Beware of electronic fiscal device risks

Electronic fiscal devices (EFDs) have been in Tanzania for about eight years now. Generally, there are three kinds of EFDs current in use in Tanzania. The electronic tax register (ETR), which is standalone EFD for issuing fiscal receipts. The electronic fiscal printer (EFP), is a printer connected to a point of sale (POS) system and it also produces receipts. The third kind is electronic signature device (ESD) which is intended for use by business issuing tax invoices from a computerised system. ESDs do not produce receipts but put a string of alphanumeric characters (a signature) on an invoice. The eight years of EFDs use in Tanzania provide an important experience to taxpayers and the Tanzania Revenue Authority (TRA)— both positively and negatively.

This article seeks to highlight two tax risks to taxpayers related to EFDs. Taxpayers, need to be aware of these and other tax risks for a proper management of them.

Unreported errors

There is always a risk that an error can be made when using an EFD. Suppose you have sold a product of worth Sh10,000 but inadvertently punched 10,000,000 in your ETR. There are already incidences where an operator at a fuel station punched a trillion sale instead of thousands! There are also errors related to tax categorisation of products. An “exempt” product sold as a “zero-rated” product.

One of the key features of EFD is that you a taxpayer (user) cannot erase an error. Making an error in itself may not be a big problem. But what you do to realize if errors have been made. And what do you do once you have realized that an error has been made? These two are critical questions. If there is no daily or monthly checking of the numbers and z-reports generated from your EFDs, it will be difficult five years later for you to reconcile the EFDs records with your other sales records. It is also a good practice to immediately report the errors to TRA once identified.

Stolen identity

Despite the usefulness of the EFDs system, it appears that there are still some loopholes that fraudsters can use to their advantage. Do you know how many EFDs have been registered under your name (TIN number)? Your identity may be stolen and you may not be aware until TRA comes for an audit or they raise an enquiry. Someone may fraudulently register an EFD under your name and use it to make his own sales. The problem is that the amount of sales from EFD Management System (“EFDMS”) will be higher than your other records like the VAT returns. It is becoming a common audit practice by TRA to require a taxpayer under the audit to reconcile other sales records to what TRA sees in the EFDMS. This way, you may end up paying tax on sales that you have never actually made!

Understandably, this risk is very difficult for a taxpayer to detect. And most customers do not bother to securitize the names or TIN numbers in the receipts issued to them. So, a periodic confirmation on the status of your EFDs with TRA may be helpful.

Administrative reforms

EFDMS can be improved to help taxpayers address some of the EFD risks. Taxpayers with EFDS can be given a read access to the EFDMS. This will allow them to know the number of EFDs under their names. It will also give them access to their sales records (similar to “bank statements”). This way, taxpayers can perform periodic reconciliations. This will help seal the possible revenue leakages from fraudulent use of EFDs.