The Customs Commission has instructed the Ethiopian Airlines Group to pay close to 362 million birr in back taxes and fines for the alleged improper use of construction materials imported duty-free for the construction of nearly 2,000 housing units for the carrier’s key employees.
The Group has filed a complaint against the decision, and is currently caught up in a legal battle with Afro Tsion Construction Plc—the contractor that built the housing more than eight years ago.
A letter from the Commission, dated January 6, 2024, and signed by Almaz Sebhat, coordinator of the post-delivery audit process, refers to a deal struck between Afro-Tsion Construction Company and the Ethiopian Airlines Group on July 17, 2015 enabling the former to import construction materials using the Group’s duty and tax privileges.
Documents obtained by The Reporter indicate the construction of 1,992 housing units for the Group’s key employees was carried out at a cost of 700 million birr.
The Group secured the incentives from the Ministry of Finance by citing that the housing was meant for pilots and technicians with more than a year of service at the carrier. Airline executives argued housing benefits would discourage the loss of skilled manpower to employers abroad.
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According to the audit team, it was the Group that initially requested the Commission to conduct an inquiry into the possible misuse of construction materials that were imported in its name. The team said it conducted a field audit based on the request.
However, The Reporter noted that the initial request included more detailed petitions.
The Group had stated that items imported duty-free were being appropriated illegally from the construction site. It appealed to the Commission to investigate and take necessary measures against individuals or businesses implicated in the theft.
The Commission’s audit was limited to construction materials that passed through its branch offices between July 2015 and August 2018.
The audit revealed that items were imported in excess and later were not found in warehouses. It also found issues with the inventory details provided by the Customs intelligence and contraband monitoring department, as well as with the oversight of the rights and privileges granted to the Group.
The audit team said it found evidence of quantity irregularities in the estimated cost of the imports after reviewing documents submitted by the Group and the Addis Ababa Kaliti Customs Branch office.
The report reveals that Group executives were aware of the discrepancies, but maintained that the carrier was not involved in tax evasion or other crimes. They also indicated that Afro Tsion Construction had purchased the materials for the project domestically.
“The Airline has not been able to provide concrete evidence to explain these local purchases. In addition, the audit team has seen the terms of the agreements between the Airline and the contractor that show the supply and delivery of imported materials, but no evidence of purchases made within the country as per their agreements has been provided,” reads the audit report.
Following the completion of the project, an inventory count was conducted and Afro Tsion Construction Plc handed over surplus materials to the Group, according to the audit report.
“Representatives of the Group have also informed the team that, in a letter sent on August 29, 2024, the group had informed the Commission of misuse of tax-free construction materials in the name of the company and requested appropriate action against the illegal activities,” reads the audit report.
Sources told The Reporter that there was a minor dispute on the premises of the Group’s housing compound a few months ago.
“There are many items that have been imported using the Airline’s duty and tax privileges and stored on the premises of the Ethiopian Airlines employees’ residential compound in Lemi Kura and in the government-owned warehouse managed by Afro Tsion Construction,” said one source, speaking anonymously.
“In August [2024], individuals claiming to represent the contractor trespassed onto the properties, loaded up the items on five trucks and took them.”
The Group has reportedly notified the police about the incident and filed a lawsuit. The case is still ongoing at the Federal High Court, whose judges placed an injunction order on any remaining materials in the warehouses in September.
However, the Commission has still seen it fit to penalize the Group for the missing materials.
All told, the Commission has instructed the Group to pay close to 362 million birr in taxes, duties, and penalties.
The Reporter has learnt that the Group has since filed a complaint against the decision. Sources say the Customs Complaints Investigation Director has rescinded the decision and the matter is currently being reviewed.