Many business owners started off the new financial year (2020-2021) in panic mode when they were informed of the requirement to implement a new electronic invoicing system named EFRIS. Without prior training, the system was a mystery. Even when the URA embarked on a mass sensitization campaign to educate taxpayers on the features of this new system, the trainings were accessible to a select few members of the public and henceforth EFRIS remained an enigma to many!
While business owners were worried about the implications of using the EFRIS, they were not sure of its impact on their specific business operations. The business owners lurched on several issues which did not make the system favourable to them; a group of supermarket owners applied to the court for a waiver and extension to use the system citing the cost involved. The businesses which are running the Business to Peer model were concerned about the ability to link an online platform to their accounting system to manage stock.
According to URA however, EFRIS is meant to improve business efficiencies and reduce the cost of compliance through improved record keeping among taxpayers and mitigate tax administration shortfalls while promoting compliance efficiency. The intention of the URA is partly to manage challenges such as suppression of sales, non-issuance of tax receipts or invoices, curb false refund claims, fictitious purchases with no physical movement of goods and unverifiable claims by taxpayers due to loss of records.
Like any other system, EFRIS has not come without challenges. The taxpayers who have used the system have faced several challenges notable of which are the following;
The URA introduced a security feature known as “One Time Password” (OTP) which means that only persons with access to a telephone or email contact registered with URA can access the EFRIS portal. The prompt to send the OTP by email or SMS takes a couple of minutes which is a loss of time for users as compared to the manual invoicing. In some cases, the OTP is not sent to the users at all and has to be prompted several times. This is inconveniencing since the EFRIS portal cannot be accessed without the OTP.
In addition to this, the OTP expires after a specified period (24 hours) which means the taxpayer has to request another OTP almost every time they log in. Whilst the OTP is a great security control, most of the contact persons of the URA accounts are not exactly the people charged with the responsibility of generating invoices and credit notes. If the OTP has to be resent to another user via SMS or email, then it ceases to be convenient for users and also defeats the purpose of the security as the re-sending of the SMS or email which is not encrypted may land in the wrong hands.
A more suitable approach is to grant access as it happens for customs agents to a registered agent or person with the right to make decisions on behalf of the company. This access can be set-up to run for months or weeks in the case the owner of the account and the user are not the same. Alternatively, the contact person for the EFRIS should be set up differently from the contact person managing the URA web-portal account so that each of the recognized users can log in under their capacity and personalized credentials without inconveniencing the account owner or compromising the OTP security.
A question worth asking is whether the URA web-portal is perhaps not sufficiently protected or what necessitates the e-invoicing platform to have an extra security feature on its part in the form of the OTP, unlike the URA web-portal.
The e-invoicing system requires that taxpayers identify the products or services they deal in from the URA’s pre-set database, which poses some challenges. Businesses in Uganda today are very innovative and package their services or products to customers in unique ways that may not have been provided for in the URA’s database. An example is the long-term lease of motor vehicles and motorcycles. Much as the system provides for renting of such items, the two types of products are different. It is therefore hard to assume that the URA’s database of products and services categories will be exhaustive and a certain level of flexibility should be provided for taxpayers to describe their products.
Additionally, the search function on the database should be improved to return categories with the keyword searched and ease the process of finding the right classification where the products and services fall during the stock configuration process.
The e-invoicing system is structured to limit a taxpayer from issuing an invoice without affecting inventory, where goods are involved. This structure is a challenge for taxpayers whose selling strategy is to receive payments in instalments. According to Section 14(3) of the VAT Act, a taxpayer is allowed to charge VAT on an instalment basis. The EFRIS has no provision for splitting the sale into smaller units to enable the taxpayer to bill for the respective instalments. For each fee note raised by the taxpayer, a product moves to the sold category from the stock which is not a realistic approach, for instance, if you have to sell a motorcycle on hire purchase, you will have to raise a tax invoice at the point when the initial instalment clears to ensure that the product moves out of the stock.
What happens to the consequent 20 tax invoices you have to raise as part of the payment of the motorcycle?
It is also evident that the URA needs to harmonize the classification of the products and services on the EFRIS database to align them with the taxpayer’s unique service or product packaging. As an example, software sold to clients as a service is configured as a good on the e-invoicing system, thereby requiring information regarding inventory levels which is not applicable. A tribunal to assess the classification inconsistencies should be put in place to address the configuration challenges.
The system also poses to be a challenge for taxpayers who operate a Just-In-Time (JIT) transaction, model. As a way to harness operational efficiencies, some businesses only purchase inventory after the prospective client has ordered and paid for the product, which payment is against an invoice. Recall that you cannot generate an invoice on the e-invoicing platform without a stock level above 0. This set up is bound to be an operational challenge for taxpayers with such a transaction model.
There is no flexibility in choosing which service or product is vatable or not on the side of the taxpayer. For services like hotel accommodation where the VAT rate applicable changes by the location of where the service is offered in Uganda as introduced by the amendment to the Second schedule paragraph 1 c (iii) of the VAT Act Cap 349, it is yet to be understood if the system is suited to such variations.
The public also generally worries about the exposure risk of business information like costing and stock details. The e-invoicing requires detailed information that is usually the only privy to management such as cost allocation. Declaring this information may affect the competitive advantages of businesses in circumstances that it is leaked. This worry in one way or another has affected how the taxpayers receive the developments of the e-invoicing system.
Additionally, as a matter of suggestion, the e-invoicing system could be set to advise the taxpayers’ suppliers on the invoices/services that qualify for WHT and the applicable rate in the same way it was set-up for VAT. We presume this would improve WHT compliance.
We believe that the EFRIS will be very beneficial to the taxpayers, the revenue authority and the country at large and we hope that with the extension of the effective date of use, the URA will be able to address most of the queries that were raised by the taxpayers.
We recommend that all users that have had challenges and issues with the system should address them to the URA within the next three months to avoid inconveniences.