Value Added Tax (VAT) is a type of consumption tax that is ultimately borne by the consumer. This means that whenever a consumer purchases a taxable product or service, they indirectly pay VAT as part of the total price. It is an essential component of the revenue collection system for governments worldwide.
In the VAT system, there are two main components: input VAT and output VAT. Input VAT refers to the tax paid by businesses on the goods and services they purchase as part of their operations. For example, when an importer brings goods into the country, they pay VAT on those imports, which is considered their input VAT. On the other hand, output VAT is the tax collected by businesses when they sell goods or services to customers. This output VAT is offset against the input VAT paid earlier in the production or distribution process.
Throughout the VAT chain, various players, including importers, wholesalers, and retailers, engage in transactions that involve both input and output VAT. When an importer sells goods to wholesalers, they earn output VAT, which offsets the input VAT they paid on the imported goods. Similarly, wholesalers and retailers continue this process, with each party earning and offsetting VAT along the way.
However, it’s important to note that the end consumer bears the full burden of VAT because they cannot offset it against any other taxes or expenses. Unlike businesses, consumers do not have the opportunity to claim back VAT paid on their purchases.
The introduction of the Electronic Fiscal Receipting and Invoicing Solution (EFRIS) by the Uganda Revenue Authority (URA) aims to enhance transparency and accountability in VAT collection. EFRIS provides visibility into transactions throughout the VAT chain, ensuring that VAT is accurately recorded and remitted to the tax authorities.
One of the primary purposes of EFRIS is to combat tax evasion and fraud, particularly the illegal withholding or misappropriation of VAT along the value chain. There have been cases where businesses have collected VAT from consumers but failed to remit it to the government, effectively pocketing the tax revenue instead. EFRIS serves as a tool to prevent such practices and ensure that VAT paid by consumers is remitted to the relevant authorities as required by law.
In summary, EFRIS is not intended to be an economic adversary but rather a mechanism to safeguard tax revenues and promote fiscal responsibility. By implementing EFRIS, the government aims to protect consumers, businesses, and the broader economy from the detrimental effects of VAT evasion and ensure equitable tax compliance across all sectors.
Eh eh eh @BryantVIII awo okisusizaamu!
EFRIS today is mandated for only VAT registered taxpayers. These are businesses that are turning over more than Ugx 150,000,000/- a year.
Businesses that are turning over between Ugx 10,000,000/- and Ugx 150,000,000/- are considered… https://t.co/OOb0oYPWV5
— Uganda Revenue Authority (@URAuganda) April 19, 2024
