City traders to close shops over tax row

The tax body and Kampala traders are at cross-roads over implementation of Electronic Fiscal Receipting and Invoicing Solution (EFRIS) for tax collection, prompting merchants to declare a strike to start today.

Uganda Revenue Authority (URA), however, said the planned demonstration is unjustified because they have engaged and explained to traders everything about EFRIS and they simply don’t want to be transparent and tax compliant.

The Federation of Uganda Traders Association (FUTA), a newly formed umbrella entity subsuming Kampala Capital City Traders Association (KACITA), has raised four objections to the automated business record keeping and taxing.

Its Spokesman Moses Lwegaba itemised these to include unfair competition where some foreign investors with factories run outlets, double taxation by URA, brutal enforcement of tax compliance and failure to enrol businesses in the outskirts on the automated tax system.

Information on URA website shows EFRIS entails using Electronic Fiscal Devices (EFDs), e-invoicing and direct communication with “business transaction systems to manage the issuance of e-receipts and e-invoices in accordance with the Tax Procedures Code Act 2014.”

Put another way, once a transaction is initiated using any of the solution’s components, the transaction details would be automatically transmitted to the tax body in real time, resulting in the generation of electronic receipts and invoices.

This system of tax administration had been in use in different countries for years and Uganda adopted it in 2019, spending the first year to orient URA staff before a planned roll-out in 2020 ran into the headwinds of Covid-19 outbreak and disruptions. 

As the dark cloud of Coivd-19 pandemic began petering out in 2020 – the President in April of the same month named John Musinguzi the URA Commissioner General – the tax body after public sensitisation started rolling out the scheme, first to factories and supermarkets with existing sales system easy to interface with URA system.

These were already Value-Added-Tax (VAT) compliant businesses. However, other business segments complained that the new tax administration system was complaint, prompting the tax body headquartered in Nakawa, a Kampala outskirt, to improvise web-based EFRIS.

This was to allow any tax payer with a computer connected to the Internet, or possessing Internet-enabled devices, to easily use EFRIS to stock sales to ease computation of tax liability for their businesses.

The traders, most of them in trading hub of Kikuubo of central Kampala, insisted they were unable to understand the new automated sale records and levy system, prompting URA at the start of 2023 to introduce what URA Commissioner General Musinguzi Desk Top App.

The merchants at the time said they did not have a sales system to install and interface with URA system, essentially seeking a preferential treatment if URA intended to take stock of their daily sales and due taxes. 
This system, Mr Musinguzi said last evening, aimed to provide an application loadable on any desk top computer from where a trader would enrol and input details of their business transactions.

Our investigations show that after initial weeks of trials, traders informed the tax body that they platform was not user friendly, prompting it to develop the Electronic Fiscal Device (EFD) for which traders the traders required the traders each to pay $100 (Shs380,000).

The merchants said they didn’t have that money, prompting URA to contrive a mobile version of EFRIS application downloadable on any smart phone.

Its first piloting in November 2023 was greeted with resistance from Kampala traders whom Mr Musinguzi met in Kikuubo so that he could address their plight. 

Traders told him the taxes, including a new 18 percent above-rent payment that landlord introduced, were killing business while foreign nationals that duped the government claiming to be investors were rivalling local traders on retailing, driving out native entrepreneurs.  

They also questioned the abrasive methods of tax enforcement by URA and what they alleged was double taxation alongside presumptive tax assessment by the tax collector.

Monitor understands that Mr Musinguzi subsequently deployed tax educators to move from shop to shop in Kikuubo hub, supported by armed URA enforcement team who intercepted buyers and load carriers to demand EFRIS receipts between shops or sales points and trucks.

“Why put guns in trading hubs? It is inconveniencing our customers. Some people don’t have to be checked along the way. Many of our customers, especially those from upcountry stations, have chosen to stay away because of this system,” Mr Thadeus Nagenda, the KACITA chairman, told this newspaper yesterday. 

This publication understands that the traders’ disapproval based on a litany of issues, including EFRIS, reached the desk of the President in the a petition and, upon his orders, URA’s Musinguzi and Ministry of Finance Permanent Secretary Ramathan Ggoobi met the Kikuubo traders to hear out their grievances 

The traders repeated to the technocrats their concerns about the 28 percent levy my landlords, the unfair competition with local foreign manufacturers-cum-retailers and EFRIS and higher levies on imported textiles.

The technocrats informed the merchants that the $3.5, or Shs13,000, charged per kilogramme of imported garment was to spur local industrialisation under the Buy Uganda, Build Uganda (BUBU) policy and fast-track value addition to the country’s cotton.

They committed to cascade the other policy concerns to President Museveni, whom State House sources said has agreed to meet the disgruntled traders this month. 

The meeting agreed that the city traderss disquiet about applicable taxes be channeled to Parliament while the unfair competition, coming in the wake of the government’s approval of anti-unfair competition legislation, would to be addressed by the Trade ministry --- which did. 

FUTA’s Nagenda said these engagements notwithstanding, a container full of shirts that used to be taxed Shs150m to Shs180m, is now taxed twice that amount.

“Even when you are willing to pay the taxes, the URA people will delay for more than a week to make an assessment at their offices,” he said.

Under the existing rules, URA says EFRIS-compliant VAT-able taxpayers are businesses with an annual turnover of Shs150m or more. Many traders, however, file tax returns that place them below the minimum threshold, which URA says is an under-declaration.

The taxman said last evening that it found most landlords under-declaring their income from tenant and upon finding out the truth that tenants were paying multiple time more than declared rental charges, some landlord ran back to misinform tenants that URA had imposed an additional 18 percent tax on rental income which was not the case.

This claim coincided with a push by traders against a mobile version of EFRIS, downloadable on smart phones, which URA introduced after the merchants in Kampala said they never understood the desk top computer version and could not afford the Shs380,000 for the Electronic Fiscal Device.

Under EFRIS, the URA and the trader would instantly know daily transactions and tax liability in rental income, Vat and other taxes.  

FUTA Spokesman Lwegaba, who deals in imported shoes, said “if a custome, or anyone, is found along the way without an EFRIS receipt of the purchased item, the officers will seize [the goods] and take them to URA”. 
Traders say the high taxes and collection method has forced customers from neighbouring countries to go to Kenya and China where they buy the same products cheaply.

City traders are opposed to the new e-receipt system, which they claim is inconvenient and its enforcement is chasing away their clients. 

The traders want it immediately halted, but the URA has rejected their demands saying they will implement and collect all taxes provided for in the laws unless amended by the Legislature.

These expressions of defiance, which FUTA’s Lwegaba echoed to Monitor yesterday, first came to light in a crunch meeting between the traders and URA at UMA Showgrounds in Lugogo, Kampala.

There, URA Commissioner General Musinguzi said the traders, who had taken the tax body in circles, finally disclosed that they were simply opposed to EFRIS.

“The truth is that there is a law on which types of taxes to pay, but you can’t refuse to pay it by being non-compliant. If aggrieved, you have to petition to remove the tax,” he told this publication, in response to threats by FUTA that traders in Uganda’s capital will lock shops over taxation from today.

The association had said that EFRIS should apply to manufacturers and distributors who pay VAT, not petty retailers.

“If you go to Kikuubo right now, you will notice that our sales have dropped drastically to the lowest levels. Customers are fearing to lose their goods because of URA enforcement operations,” Spokesman Lwebaga said.

He accused URA enforcement of intercepting and seizing goods from porters who have nothing to do with EFRIS, showing highhandedness by the tax body.

“Importers pay VAT, withholding tax and infrastructure levies once the goods arrive in the country. So subjecting them to EFRIS, where they are charged VAT on the same goods, is double taxation,” Mr Lwebaga said.

Mr John Kabanda, a leader in one of the traders’ associations, said their members are getting challenges to adapt to the EFRIS since most of them have low education levels.

“Many of these traders don’t have skills in computers, which is key in EFRIS. They need training which isn’t being done by URA. At the same time, when traders, who have embraced the EFRIS make a mistake, they are penalised with fines starting from Shs6m,” Mr Kabanda said.

URA boss Musinguzi said nothing his officers are doing is outside the law and he last evening exhorted the traders to pay due taxes and abandon the planned strike.

“There is clearly no merit in the claims … we are open to engagement, let no one mislead the traders into a strike where they will lose business. What is the reason for the strike when we have sensitised them and have continued to listen to them?” he said.

It was unclear when the President planned a round-table with the merchants. The stand-off comes months after Finance ministry, the political overseer of URA, demanded the tax body to close Shs160b tax collection shortfall reported in January 2024. The taxman it reportedly under intensified pressure to realise its local revenue target, barely three months to end of the current financial year. 

Traders strike
List of traders demands
• Stop Electronic Fiscal Reporting and Invoicing System (EFRIS) implementation until traders have been educated about it.
• Reduce taxes on imported garments.
• Uganda Revenue Authority (URA) teams stop violent enforcement of the use of EFRIS.
• Armed personnel attached to URA should not operate in the business hubs.
• Reduce rent on shops in the city.

Previous strikes
• September 1996: Traders strike after the introduction of VAT in Uganda.
• December 2005: Kacita went on strike over URA taxes.
• July 2011: Traders closed shops due to a weak Uganda shilling against the dollar and other foreign currencies.
• January 2012: Traders went on strike over high interest rates on loans.
• April 2017: Traders closed shops over increase in the number of Asians in retail businesses.

Response from government

The state minister for Kampala and Metropolitan Affairs, Mr Kabuye Kyofatogabye, said traders threatening close shops has become an intimidation tactic against the government.

“The matter started way back in 2021 during the Covid-19 pandemic. There was a three-year agreement between traders and the Minister of Finance to ban some materials such as jeans, sweaters because some Chinese had agreed to manufacture them,” Mr Kyofatogabye said.

He added: “You cannot do business by demonstration, business is done by negations and dialogue. They need to reengage URA, then they agree like last time. Some things are agreed. If they close the arcade they will lose out.”
He, however, asked the traders to write a petition to the President to intervene, if all the mechanisms have failed.
“…the issue is between the Investment Authority, Trade Ministry and Finance because we don’t know the agreement they signed. We don’t know the limits of the agreement,” Mr Kyofatogabye said.

On rent and other utilities, the minster asked the government to come up with a clear framework for which the city landlords should charge rent.

“Rent issues are a problem, we need a clear framework to charge rent and some are charging in dollars, and some just wake up in the morning and increase rent. They are misusing liberalisation,” he said.

Mr Patrick Ocailap, the Deputy Secretary to Treasury, said URA needs to educate the masses on the different types of taxes and how it is paid.

“It is unfortunate that we have not managed to educate our traders about taxes, but I recommend they should not close their shops. Most of the taxes, such as the ones in kilogrammes, are being discussed in Parliament and about Efris is an electronic system which tells how much you buy the items and it should be embraced by everyone for proper bookkeeping and accountability,” Mr Ocailap said.

He added: “It helps you to know how much VAT you have paid, when you buy a commodity. The receipt tells the amount of money you’re remitting and retailing. It helps you to account for the money so that you’re not cheated by URA in the end.”

Mr Ocailap said Uganda is the only country which is lagging behind to embrace the electronic receipt system, saying that Kenya is now using merchant code.

“If you go to the supermarket, EFRIS is a better system which brings transparency and keeps a record of the transactions in the business on a daily system in terms of filing the returns. Most of the countries in East Africa have embraced it, we are lagging behind in the region,” he said.