Unpacking the new VAT E-filing system

Governments across the globe rely heavily on tax revenues to finance their budgets and grow their economies. The bulk of taxes collected are used to finance infrastructure projects, provide health services, education, security, law enforcement among other services to their citizens.

Among numerous taxes that governments collect, Value Added Tax (VAT)is paramount. This tax is levied on the price of goods and services.

In some countries, this type of tax is also known as Goods and Services Tax (GST). Consequently, VAT is a consumption tax, which means it is the consumer that bears the cost.

Consumers may wonder how the government collects VAT in Tanzania. As a consumptive tax, Tanzania Revenue Authority (TRA) uses businesses issued with a VAT registration number as agents to collect VAT from consumers and submit monthly.

For instance,if a consumer makes a purchase in an outlet, the outlet will prepare a VAT return indicating all the sales made and VAT collected against all purchases during that period as required by the law and submit the VAT return by the 20th day of the following month.

Previously, VAT returns were filed manually, which was administratively tedious and time-consuming. However, in 2010, TRA introduced the electronic VAT return filing,with the aim of improving the filing process. In my view, this was a good move though it has had its fair share of challenges and has required continuous improvement to enhance its efficiency.

The old e-filing system failed to issue assessments or provide notifications to taxpayers such as notifications on the deadline for filing VAT return.

It could not confirm the accuracy of the invoices and receipts used to claim input tax. Additionally, it could not compute penalties for late filing and interest for late payments. Therefore,most taxpayers found it problematic to use.

Additionally,it had features that made the user experience difficult such as specific date formats that posed challenges whilst filing a return if a taxpayer used a different format.

In February 2022, TRA introduced a new VAT electronic filing system in a bid to address most of challenges of the old system. Some of the features that came with the new system include a schedule that provides the opportunity to make corrections to the VAT accounted for in previous months.

For instance, if the VAT previously accounted for by a supplier is less than the VAT due or vice versa, then the necessary adjustments on the noted difference can be done.

Equally important,the new system allows corrections of minor errors. This is done along with writing a letter to the Commissioner General informing him of the corrections.

For example, after filing a VAT return, and upon realisation of a wrong entry on local purchases,for instance instead of indicating Sh988,000 a minor error of Sh899,000 is recorded, this can be corrected. However minor corrections should not exceed Sh1,000,000.

Moreover,the new system has a provision for a taxpayer to include VAT on goods and services procured prior to registration which relate to a period of within 6 months before they became VAT registered persons.

Similarly, upon deregistration, a taxpayer is to be able to make adjustment in the VAT return. In the event of unpaid supplies that are overdue for 18 months or more and the debt has been written off in the books of accounts, the supplier can reduce the amount of VAT whilst the customer can increase the amount of VAT.

Furthermore, the new e-filing VAT platform has catered for input tax apportionment for the taxpayers with both exempt and taxable supplies. Exempt supplies are the supplies where the supplier is not required to charge VAT, while taxable supplies are supplies where the supplier charges VAT on them. An example of a business with both exempt and taxable supplies is a pharmacy selling both medicine and cosmetics, medicine are exempt supplies and cosmetics are taxable supplies.

The new system has also incorporated schedules that capture Government Electronic Payment Gateway (GEPG) using control numbers; a schedule for wharfage charges which use bill numbers and a schedule for deferred capital goods.

It is important to also note that every new system has its own challenges, and the new VAT E-filing system is no exception. Most taxpayers are likely to encounter two major challenges with regards to the functionality of the new system. On the GEPG/Bank receipts schedule, the system requires a specific date format. This challenge, as it was in the old system, makes it difficult for taxpayers to upload the forms, and so it is important that taxpayers are made aware of the date format required by the system.

Another major challenge is the time it takes to access the system. Regrettably, it is not easy to successfully login on the first trial.

The system is extremely slow, and one is required to dedicate considerable amount of time to login, before successful login can be achieved, and the form uploaded.

I believe that TRA is aware of these challenges and is working on remedial measures to resolve them. I anticipate that once these challenges are addressed, the system will function seamlessly to the benefit of taxpayers.

Prisca Mitanda ([email protected]), a tax advisor at KPMG in Tanzania.The views expressed here are the author’s and do not necessarily represent the views and opinions of KPMG.