By Trevor Lukanga

I recently attended a training for the Small and Medium Enterprises in the Oil and gas sector organised to build capacity for Ugandan businesses in this space. Some of the revelations were surprising whereas others remained mundane issues that could probably be resolved after a series of consultation. The issue of businesses running into cash flow constraints may not be unknown to many of us especially if you do business with the Government. However, from a private sector perspective, the fact that it may also take as long as 180 days before an invoice is paid is unsettling.

As expected, it’s difficult to be in such a forum and you will not hear someone mention the tax burden on business. And what was it this time? You guessed right, the Electronic Fiscal Receipting and Invoicing Solution (“EFRIS”). EFRIS is a business solution developed by the Uganda Revenue Authority (“URA”) to record taxpayers’ transactions and ensure that this information is shared with the URA immediately. The EFRIS intentions are good and will surely help the country in mobilising revenue as envisaged in the just concluded Domestic Revenue Mobilisation Strategy (“DRMS”) that ended on 30 June 2024.

The challenge though is in the cost of implementation and getting buy-in especially from the supposedly “informal businesses”. We have seen a meeting between the President and the traders on this EFRIS matter not yielding much and the sequel seemingly about to happen but just not yet.

In this current environment where the URA is increasingly digitalising all its processes and systems, a best in class, when compared to most regional peers, it’s imperative that the URA moves in tandem with the taxpayer they intend to serve. EFRIS therefore presents a very good opportunity for the URA to work closely with taxpayers on this digitalisation journey. The URA has made efforts to do this by showcasing the EFRIS benefits such as fast-tracked tax refund claims, prefilled tax returns which minimise costs of preparing tax returns, EFRIS seen to eliminate loss of physical invoices etc.   

Whereas EFRIS gives taxpayers the above advantages, more impact may be achieved by automatically exempting the EFRIS registered taxpayers from 6% withholding tax (“WHT”) and 6% Withholding Value Added Tax (“WHVAT”). Other exemption criteria may be used for non EFRIS registered taxpayers. This will go a long way in addressing the cashflow challenge that businesses face because it leaves them with a 12% (6% WHT and + 6% WHVAT) cash tax saving which they will no longer offset against future liability as is the current case.

EFRIS information may be used for analysing income tax, WHT, VAT, excise duty and stamp duty in some instances. This represents information on 83% (5/6) of the domestic taxes collected by the URA excluding Pay As You Earn. Additionally, using the e-tax information, the URA already has knowledge of who has filed, paid and has outstanding tax on their ledger. So why not, for a start, use EFRIS registration as a one standard measure for 6% WHT and WHVAT exemption for those that registered for EFRIS? If registered for EFRIS, taxpayers could be automatically allowed this exemption and probably struck off the exemption list on an annual basis if they fail to comply with their tax obligations. Such an incentive may foster trust, genuine concern and interest from the URA to see the taxpayers thriving. Based on the training feedback, this does not seem to be the case currently.

A URA Public Notice issued on 18 April 2024 for FY 2024/2025 WHT exemption had a checklist of 23 requirements. Of course, for some taxpayers all requirements are applicable whereas this may not be the case for others. To emulate a tax policy and administration that is simple, fair and promotes citizen welfare as was laid out in the DRMS, shouldn’t EFRIS registration for this exemption purpose? For those taxpayers not eligible for EFRIS registration another simplified compliance checklist may be used by the URA.

Another question goes begging, if EFRIS prefills the VAT returns and therefore URA has good insight of the taxpayer’s output tax on sales, why should a taxpayer who is registered for EFRIS be subjected to WHVAT? Under the EFRIS system (unlike in the past where the URA did not have real time awareness of taxpayers’ transactions), the taxman has full knowledge of the sales made by various EFRIS registered taxpayers. So why should agents deduct 6% WHVAT on sales already known and declared to the URA under EFRIS? In instances where a taxpayer offsets WHVAT in the subsequent month of making taxable supplies, a taxpayer is forced to look for money from other sources to top up 6% WHVAT that was withheld by the agent and remained unpaid at the time of filing. This means in addition to investing in installing EFRIS, such a taxpayer inadvertently lends money to the government at an interest free rate whenever they offset WHVAT in the subsequent months following the month of making taxable supplies.

Borrowing from the legal principle of presumption of innocence, can the taxman presume that an EFRIS registered taxpayer is “clean” and therefore incentivise them with an automatic 6%, WHT and WHVAT exemption not until proven guilty? This gesture may not immediately win more taxpayers onto EFRIS. However, a genuine need for partnership with taxpayers would have been demonstrated and that’s more important and sustainable for domestic revenue mobilisation. 

By Trevor Lukanga- Associate Director, Tax – PwC Uganda