ZTE under fire for failing to pay over $1billion income taxes
Awramba Times (Addis Ababa) – Large Tax payers Branch of Ethiopian Revenue and Custom Authority (ERCA), ordered the state owned Ethio-telecom to suspend any payment to ZTE. The order came through a letter written by the Large Tax Payer’s branch of ERCA to Ethio-telecom finance department. The letter stated that ZTE failed to pay tax of over One Billion Birr. After numerous attempts by the tax authority to collect the tax from ZTE, the tax authority finally decided to stop any payment to ZTE by its major customer, Ethio Telecom until the tax overdue by the company is fully paid.
ZTE is one of the two Chinese companies who signed the 1.6 billion dollar Ethio Telecom second expansion project signed last year. ZTE entered the telecom market of Ethiopia in 1996 and officially set up its Ethiopian Office in 2000. The company involved in some small projects between 2003 and 2005 but a substantial deal had not been made until 2006. In 2006 the company entered into a three-year sole supplier framework agreement with Ethio Telecom(the world’s only project in which a national telecom network is built by a sole equipment supplier) financed on seller credit. Unlike the current expansion project which has a greater scope and estimated to cost 1.6 billion dollar, the first expansion project involved 1.9 billion USD of investment by Ethio Telecom—1.5 billion USD for equipment and 0.4 billion USD for engineering construction. The implementation started in 2007 and was marred with many problems and had not received acceptance by Ethio telecom until recently. On the second phase of the expansion project Ethio telecom went for a multi-vendor strategy and selected Huawei in addition to ZTE giving each 50% of the project.
Over the last few years ZTE’s financial performance declined and the company declared a loss in 2012. Since then ZTE didn’t change its declining trend in the stock market. However it is a crucial time that ZTE is expected to put its resource in Ethiopia for the second expansion. However, instead of responding actively to this need, ZTE hasn’t yet had any contribution in the current expansion project delivery. The company delayed the signing of the contract and now postponing the delivery. It even reduced the staff number in Ethiopia.
Sources close to the case said that it’s a shame ZTE after being paid billions of dollars from Ethio telecom’s huge investment and other government ICT infrastructure failed to pay the tax. the amount of unpaid tax by ZTE is a significant percentage of the country’s annual budget and is more than the total amount allocated annually to building roads, hospitals, and schools in some of regional states.
It is not clear how the company was allowed to participate in projects in Ethiopia without obtaining a tax clearance from ERCA which is major precondition to participate in any government project. How ZTE signed these projects without a tax clearance from ERCA and eluded its customers especially Ethio Telecomremains a mystery.
An official from ERCA who wants to remain anonymous said this year is the last year of the GTP. To realize the GTP the revenue from tax plays a decisive role. ZTE’s tax debacle is not just starving the country of much needed finance but a stark contrast to the Ethio China good relationship. China is supporting Ethiopia financing the country’s major infrastructural projects and the behavior of ZTE is unbecoming to a company with a significant shared held by the Chinese government. ZTE should stop thinking it can do whatever it wants because of its relationship with the Chinese government, and concentrate in its delivery and compliance to the law in Ethiopia including paying its due share of tax and stop to be an embarrassment to the good relationship of the two countries.
Officials of ZTE in Ethiopia were not imediately available to coment on the matter.