequate and full review unless case are brought the court
of cassation. Generally, these requirements limit taxpayer’s effort to appeal.
The positive side of settlement tax grievance in regular courts:-

136
Income Tax Proclamation cited above at note, 14 Art. 112(1)
137
Civil Procedure Code cited above at note 436 Art. 337,338(1),348(1) And Aschalew, cited above at note 21, p.
34-35
138
TaddeseLencho The Ethiopian Tax System: Excesses and Gaps; Michigan State International Law Review VOl
20:2, (2012), p. 375
139
Ibid Art. 112(3)

40
  Judicial review by courts will ensure the compatibility of administrative tribunal’s
decision with their statutes.
 Tax dispute settlement in regular courts serves as a controlling mechanism.

Weakness of the regular courts in settling tax grievance:-

 Ordinary courts have a lot of work load thus justice will be delayed if we leave the appeal
to ordinary court.
 Administrative issues need technical knowhow which the judges of ordinary courts lack
so with the limited knowledge they have it will be difficult to deliver a reasoned and well
researched justice.
 Ordinary courts litigation takes much time while adjudication through administrative
tribunals provides a speedier resolution.
 Flexibility, court litigation is largely controlled by statutory and procedural rules unlike
administrative tribunals.

3.4 Challenges and Prospects of Tax Dispute Settlement in Practice

The performance of the Review committee, Appeal Commission and the regular courts is
assessed on its effectiveness. Hence, the performance of the commission for settling tax
grievance is measured by their effectiveness. But there is difficulty of passing decision since the
members the appeal commission and the review committees have different knowledge and
capacity on the subject matter and the independency of the commission at question and also there
are prospects. The researcher considers the following points as the main challenges, which affect
tax dispute settlement in practice.

3.4.1 Challenges of Tax Dispute Settlement in practice

3.4.1.1. Huge Arrears of Revenue

Taxpayers required depositing 50 % and 75 % for Tax Appeal Commission and Regular Courts
respectively. As the researcher examined in practice many number taxpayers are dissatisfied on
their assessed value of tax due to several factors that huge numbers taxpayers have communality
such as, the assessed tax didn’t consider their economic position, the authority didn’t take into
account economic defilation and inflations and the method of taking sample for tax assessment
didn’t consider all taxpayers ability pay. Therefore, taxpayers only bring their appeal for appeal

41
commission, which is the next tier of review committee. These kinds’ problems resulted in huge
uncollected arrears of revenue even if the tax authority didn’t want to disclose these problems.
The uncollected revenue may create different problems in the country since tax is the main
source of government source.

3.4.1.2 Huge Number of Litigation and Question of Fairness

Tax dispute resolution system in Review Committee and Appeal Commission is not fair at all.
The tax authority confirms most of the demand notices because of one or several of the following
reasons:-

 To meet revenue targets

 To show that the taxpayers was at fault and they are not at fault. If they drop a demand
because there are no significant charges, or tax department officials who assessed their
tax were fault, or the investigation was improper, then enquiry will be stated against
them. It is be noted here that the same employees who adjudicating the case, often
investigated the case as well as the tax assessed by them the previous.

Furthermore, the employees of the tax authority are also human beings. They are the employees
who have issued the demand notice or the assessed tax, and it is very difficult for them to
conclude that they were wrong at the time of tax assessment. As the researcher examined, there
is possibility of revision decision which passed by the appeal commission due to save their skin.
Many officers think that if they decide in favor of the tax authority, no enquiry will be initiated
against them, irrespective of the quality of the decision. If they decide against the previous
decision, however, their decision will be scrutinized in terms of their knowledge and also there
may be an allegation of corruption and bias for the taxpayers. There is also some indirect and
informal pressure from their superiors to do not change their previous decision.

3.4.1.3 Lack of independency

Independence is one of the fundamental principles attributable to effective functioning of the
Appeal Commission and the Review Committee. Lack of independence is the one of the major
steeplechases that hinders both the commission and the committee from rendering independent,
impartial, credible prospective decision. Basically, the independence aspect of the commission
and the committee reflected through appointment and dismissal procedure. When we look the
income tax proclamation, the nomination members of the review committee is composed of

42
employees of the tax authority and also the members of the commission is composed of different
institutions who have no knowledge on the issue.

3.4.1.4 Accessibility problem

The Accessibility notion incorporates two main points. The first one is connected to the
awareness of the date tax payment and bringing tax grievance, and the second is linked to the
physical accessibility of the Review Commission and Appeal Commission. Accessibility
problem is manifested in different place of the regions since the committee and commission
serves for large numbers of taxpayers as well as they are less in number. Particularly the
researcher examined that appeal commission found in Debremarkos city served for large
numbers of taxpayers, which has its own effect on rendering decision. Currently, the place of the
commission situated at is easy to be accessed but the building is not well structured for hearing
tax appeal because there is no separate appeal hearing room.

3.4.1.5. Operational Inefficiency

Tax authority institutions particularly, tax review committee and appeal commission must ensure
that their operational system is as efficient as possible. Operational efficiency is inevitable for
both the review committee and appeal commission to achieve their goal, which they are
established for. Operational inefficiency is very broad through it has an inextricable link with
reassessment of the tax which needs sufficient human resources and government budget. Hence,
operational inefficiency may arise when the institution is “understaffed and under resourced but
overburdened.”

3.4.2 Prospects of Tax Dispute Settlement

The specific way to avoid disputes before notified a tax assessment is related directly to the
problem of interpretation of tax laws and well prepared tax assessment. If taxpayers have a clear
understanding of their obligation, a greater number of taxpayers will be attracted to comply
appropriately, thereby reducing the opportunity for dispute with the tax administration. Based on
this reason the Amhara National Regional State enact tax laws which are easy to understand and
accessible. Even if the regional state takes different measures to tackle tax and related problems
there are pitfalls which undermine the efforts made by the government of Amhara national
regional state and also had impact on the prospects. There are factors which have effects on the
prospects like lack of strong effort by the tax authority to create tax awareness to taxpayers, the
tax authority employees lack integrity, honesties and professional ethics at the time of tax

43
assessment, both the review committee and appeal commission have partiality problem which
results from improper composition of the appeal commission from different government office,
inadequacy of the time limit and etc. Therefore, many numbers of taxpayers are unable to pay the
whole amount of the assessed tax due to the above factors and the requirements stated under the
tax laws like payment of half value and 75 % of the assessed the tax and the time limit. As the
researcher examined in practice, taxpayers right to be bring ones appeal is affected through the
composition, accountability and independence of administrative tribunals and regular courts as
well as employees of the tax authority are in a position to show that the taxpayers was at fault
and they are not at fault. Generally, the economy growth not only the Amhara National Regional
State but also at country level faced difficulty due to huge number taxpayers fall to pay the
whole amount of assessed tax since the assessment didn’t consider economical capacity of
taxpayers and also the stated requirements undermine taxpayers right to bring ones case and to
be heard. Furthermore, channel of tax dispute settlement didn’t encourage other persons to
engage in economic activity which is susceptible for higher tax and miss lead by tax authority.

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 CHAPTER FOUR
4. Conclusion and Recommendation

4.1 Conclusion
Tax is defined as a compulsory contribution payable by an economic unit to a government
without expectation of direct and equivalent return from the government for the contribution
made. It is very important to have effective tax administration, which play a great role
concerning identification of tax liability based on the existing tax laws, collection, prosecution
and penalties imposed on recalcitrant taxpayers. Additionally tax administration covers a wide
area of study, encompassing different aspects such as registration of taxpayers, assessments,
returns, processing, collection and audits.

Canons of taxation need to examine before settling tax dispute, which includes canon of
equality, certainty, convenience, economy, elasticity, simplicity and the like.

Both the FDRE Constitution and the Amhara National Regional State income tax proclamation
clearly provides about the rights and of taxpayers which maintain and induce taxpayer’s
confidence on tax administration particularly in the channel of tax dispute settlement such as, the
right to confidentiality and secrecy, the right to pay no more than the correct amount tax, the
right to get information/notice, the right to lodge once case, the right to appeal and the like. Tax
is the main and the major source of government revenue. In order to realize sufficient source of
government revenue rights and duties of taxpayers should entertain in conformity with different
laws.

The fundamental authority to tax is derived from the FDRE Constitution of 1995, tax power
share between the Federal Government and Regional States. The constitution classifies taxation
powers as “taxes exclusive to the Federal Government,” taxes exclusive to the Regional States,”
“taxes concurrent to both the Federal Government and the Regional States,” and “taxes
undersigned.” Based on this, taxpayer’s tax liability determination performed. Tax assessment is
crucial to avoid arbitrary imposition of tax on citizens and create a uniform and fair method of
tax collection which can be applicable equally on all citizens. Assessments may be made in one
of this two ways; assessment based on books of account and assessment by estimation.

45
The tax authority after making assessment has to send notice of the assessment to the taxpayers.
If the taxpayer dissatisfied with the assessed value of tax, the next step will be settling tax
grievance through the manner stated in the income tax proclamation. While working together the
taxpayers and the tax authority will face disagreements as a result of different reasons like self-
motivated aggressive tax assessment, tax administration policy and bureaucracy encouraging tax
assessment officials by offering incentives to carry out undue collection of tax through
aggressive assessment, complex and unclear tax laws, cultural attitudes of taxpayers to dispute
tax administration findings, challenges to the legality and constitutionality of tax administrative
decisions and civil litigation enforce unpaid taxes.

It has been identified in the course of the research that, countries utilized different methods of tax
dispute settlement mechanisms. In line with this notion, there are two different paths of tax
dispute resolution systems currently practiced in various countries such as, resolving tax disputes
by the way of protest/appeals system and resolving tax dispute by way of alternative dispute
resolution system. Under the category of settling tax dispute through the protest and appellate
system, there are three possible ways such as, protest within tax authority that should be
established as best practice, appeal to quasi-judicial tax administration tribunal outside the tax
authority but belonging to the executive branch not to the judiciary, and appeal to the regular
courts which is a constitutionally required option for taxpayers. The policy decision to make
these options to settle tax grievance through ADR left to countries.

Currently, different tax legislation which is applicable in both Federal and Regional governments
of Ethiopian empowers the review committee, appeal commission and regular courts to settle tax
grievance. It is advantageous for taxpayers settling tax grievance in review committee since there
is no requirement half payment (50%) of the assessed tax rather only 21 days are stated. Both the
Federal and Regionals tax proclamation did not indicate who shall be the member of tax the
review committee. Practically, employees of the tax authority are members of review committee
as organized permanent department. The question of impartiality seems unavoidable that
taxpayers are not represented in the review committee. Furthermore, the 21 days requirement for
the taxpayers to bring tax grievance to the review committee is a hindrance to the right of
taxpayers and to prepare application with evidence. The reasons mentioned in above consider

46
some cases decided by review committees that the review committee is not rendering a reasoned
decision for taxpayers and did not operate as planned

Tax Appeal Commission, a tribunal set up within the executive branch under justice office at
regional level. Although the Commission is still within the executive branch of government, the
tax appeal commission enjoys relative autonomy and independence as it is organized outside the
Tax Administration. While the payment of half value of the assessed tax (50%) and 30 days
requirements affect the right of taxpayers. It is practically examined that, the taxpayers able to
pay the 50 % of the tax debt assessed since the methods of tax assessment does not consider
canon of economy specifically ability pay principle. Furthermore, the tax authority does not go
further after the taxpayers pay half value the assessed tax by auditors. The 30 days requirement
might not be enough to prepare such amount of money including other documents necessary and
there are unexpected factors which makes the taxpayers unable to present within the time limit.
The members of the appeal commission are composed of different stakeholders but the way of
appointment subject to critics since some members of tax appeal commission lucks knowledge
on the subject matter.

The third channel of settling tax dispute is by the regular courts only on the question of law not
question of facts. This is the difficult to identify of fact from laws and entertain cases.

5.2 Recommendation
According to the research findings the researcher recommends the following implications

 The requirements stated for review committee, appeal commission and regular
courts 21 days and 30 days and 50% and 75% respectively should be reduced to a
lesser in amount and increase in days to bring tax grievance and to make appeal
for Review Committee, Appeal Commission and Regular Courts.
 Laws, which come in future, should indicate specifically who should be the
member of the review committee. The members of the review committee should
not employees of the tax authority since its affect impartiality and independency
the institutions. Furthermore, it is better taxpayers should be represented in the
review committee.

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 Ethiopia should learn from other countries experience like America in relation to
establishing independent fiscal courts. This separate way of settling tax grievance
hold in to taxpayers complain and peroration or wordy tax dispute resolution by
the tax authority since fiscal courts composed of judges and experts trained on the
subject matter.
 It is better to state guideline in both Federal and Regionals tax laws which help to
determine issue of law and fact should be prepared. This will help the courts in
determining whether a case is issue of law or issue fact.

48
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