Manufacturers: Why ETS are a big burden

Dar es Salaam. At a time when the Tanzania Revenue Authority (TRA) has announced a tender for a company that would supply, install and operate the electronic tax stamps (ETS) programme, manufacturers have reiterated that, in its current form, the system is a huge burden to them.

In an effort to enable the government to widen the tax-base, verify production volumes in real time and defeat counterfeiting and tax evasion, the government introduced the ETS in 2018, with the first phase of the project conducted on January 15, 2019. To-date, ETS are stamped on produce that include beer, wine and spirits, sweetened flavoured water and other non-alcoholic beverages like energy and malt drinks and soda, fruit juices, vegetable juices and bottled drinking water.

However, while TRA says the system has helped to raise excise revenue collections, manufacturers say the “purported achievement was at a very huge cost to them” because they are the ones paying billions of shillings each year to the Sicpa, a Swiss company that supplies ETS.“In short, to us, this is an added cost that could have been avoided or at least reduced. It should be noted that ETS is itself not a tax but the costs we bear for paying a tax that we used to pay even before the coming of ETS,” representatives from five large taxpayers said in their joint presentation on the subject at the weekend.

Representatives from TBL Plc, Serengeti Breweries Limited (SBL), TCC Plc, Coca-Cola Kwanza and SBC Tanzania, who met editors at the weekend said that - much as ETS has indeed helped to raise excise duty collections, most of the increase was largely due to expansion of the tax base that had some manufacturers who used to operate informally being netted into the formal economic system.

“The only increase in excise duty collections on our side as large taxpayers is just about six percent and that is largely because of our own internal initiatives and not necessarily due to ETS. This is why we think a comprehensive analysis of its efficacy has to be undertaken,” the companies said in a presentation that was coordinated by the Confederation of Tanzania Industry (CTI), questioning why all media campaigns have always painted a picture that there was nothing wrong with the system.

The analysis should show areas that the ETs has been effective and where it has not helped much but just worsened operational costs. Manufacturers estimate that at industry level, ETS has had a devastating impact, with operational costs rising by 251 percent.

“Our annual stamp costs with the current system have significantly increased with the introduction of ETS whilst excise duty payments saw minimum increases, indicating that the system is not benefiting manufacturers or the revenue authority to its full potential,” the presentation reads.

On average, manufacturers estimate that, last year, eight companies – TBL, SBL, Coca-Cola Kwanza, Nyanza Bottling, Bonite Bottlers, SBC Tanzania, Bakhresa Group and TCC – paid a staggering Sh79 billion as ETS costs.

“This was paid by eight companies only out of over 300 companies whose products are stamped with the ETS. This is precisely why we estimate that over Sh100 billion is sent to Switzerland each year in form of ETS costs,” manufacturers say.

They say the money could have been part of their profit and the government could still collect massively in the form of corporate tax.

The manufacturers were talking to editors of business, economic and finance news at a time when TRA was also meeting members of the Tanzania Editors Forum (TEF) in Dar es Salaam where the taxman sought to promote its new app that is deliberately designed to help consumers to verify the authenticity of the ETS on various products. Known as “Hakiki Stempu” (Verify the Stamp), the app seeks to authenticate the genuineness of a product.

The ETS project manager at TRA, Mr Innocent Minja, told TEF members that TRA had been working on the issue of costs associated with the ETS, noting that they (the costs) have been going down. This was in apparent reference to a recent adjustment when costs were reduced by a mere four percent against a reduction of 75 percent that manufacturers had been asking for.

CTI members say while the new tender – which also has its several shortcomings – was being processed, there were several options on the table that would reduce the ETS burden on them.

In the presentation, the manufacturers named several companies that were more than willing to offer the same service as the one offered by Sicpa at a rate that is up to 70 percent less.

The manufacturers trashed the assumption that ETS costs were cheaper in Tanzania than they were in Kenya and Uganda, saying since the supplier was the same in the three countries, it was possible for him to know what to do and why.