Has Efris been able to combat VAT fraud?

The Uganda Revenue Authority has been up in arms with traders engaging in Value Added Tax (VAT) invoice trading.

In 2023, alone, so far, over 10 tax consultants found engaging in this tax fraud scheme have been arrested and prosecuted at the Anti-Corruption division of High court.

Over the years, URA has registered a poor performance in VAT collections. In the first quarter of 2022/2023 financial year, for example, the VAT collections were at a paltry Shs 761.69 billion yet, in comparison, Pay As You Earn (PAYE) contributed a total of Shs 901.13 billion.

This in itself is an indicator of a problem given that VAT is a consumption tax that would outperform other tax heads since Uganda consumes a lot of taxable supplies.

The poor VAT performance has been as a result of continuous invoice trading which, according to URA, has led to revenue loss estimated at over Shs 28 billion a year.

VAT fraud manifests itself through numerous cases of sales suppression/under declaration of sales, non-issuance of tax invoices in some cases, over issuance of invoices on other cases, false refund claims and fictitious purchases with no movement of goods or services among others.

In Uganda, it is easy to encounter a scenario where, while purchasing from a supermarket, a seller asks whether you need the goods accompanied with a VAT receipt but at an extra charge or an ordinary receipt at a lesser charge for the same price.

This is indicative of VAT fraud. The reason as to why tax on PAYE outperforms VAT even when most Ugandans are either unemployed or paid below the taxable threshold is because of the significant invoice trading that leads to VAT revenue loss.

Invoice trading is basically a VAT fraud scheme engineered by taxable persons who manipulate the value addition chain by creating and issuing fictitious invoices in order to claim more input tax credit in their businesses than has been actually incurred. This is as a result of several loopholes in the VAT system operated by Uganda.

Ordinarily, VAT is supposed to be a self-policing mechanism that allows registered persons to claim an input tax credit for the VAT they incur when they make purchases for sale in their businesses. In other words, a person in a business that is charged and subsequently pays VAT, is allowed a refund of that VAT since VAT is born by the final consumer, and not the person in business.

For one to claim this input credit, they must be registered for VAT. The VAT Act provides that a person who makes taxable supplies and has a threshold of above Shs 150 million per annum or Shs 37.5 million per quarter must register for VAT.

A registered person claiming the refund is then required to justify the claim with proof of payment through original invoices and receipts backing the transaction. These invoices also have to be backed by a systematic cash or bank trail of money moving from the person claiming to have incurred the VAT to the person that issued the invoices.

Several VAT transactions occur across the country over a taxable period of one month and URA does not have the manpower to verify all these transactions let alone the invoices issued.

This presents a loophole that fraudulent taxpayers have exploited to erroneously manipulate the system and claim refunds even where no transaction leading to the issuance of the invoices has taken place. In some cases, the taxpayers undertaking invoice trading pay lots of money to obtain the fictitious invoices to use in evading taxes.

In order to combat this fraud, URA introduced an electronic system that can verify and issue easily traceable invoices for use in people’s businesses.

The Electronic Fiscal Receipting and Invoicing System (Efris) was introduced to improve business efficiencies and reduce the cost of compliance through improved recordkeeping among taxpayers and to prevent administrative inadequacies in verifying receipts and invoices issued by taxable persons.

Efris is an automated compliance system introduced by URA to manage the issuance and centralized tracking of all invoices and receipts by specified taxpayers in Uganda. VAT-registered taxpayers are required to use Efris to issue e-invoices or e-receipts for every transaction they undertake.

The introduction of Efris in 2020 has been able to curb VAT fraud, albeit to a smaller extent since its usage hasn’t been embraced by everyone. Efris invoices are issued electronically and any issuance affects the inventory and stock movement in a person’s business.

This provides real-time tracking of movement of goods and provides URA a chance to follow the trail of money alongside the goods. URA can thus easily tell whether one is under declaring their sales or overstating the input credit in order to collect unjustified refunds.

A registered person that does not issue e-receipts or one who issues unfiscalized receipts is not only penalized but might also be struck off the VAT register. With Efris in place, URA might be able to end the revenue leakages resulting from VAT fraud.

nahumuzad55@gmail.com

The writer is an advocate of the High court and a tax expert