The Office of the Attorney General is finalising its preparations to file an 857 million Br tax evasion charge against the Chinese-owned company, ZTE H.K Ltd Ethiopian branch.
The Economic Crime Department of the Attorney concluded an investigation based on the audit findings of the Ethiopian Revenues & Customs Authority (ERCA) identifying 34 audit irregularities in ZTE’s accounts, where the Company was allegedly understating its earnings for three years since early 2008.
The allegation emerges a decade after the Company opened its first office in Ethiopia mainly to be involved in developing telecom infrastructure and software as well as retail of mobile apparatuses.
While the Company settled more than half of the alleged amount to the Authority after a deduction, the Office continued scrutinising its accounts.
The payment was made after the Authority found the Company to be a subsidiary of the Hong Kong-based ZTE Corporation, whereas the deduction of 412 million Br was possible after it pleaded the Tax Appellate Commission of ERCA.
Invoice fraud, denial of signed contracts and inflating expenses were practised by the Company for three years, according to the ERCA’s audit report.
Prosecutors working at the legal watchdog confirmed an investigation is underway following the Authority’s audit findings.
One of the irregularities discovered by the Authority spins around the first contract of its holding company, ZTE Corporation, with the then Ethiopian Telecommunication Corporation, in November 2006 for two projects involving 400 million dollars and 1.5 billion dollars for the procurement of software and to develop telecom infrastructure projects, correspondingly.
For the implementation of their contract spanning from 2007 to 2009, the state telecom and ZTE Corporation signed a framework agreement. Aiming to handle its projects onshore, the latter was registered by the Ethiopian Investment Commission (EIC) in 2007. Since then, it has been paying taxes for its local transactions only.
While executing the main conditions of the contract, the Chinese holding company was asked by the government to pay taxes for its offshore activities as well.
For its project with the telecom giant, the Company claimed that the then Ministry of Finance & Economic Development (MoFED) freed it from taxation. MoFED, on its part, cited the income tax proclamation while explaining the reason for its decision.
Moreover, the Authority has also found that the Company has undeclared taxes in its contract with the ministries of Education and Information & Communication Technology in 2008. However, ZTE, in its response to the Authority, denied the allegation.
“Expenses claimed to be incurred by ZTE for transportation, housing, customs clearance, devaluation and salary were also audit irregularities,” said a source who works closely with ERCA.
Additionally, the Office of the Attorney General is probing into the import of mobile phones by the Company in relation to the contract with Ethio telecom.
ZTE failed to explain the need for imports in that specific contract, the Office claims.
The Company, whose representatives declined to comment on the issue despite our repeated attempts, will be charged next month, according to a source working at the Office.
Source : AddisFortune