EFRIS: When technology trumps the law

Writer: Phillip Karugaba. PHOTO/COURTESY/FILE

What you need to know:

  • URA must adhere to established legal interpretations regarding penalties. 

We have seen the rise of technology across the different sectors. We saw it in the company’s registry, with OBRS (Online Business Registration System). We saw it in the courts too as ECCMIS, (Electronic Court Case Management Information System). It is also in the lands office as National Lands Information System. 

It is like a conspiracy against us digital dinosaurs ‘born before computing’. While heralded by law, these technologies intended to streamline administration and improve compliance, soon become tyrannical. Stories abound with each of these technologies imposing new requirements outside the law.

Who is EFRIS?
EFRIS (Electronic Fiscal Receipting and Invoicing Solution) is another technology implemented by the Uganda Revenue Authority (URA), with the same laudable aims of all the other technologies, to streamline administration, and improve compliance.

EFRIS goes beyond simply replacing traditional paper invoices. It records business transactions in real-time, transmitting details to the URA for instant verification and generation of e-documents. This offers significant advantages for both tax authorities and businesses.

However, while URA portrays EFRIS as a well-intentioned system solely focused on tax collection, paying close attention to the traders’ cries reveals this is the same technological tyranny again.

The system is simply doing its thing much to the delight of the URA, who have added some transgressions of their own. Here are some choice picks. 

Penalties beyond the law
The Tax Procedures Code Act (TPCA) prescribes a penalty equivalent to the tax due or Shs6 million for not issuing e-invoices/receipts or tampering with EFDs. Court cases like Embassy Supermarket vs URA, and Jazz Supermarkets Ltd vs URA have established that these penalties apply per tax period (i.e. monthly for VAT) and not per invoice or per day. However, URA routinely imposes daily penalties for default.

Cash basis accounting restrictions
The Value Added Tax (VAT) Act allows qualified taxpayers to utilise cash basis accounting. This means the taxpayer only pays VAT when he receives actual payment for goods or services sold. This is different from accrual basis accounting where VAT is payable when the invoice is issued or goods supplied. Cash basis accounting is a useful option for businesses, with a taxable supply below Shs500 million who often face cash flow challenges.

However, ‘the system’ currently restricts cash basis accounting only to suppliers of the government. Unnecessary barriers to approval of credit notes the VAT Act permits adjustments through credit and debit notes for cancelled or altered transactions.

For instance, a customer changes his mind about the supply of goods or services, the original fee or cost is discounted, or say an invoice has to be redirected to another entity.

The system, however, now requires URA approval for issuing credit notes. 

Disregarding legal time frames 
The TPCA stipulates a 28-day window for penalty payments after issuance of the penalty. However, ‘the system’ again provides only three days for EFRIS penalty payments. 

URA officers have been reported to stop customers exiting a business premise with their purchases and demand EFRIS receipts, threatening penalties if the customer does not have an EFRIS receipts.

For this one, ‘the system’ is innocent. It is URA that is being tyrannical. There is no law in Uganda that obligates a customer to demand for or retain a receipt for his transactions. 

Towards a more effective EFRIS
URA must adhere to established legal interpretations regarding penalties. Penalties should be applied as per court rulings and TPCA provisions.

EFRIS should be modified to allow cash basis accounting for all qualified taxpayers, not just government suppliers. The EFRIS system should automatically recognise and process adjustments made through credit notes, eliminating the need for unnecessary URA approval.

Respecting timeframes for penalty payments URA should adhere to the 28-day window mandated by TPCA for penalty payments, allowing taxpayers sufficient time to consider and respond to the charges.

Instead of heavy-handed enforcement tactics, arising from a presumption that all taxpayers are dodgers, URA should focus on promoting EFRIS through incentives.

The EFRIS rebate provision in the VAT Act can be made more accessible by lowering the spending threshold from Shs5m to a more achievable amount like Shs200,000 per month.

The writer, Phillip Karugaba, is a lawyer