Federal Supreme Court Widens Shield for Lawyers Contesting VAT Registration

• While an initial temporary injunction from the Federal High Court protected seven lawyers contesting the Ministry of Finance's VAT registration directive, this protection was not extended to a larger group of 89 additional lawyers, and the directive is now largely enforceable.
• The Federal Supreme Court declined to overturn the initial injunction for the seven lawyers but did not issue a broad injunction for a larger group.
• The legal matter remains a subject of ongoing dispute, with the Federal Bar Association signaling its intent to sue the Ministry of Finance over the directive.

While a limited number of lawyers initially secured temporary protection, the directive is now largely enforceable against most legal professionals challenging it.

The Federal Supreme Court's Fourth Civil Appellate Bench had previously issued a temporary injunction protecting a group of lawyers contesting the Ministry of Finance's VAT registration directive. This initial decision extended protection to advocates in four regional states: Amhara, Sidama, South Ethiopia, and Benishangul-Gumuz. However, subsequent rulings have significantly narrowed the scope of this protection. While seven lawyers who initially sued secured a temporary suspension of enforcement from the Federal High Court, and the Federal Supreme Court declined to overturn that specific injunction, protection was not extended to a larger group of 89 additional lawyers who later joined the case. Consequently, the directive is now largely enforceable against most lawyers challenging it, as a majority of a three-judge panel denied new applications for injunctions, citing that the registration deadline had passed.

The VAT registration directive has been at the center of controversy, with many arguing that it unfairly targets lawyers and other professionals. While an initial injunction provided some lawyers with protection, the current situation indicates that the directive remains in force for most legal professionals, despite ongoing legal challenges regarding its legality.

The VAT registration directive was introduced by the Ministry of Finance in an effort to increase tax revenue and simplify the process of registering businesses. Critics argue that the directive unfairly targets lawyers and other professionals, who they claim are exempt from paying value-added tax under existing laws. While an earlier Federal High Court decision granted a temporary suspension of enforcement for a small group of lawyers, this protection was not extended to a larger number of applicants, and the directive is largely enforceable. The legal battle over the directive's application to lawyers is ongoing, with the Federal Bar Association having signaled its intent to sue the Ministry of Finance over the directive, which mandates VAT registration for all professionals regardless of income level.

The court's rulings highlight the complexities in the relationship between the judiciary and the executive branch in Ethiopia, as legal professionals continue to challenge the directive's authority and application.

The evolving legal landscape surrounding the VAT registration directive has significant implications for lawyers and other professionals. While a limited number of lawyers initially secured temporary protection from enforcement, the directive is now largely in force for most, requiring them to register for VAT regardless of their income level.

This situation underscores the ongoing challenges to judicial independence in Ethiopia, as the legal community continues to assert its rights against government directives, even as court decisions have largely upheld the enforceability of the VAT registration requirement for most legal professionals.

Lawyers contesting the Ministry of Finance's VAT registration directive in Ethiopia may now benefit from expanded protection, shielding them from enforcement while the directive's legality is decided. Compliance officers should monitor this development and advise clients accordingly.

Source: Original reporting via Fortune