ETS: Manufacturers turn up the pressure, TRA responds

Dar es Salaam. The electronic tax stamps (ETS) controversy has refused to go away, with major private sector players continuing to bemoan what they say are exorbitant costs they incur by using the monitoring system. The Tanzania Revenue Authority (TRA), however, says efforts to find a solution are ongoing.

Tanzania’s largest manufacturing entities say the amount they send to Switzerland in the form of ETS charges is high, but the taxman maintains that the government has always engaged them (manufacturers) on all processes regarding the stamps.

One of the processes is the tender award for providing the ETS service. In this aspect, manufacturers say TRA is being ponderous in completing the tender process that would result in finding a supplier for electronic tax stamps with affordable prices.

TRA’s response

In its response to concerns raised by manufacturers, TRA told The Citizen in a statement that after the introduction of the ETS system to “effectively manage exercisable goods like tobacco, beer, wines, spirits, fruit local wines, bottled water, soft drinks, and juices in 2019”, it has cooperated with all key stakeholders related to the system.

“Over the period, the most notable concerns raised by the key stakeholders (manufacturers) are on the prices of the stamps, the charging of the prices in foreign currency (USD), and general complaints over the whole tendering process that awarded the tender to the current supplier, to mention a few,” TRA says in a statement shared by the director for taxpayer services and education, Mr Richard Kayombo.

He was responding to a resolution that was reached at a recent meeting between the chief executive officers (CEOs) of the largest manufacturers and the Confederation of Tanzania Industry (CTI).

During the meeting – which involved the CEOs of Tanzania Breweries Limited (TBL), Coca-Cola Kwanza, TCC Plc, Serengeti Breweries Limited (SBL), Nyanza Bottling, SBS Pepsi, Bonite Bottlers and Bakhresa Group on one side and CTI board chairman Paul Makanza and executive director Leodegar Tenga on the other – manufacturers said ETS price continued to increase the cost of operations due to their high costs.

They also expressed their dissatisfaction with what they say is TRA’s dillydallying in completing the tendering process to pick an ETS supplier that would not “milk manufacturers dry.”

In February 2022, TRA published a tender invitation notice for alternative and less expensive ETS solution providers, with a deadline for submission on April 31, but to the amusement of manufacturers, six months later, no updates on the tender outcome have been communicated.

“The duration of time that the tendering process has taken is worrying manufacturers as more than six months have passed since the last submission date.”

Speaking during a recent meeting with editors in Dar es Salaam, the TRA board chairman, Mr Uledi Mussa, said the tax authority was intent on reducing ETS costs. “We invited members of the private sector, including TPSF [Tanzania Private Sector Foundation] and CTI, and told them to join our ETS tender offer committee, which they did,” he said.

He said TRA also told private sector players to identify someone who can provide the ETS service at a cheaper price relative to SICPA’s (Swiss company) cost. “We decided to make them a part of the tendering process so that their insights are included. We are still calling out to anyone who knows a company that can provide ETS at a cheaper price,” said Mr Mussa.

But, when it comes to the colossal amounts they pay to the Swiss firm in the form of ETS charges, the CEOs say that, as much as they appreciate President Samia Suluhu Hassan’s efforts to improve Tanzania’s investment environment, the ETS factor remains their major impediment.

The Tanzania Breweries Managing Director, Jose Moran, said much as the ETS has enabled the government to increase revenue collection in the sense of widening of the tax base and reduction of tax evading practices, the system was unreasonably expensive.

“Manufacturers are burdened to bear this cost in addition to excise duty and other taxes levied on the products. We believe simpler systems are available at a fraction of the cost currently paid to the third-party supplier,” he said.

The TCC Plc CEO, Mr Takashi Araki, said, “In the past three years, about Sh36 billion has been paid to the current ETS supplier, an amount that could have been invested in other development projects, community programmes, and government revenues.”

He said the stamp costs for cigarettes rose significantly from $4.77 per 1,000 cigarettes to $20 per 1,000 cigarettes, which is more than 300 percent higher.

His Coca-Cola Kwanza counterpart, Mr Unguu Sulay, said his company was paying more in ETS costs than it pays in Pay As You Earn (PAYE), which goes directly to the government.

“To give context to this, for a crate of soda, the cost of buying stamps is equivalent to 38 percent of excise duty paid to the government,” he said.

He stated that Coca-Cola Kwanza was encouraged by TRA’s Invitation for Tenders on the subject earlier this year and requested that the results be announced.

“As an industry, we are looking forward to realistic rates that will support the government’s vision to improve the business environment, protect businesses, and attract investment,” he said.

The SBC Pepsi CEO, Mr Avinash Jha, said the company has paid Sh15 billion to SICPA in the last two years towards the purchase of electronic tax stamps.

“This is equivalent to 35 percent of the total excise duty paid during this period to the government. When compared with other countries, the stamp prices in Tanzania are exorbitant, thereby increasing the cost of doing business to the detriment of expansion plans through reinvestment,” he said.

And according to the SBL CEO, Mr Mark Ocitti, the annual cost of ETS to the brewer was equivalent to 10 percent of its total excise tax paid to the government.

“Despite the fact that the alcohol industry has not had an excise increase in three years, the reality is that the costs of purchasing ETS since the system’s implementation three years ago have seen SBL spend the equivalent of 10 percent of total excise tax,” Mr Ocitti said.

But according to TRA’s statement, the authority held several engagement meetings with all key stakeholders to include Members of Parliament and manufacturers (through CTI), with a view to obtaining their input on how best TRA can run this system.

Conducted a study

CTI collaborated well with TRA and conducted a study (via a consultant company, PwC) and benchmarked several countries where the same system is running and compared their efficiency and prices with those of Tanzania.

He said TRA re-advertised the ETS Tender in mid-February 2022 with a view to obtaining a much better solution provider, and this was an international tender where all reputable companies in the world capable of providing the solution were engaged through the International Tax Stamps Association (ITSA).

“Manufacturers, through CTI, were again engaged in every step of the tendering process, whereby they were even invited to the pre-bid meeting held with the prospective bidders, and they participated well,” the statement reads, noting that the tendering process was still going on. “We believe that a competent supplier with the best system at lower costs will be obtained,” the statement reads.