Is EFRIS a necessary evil?

EFRIS is a real-time invoicing system that was implemented by the URA in 2020. This system enables the URA to instantaneously receive taxpayers’ sales details at the point of conducting the transaction or shortly thereafter. The system, therefore, allows the tax man to track all the invoices and receipts by taxpayers through their unique Tax Identification Numbers (TINs) thus curbing revenue leakage and widening tax base.

URA designed several EFRIS platforms to facilitate the issuance of electronic invoices such as the use of the web portal, linking of taxpayers accounting systems to URA’s system, as well as use of Electronic Fiscal Devices. EFRIS is also utilised as a record-keeping tool by taxpayers engaged in the supply of goods. It accomplishes this by providing a stock management functionality, which logs incoming stock purchased locally or imported, outgoing stock sold to customers in addition to invoice issuance and receipt records.

Who is required to use EFRIS?
When EFRIS was first introduced, URA communicated that the use of EFRIS was only mandatory for Value Added Tax (VAT) -registered taxpayers in 2020 through a Gazette Notice No. 595 published on June 23, 2020. Many businesses such as manufacturers, professional service providers and supermarkets that were already VAT registered were subsequently enrolled onto the EFRIS system and commenced mandatory issuance of electronic invoices on January 1, 2021. 

Traders’ plea – Is it legitimate?
Since the use of the EFRIS platform is mandatory for VAT-registered taxpayers, a business may only worry about EFRIS if it is already VAT registered or if it is required to register for VAT due to meeting the registration threshold. The annual VAT registration threshold is Shs150 million. 

This means businesses making sales of Shs12.5 million per month (approximately Shs410,000 per day) must register for VAT and start issuing electronic invoices on all sales to their customers using the EFRIS platform. 

Traders, landlords, and small businesses who meet this threshold are required to register for VAT and also start issuing electronic invoices using the EFRIS system. 

As an example, assume a wholesale trader buys a bag of sugar from Kakira at Shs95,000. The Shs95,000 is inclusive of VAT of Shs14,491. This means the trader has paid Shs80,508 for the sugar and VAT thereon of Shs14,491. Based on the EFRIS invoice from Kakira, the trader will be able to claim a credit of Shs14,491 in their VAT return. This will reduce the VAT payable by the trader to URA in that month. 

At the point of selling the bag of sugar, the trader is required to add any additional costs incurred and his margin to the Shs80,508 to determine the new base for computing VAT. At this stage, let us assume that the trader incurred loading costs of Shs2,000 and added a margin of Shs2,000. The new base that he should use to compute VAT is UGX 84,508 at the point of selling sugar to his customers (retailers). This means he will sell the bag of sugar to the retailer at Shs99,720 ( that is at Shs84,501 and VAT thereon of Shs15,212). 

If the retailer is not VAT registered, then he will bear the VAT cost since he is not able to claim a credit for it. However, if the retailer is VAT registered, his base for computing VAT will now be Shs84,501, and he will claim a credit for the VAT of Shs15,212 paid to the wholesaler.

The URA has the mandate to register businesses that meet the VAT registration criteria if they do not register voluntarily. Forced VAT registration is followed by mandatory EFRIS registration. The taxman may then penalise the business for late VAT registration and failure to issue electronic invoices. 

Opportunities presented by EFRIS
As with any new system, the need to sensitise the traders on the use of the EFRIS platform cannot be overlooked. The use of the system comes with the requirement for businesses to train personnel on the use of EFRIS as well as investment in data and system installation, depending on the mode of EFRIS operation that may be adopted by the taxpayer. In addition, since many traders source raw materials/stock from non-VAT registered persons, they will not be able to get the benefit of claiming input VAT.

In addition, there is still a conflict on who is required to register for EFRIS since taxpayers are denied a deduction for expenses in their income tax returns where purchases of goods/services are not supported with electronic invoices (e-receipts). This means even though it is not mandatory for  non-VAT registered persons to issue electronic invoices, they need to provide e-receipts to their customers so that the customers can enjoy a deduction in their respective income tax returns. This calls for alignment by the Government.

However, the system also presents some opportunities such as improvement in record keeping and stock management as well as ease in VAT return filing based on the pre-filled tax returns. This also eliminates the risk of physical loss of tax invoices as copies are digitally stored in the system.

As traders start to become aware about EFRIS and its functionality, URA should consider more lenient onboarding procedures such as waiving penalties on businesses that have already reached the VAT registration threshold but are not registered for VAT. 

The taxman should also consider a more rigorous sensitisation program on how the multi-stage VAT system works and how to utilise tax credits along the supply chain to encourage more traders to comply and get on board.

 Juliet Najjinda is a senior manager, of indirect taxes at PwC Uganda.