EFRIS- Electronic fiscal receipting and invoicing solution entails using electronic fiscal devices (EFDs); e-invoicing, e-receipting and direct communication with business transaction systems to manage issuance of e-receipts on the automated tax system under the tax procedure code Act 2014.
It was adopted in 2019 starting with big tax payers having an annual turnover of 500m and above. Due to Covid, its rollout was halted till 2021 when the threshold was revised to include businesses with an annual turnover of 150m and above.
The aim of its introduction was to enhance business efficiency through automation. Most traders are not good at book-keeping which renders a challenge on both the traders and URA while filing monthly returns. Its usage and application renders an instant capture of the transaction on both ends. It minimizes paperwork and time to reconcile accounts at every end of month.
There was also the need to reduce the cost of compliance. Enforcement of tax is a big component in tax administration. As a principle, the cost of collecting a tax should not exceed 1.8% of the total tax collected, but when compliance is low, enforcement becomes expensive. There will be physical visits to businesses that end up flaring tempers causing a toxic atmosphere for business. Physical human interaction may also cause unprofessional behavior.
Without proper records, two things are likely to happen, the first being that there are high chances of tax evasion through under-declaration of returns by the traders. The second is that, URA may overestimate the tax payable thus adversely affecting the financial capability of the business.
When EFRIS was introduced as an electronic device, the intension was to streamline business, but not as a new tax as the traders allege. So, when you hear people calling it a tax, it means that the sensitization has not been adequate. Its use and application has not gained traction among traders who are used to the traditional means of physical filing.
With all the benefits of EFRIS, what are the grievances raised by the traders?
First, the traders complain about lack of knowledge about its application. That could be true, but over time URA has been introducing user-friendly devices from the original EFRIS gadget to desktop computer and lately to a mobile phone. All is intended to simplify filing returns. However, it should be pointed out, this is an excuse given that the true picture of a typical Kikubo trader, doesn’t have accounting skills to prepare books for tax purposes not even the traditional book keeping. The reality is that, over the years in Kikubo and downtown, there are mobile book keepers or “accountants” who move from shop to shop preparing tax returns according to the wishes of the trader. These are qualified professionals in the field of accounting and computer who can’t fail to grasp simple applications of EFRIS.Traders rely on them to “fix” the taxes. So, it isn’t correct when traders complain about lack of computer expertise. All along they have never been computer or manual book-keeping savvy. They are using it as just an excuse to continue evading taxes.
The other complaint is that of double taxation in regard to VAT. Even with VAT having been around for years, some traders have failed to appreciate its relevance. Value addition takes place at each stage of transaction and payable by those VAT registered. As a consumption tax, it’s born by the buyer not the seller, so it is not right for a trader who only acts as an agent of URA to collect and remit tax monthly. The difference between input and output is payable. The problem is that most traders refuse to register for VAT so they don’t benefit from VAT claims.
The traders complain about unfair competition from foreigners who are both manufacturers and distributors or retailers. It is true these foreigners have retail shops or double as both wholesalers and retailers. However, the reality is that, some local traders may prefer to import same goods as those produced locally due to cheaper costs and compete with local investors. This forces foreigners to push the goods directly in the market.
It is also possible that, although these are foreigners, they maybe totally different people where one is a producer yet another a wholesaler doing retailing. It has also been argued that the exorbitant profits that accrue from hiking prices twice for the goods from these foreign producers attract them to get involved in retail business. These are supernormal profits.
There is a complaint about brutal enforcement of the law. Two things must be clear. EFRIS was intended to reduce the cost of tax compliance. When the tax payer fails to comply, the law (taxcode act 2014) renders URA power to enforce compliance. The law stipulates 6m penalty irrespective of the value of the goods involved even if the goods are worth 10.000sh. In the past, we have had chaotic scenes of anti-smuggling enforcement where enforcers are physically assaulted, so the use of armed personnel may not be farfetched. The only solution is not to use brutal force.
The complaint that URA has failed to enroll businesses in the outskirts on EFRIS can be countered by realizing that EFRIS has a threshold of 150m annual turnover, so not everyone qualifies. Even in the central business district, there are traders who don’t qualify based on their capital base. The rollout is gradual, with time all will be included.
The misinformation about the rent hike of 18% by URA was also part of the grievances. The commissioner General clarified that there wasn’t a rent tax hike, but in the meeting with landlords, it was revealed that landlords have been making false returns of only 20% of the amount they charge, with EFRIS the fraud is under threat. So as an excuse, they told tenants that they have to pay more due to rent hike of18% which was false. It is time to declare the true amount of rent charged and collected.
Uganda collects only 14% of VAT of GDP, yet global average is about 47% of the GDP being an indirect consumption tax. The tax inclusion policy is intended to bring the informal sector into the tax bracket to reduce the burden on the few tax payers.
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