Managing transition challenges to the new VAT Electronic filing system
In improving domestic revenue collection, the Government has continued to manage and monitor implementation of tax laws, regulations and procedures and improve ICT systems including Electronic Fiscal Device Management System (EFDMS), improve the business and investment environment as outlined in the Blueprint Action Plan and closely monitor the performance of Government institutions.
The Tanzania Revenue Authority (TRA) has rolled out an online e-filing system for some tax returns and time is now ripe for VAT to move to the same platform. VAT returns have been filed online; however, this time the system has been improved and made more robust and smarter which will also help in verification and repayment of VAT refunds. TRA’s public notice of 3 February 2022 confirmed that the new VAT e-filing system will go live for filing of the March 2022 VAT return (which is due for filing on or before 20 April 2022.
What is required of a Taxpayer?
It is recommended that all VAT registered taxpayers should upgrade their Electronic Fiscal Devices machines to protocol 2.1. in order to issue receipts/invoices with verification codes. It is important to note that all receipts issued by machines that have not been upgraded to protocol 2.1 shall not be allowed to claim excess VAT credit/input tax credit.
To make the filing process smooth, traders should avoid using invalid invoices or receipts or TANSADs during the e-filing of VAT returns. The new system is a smart system and will reject all invalid receipts/invoices.
Key to note is that at the time of the first e-filing of the first VAT return, the VAT traders with negative net amount (excess VAT credit) for the return of the month the e-filing will be rolled out will need to notify their respective TRA offices of tier positions for audit or verification of their position prior to being allowed to carry forward any VAT credits in respective VAT return in the new system. This is because the repayment position will not be automatically carried forward.
Advantages of the upgraded system
The system come with an enhanced user experience with an integrated platform allowing the taxpayer to a single e-filing account as opposed to the current system in which VAT is filed using a separate account.
As usual, the new platform is expected to be more user friendly, especially now that all returns will be integrated under one platform. The new system requires keying in of verification codes, for all purchases which will make TRA audit verification of lodged VAT refunds easy and fast and therefore improve the refund cycle which traditionally took longer due to the verification process of third-party invoices and receipts.
The new platform has been designed to take into consideration apportionment of input tax for partially exempt traders (“Partially exempt” taxpayers, being those with exempt supplies of between 10% and 90% of total supplies). The new system will also capture adjusting events and therefore eliminate the need to write to the Commissioner each time there is an adjusting event. Similar to other returns, the e-filing system will automatically issue an acknowledgement of receipt of return and an assessment of tax immediately after filing the VAT return
With the upgrade of the system, the VAT refund process is expected to improve significantly and provide a huge relief to VAT refund claimants.
Traders should take note that once the E-VAT return has been filed, the taxpayer has an option to extract the filed return and print it, if need be, acknowledgement receipt and the assessment. If the trade is in a in a payable position, the assessment will show a tax debit number which the VAT registered trader should use to make the payment.
It should be noted that all the procedures for lodging for VAT refund claims remain the same.
Key take always for VAT registered traders
- The newly VAT upgraded system will only accept receipts/ invoices with a verification code and with the buyer’s Taxpayer Identification Number (TIN) for input tax claim. Receipts without verification codes shall automatically be rejected by the system during filing of the e VAT return;
- All traders must upgrade their EFD machines to 2.1 protocol;
- In making payments of VAT, taxpayers must use the Tax Debit numbers from the tax assessments issued through the system;
- Traders should avoid using invalid receipts/invoices or TANSADs in order to avoid inconveniences during filing of e VAT returns;
The new system shall not automatically carry forward negative amounts (excess VAT credits);
Taxpayers with excess VAT credits (i.e. VAT credit) in the return of the month that the new system starts to be effective, should note that the system will not automatically carry forward their credit to the next month VAT return. Traders who will be in such a repayment position must apply for a VAT refund (for those eligible) or notify their respective TRA office to carry out an audit or verification of the credit amount. Once verified, the negative balance will then be allowed to be carried forward in the next month VAT return.
- The new system will be accessed through the TRA website ( tra.go.tz) using the same e-filing account used for their tax returns like PAYE, SDL and returns of income.
Piece of advice to Tanzania Revenue Authority
Tanzania Revenue Authority should consider incorporating into the new E-FILING system the filing deadline on a non-working day (weekend or public holiday). When a filing or payment deadline which refers to a specified number of days (rather than the last working day of the month) falls on a non-working day (a weekend or public holiday), the deadline should be rolled forward to the next business day. For example, the February 2022 VAT return and related payment is due on 20 March 2022, but as the 20 March 2022 is a Sunday the deadline rolls forward to Monday 21 March 2022. The system should distinguish non-working days and accordingly, where the deadline falls on a weekend or a public holiday, the system should have a provision to roll forward the deadline and not compute late payment or filing penalties for a taxpayer.
This being a new system, it is expected there will be practical challenges on the onset, however, it is the expectation of the taxpayer that the challenges will be resolved in the course of the implementation and the improvement will make compliance easier, convenient and is expected to also increase government revenues.
