The Government through the Tanzania Revenue Authority (TRA) introduced Electronic Fiscal Devices (EFDs) in the Finance Act, 2010 to replace Electronic Cash Registers with the main aim of enhancing VAT compliance.
This was an important decision which will enhance collection of VAT by TRA.
During the short period of the operations of the EFDs i.e from October 2010 to March this year, taxpayers have been lamenting due to several challenges which significantly affect the VAT registered traders as summarised below:
We understand that the introduction of Electronic Fiscal Devices (EFDs) was aimed at enhancing voluntary compliance and ease operation of the VAT law by TRA tax officials.
Before the introduction of Electronic Fiscal Devices, TRA and six selected EFD providers trained some stakeholders including tax consultants, taxpayers and tax assessors. However, it has been observed that the training period was not adequate as most of the taxpayers are still in darkness with regard to the management and effective use of EFDs in their business.
TRA could have provided the grace period to determine effectiveness of EFDs in the country by carrying out a pilot project and they could start by a selected category of taxpayers to use EFDs before it is used by all other VAT registered taxpayers.
EFDs in Kenya is very effective as they provided grace period by introducing EFDs to supermarkets stakeholders, all weaknesses identified with regard to EFDs were settled and then EFDs was extended to all other VAT taxpayers.
Taxpayers are of the view that, the selected suppliers could have been well placed to ensure that all VAT registered persons are well served and EFDs installations would be in order.
Unfortunately most of taxpayers are facing problems with the process from the point of ordering up to the installation stage.
The process can even take more than a month to get the gadget fully installed.
Taxpayers with EFDs are also complaining that the machines are not working properly as expected and as advocated by TRA.
Taxpayers fail to send the report to TRA within the prescribed period like submission of a summary of sales report—printout generated by an electronic fiscal device on daily, monthly, or annually basis (Z report).
This is likely to create problem to both TRA and the taxpayers as TRA may regard this as an offence committed by the latter.
Most of the taxpayers are also faced with the problem of EFDs software against their accounting packages as the EFD software is not compatible with taxpayers accounting packages.
EFD suppliers could have examined how the softwares can be installed without affecting accounting packages of taxpayers.
EFDs regulation allows a taxable person to claim the initial purchase cost of the machine. However one can think that since it allows the initial purchase cost to be borne by the government then all taxable persons must have these machines regardless of their supplies.
Mining exploration firms do not have taxable supplies but they are registered for VAT.
These companies do not issue tax invoices as they are not yet in the production stage.
Given the situation, it is irrelevant to utilise funds to purchase an EFD machine that you will not use for a long time.
It has been noted that taxable persons in these sectors are verbally informed by TRA not to purchase EFDs. But this is contrary to the law because equity is one of the cannons of a good tax law and therefore all taxable persons in this nature/sector could have been covered by the law at the inception stage of the EFDs.
Again, the EFD regulation requires every registered person to demand and retain a fiscal receipt or invoice when purchasing goods or services from suppliers.
It has been announced by TRA that it would not admit VAT refund claims if the taxable person is not in possession of fiscal invoices as this might create problems between TRA and taxpayers.
You will find that a taxpayer is not in a position to issue a fiscal receipt from EFDs due to the EFD machine problem and therefore the purchaser will not get a fiscal receipt other than the normal tax invoice which has been issued by the taxpayer before the introduction of EFDs.
It has also been noted that, fiscal tax invoices are not durable as they are not readable after a short period and this will create problems in future to cross check against a taxable person purchases as it will be cumbersome.
In my opinion, EFD providers should rethink and come up with more durable materials with regard to fiscal invoices and Z report.
It is unfortunate that TRA take all these shortfalls as an offence to the taxpayers and imposing penalties as it can be observed to most of the regional offices.
TRA could have considered the reasons and causes of the failure encountered by taxpayers who have installed and used EFDs rather than rush into conclusion and start imposing penalties to the same, for this is quite unfair to the taxpayer.
TRA should analyse the effectiveness of EFDs for the period that the machines have been used and rework on all shortfalls identified to streamline the uses of the same.
The tax authority can still provide a grace period with regard to EFD machines to ensure that they are efficiently and effectively used by both TRA and taxpayers.
Beatrice Aloyce Melkiory is a tax manager with Ernst & Young.
The views expressed above do not relate to the firm.