In recent days, traders have launched demonstrations against taxation, specifically targeting the EFRIS system introduced by the Uganda Revenue Authority.
EFRIS, the Electronic Fiscal Receipting and Invoicing solution, is a part of the Domestic Revenue Mobilization Program. Its purpose is to address tax administration challenges related to business transactions and receipt issuance.
However, it appears that there is confusion surrounding the EFRIS system. While it is designed to streamline transactions and accurately track them, some traders interpret it as an additional tax burden. The lack of understanding about how the system works has led to misunderstandings and discrepancies in reporting.
The implementation of EFRIS has faced its fair share of challenges. Traders were not adequately educated about the system, and the methods of enforcement have been harsh, involving arrests and heavy fines. Additionally, traders argue that EFRIS incurs additional costs since it requires internet access, paper rolls, and sometimes even the employment of someone to operate the machine, especially for illiterate or busy traders.
The misunderstanding and opposition to the system can primarily be attributed to poor sensitization, traders’ ignorance, limited understanding of tax regulations, and the fact that the EFRIS system is only available in English, excluding traders who are illiterate.
The main issue revolves around the electronic calculation of Value Added Tax (VAT). Previously, VAT relied on estimation and informal agreements with URA representatives. However, with the introduction of EFRIS, which records every transaction, traders feel uncertain and opt for the traditional estimation approach. It is important to note that the previous VAT system allowed for negotiation, potentially leading to underpayment and tax evasion.
The fines imposed by the URA for non-compliance with E-receipts are substantial. Traders operating without EFRIS may face fines of up to UGX 30 million, with an additional penalty of UGX 6 million per invoice or receipt not issued electronically.
Non-compliance with EFRIS registration and consistent usage may stem from intentional tax evasion, system failures on the part of the URA, power outages, and other factors. The EFRIS system assumes stable power supply to operate effectively.
The unavailability of EFRIS for all traders causes a disparity in pricing, favoring wholesalers who are not on the system. This discrepancy makes it challenging for other traders to compete on a level playing field. As a result, commodities are cheaper outside Kampala, where EFRIS has not been fully implemented.
When transactions occur outside the recorded system, discrepancies arise between the cash exchanged and the records. Undisclosed transactions lead to lower recorded purchase prices and higher recorded sale prices, inflating profits. Although this may initially seem advantageous, it eventually leads to overstated profits and taxes.
The issue of middlemen, often referred to as “Bayilibi,” poses a significant challenge to tax collection. In the central business district, informal transactions are prevalent. While some businesses adhere to tax assessments, others exploit loopholes due to inadequate record-keeping and infrastructure challenges. Consequently, tax assessments may inaccurately reflect actual sales, leading to either lower or higher tax payments. In such instances, a single transaction is recorded twice, falsely inflating profits. Middlemen usually work for commission and do not possess taxable capital.
Another concern raised is the high cost of the EFRIS machine, which is sold at UGX 5,000,000 by the URA. Traders argue that the tax collector should have provided these machines for free.
It should be noted that the system can be supported by smartphones and cheaper printers, but the URA focused solely on selling expensive machines and did not educate traders about more affordable options. The presence of systematic corruption within the URA has hindered the proper functioning of this system. Field agents provide abnormal estimates to taxpayers, referring them to managers who still charge exorbitant amounts of money under the guise of helping them avoid high taxes, all in exchange for a percentage.
Despite these challenges, the EFRIS system still holds great potential for both the government and traders. It enables traders to track and maintain accurate records of their businesses, while aiding the government in streamlining the business community and facilitating better planning.
In East Africa, e-invoicing and tax compliance have been successfully adopted by Tanzania, Kenya, Burundi, and the DRC, yielding positive results for both the government and traders. The VAT rates across East Africa have become almost uniform, with Tanzania, Rwanda, Burundi, and Uganda charging 18%, while Kenya is at 16%.
To address the issues at hand, the government should focus on improving sensitization and enforcing tax laws, along with implementing standardized reporting procedures. Accurate categorization of businesses is crucial to ensure fair taxation, and accountability should be emphasized for agents collecting and remitting taxes on behalf of others. The confusion caused by agents who charge traders inflated fees for rented spaces needs to be resolved. Providing clear explanations and education about new tax systems should take center stage in the URA’s activities to alleviate misunderstandings and resistance.
