In Mainland Tanzania, suppliers of goods and services whose annual turnover is TZS 14 million or more are required to issue receipts (or invoices) through Electronic Fiscal Devices (EFDs), known as fiscalised receipts (or fiscalised invoices).
The Value Added Tax Act 2014 also requires VAT registered persons wishing to claim input value added tax (VAT) on their local purchases to be in possession of fiscalised invoices/receipts at the time of recording these claims in the VAT returns.
The Tanzania Revenue Authority (TRA) has issued a Public Notice (Notice) dated 7 December 2020, requiring suppliers of goods and services to either acquire new EFDs or upgrade their current EFDs to be in line with Protocol 2.1 software before 6 January 2021.
What the notice communicates
According to the notice, the TRA is in the process of upgrading its electronic filing (e-filing) system for VAT returns as well as improving the Electronic Fiscal Devices Management System (EFDMS) which involves the introduction of new software; namely Protocol 2.1.
Following this change, fiscalised receipts/invoices issued through certain EFDs not running on Protocol 2.1 will not be able to pass the automatic verification test within the new e-filing system.
Therefore, the notice requires suppliers of goods and services with EFDs that cannot be upgraded to Protocol 2.1 software to acquire new devices with Protocol 2.1 capacity.
The notice requires suppliers to acquire the new EFDs within 30 days of the date of the notice (i.e. by 6 January 2021). Upon expiry of the 30-day deadline, the usual EFD non-compliance fine will apply as set out in the Tax Administration Act 2015.
This is a tight deadline for businesses given that:
- EFD machines carry an upfront cost (for some models over TZS 2 million (c. USD 870), depending on the supplier), which may be set-off in future (see below) but may incur a cash-flow issue for smaller businesses; and
- it may take some to configure or link these devices with suppliers' ERPs/accounting software systems where applicable.
The steps to be taken to comply with the Notice are:
- if a taxpayer's existing EFD device is not capable of being configured to the Protocol 2.1 software, they must acquire a new device from the list of approved suppliers of EFDs before 6 January 2021. Where a new EFD is acquired, the old device should be submitted to the TRA; or
- if a taxpayer's existing EFD device can use the Protocol 2.1 software, the supplier should contact the nearest TRA office for more information on the required upgrade.
Recovery of EFD acquisition costs
According to the Seventh Schedule of the Tax Administration (General) Regulations 2016, the upfront cost incurred in the first acquisition of an EFD may be claimed as follows:
- If the acquirer is VAT registered, the total cost may be claimed as input VAT; or
- If the acquirer is not VAT registered the total cost is treated as a deductible expense per section 11(2) of the Income Tax Act 2004.
Although a replacement EFD would not be a 'first acquisition', we expect the provisions of the Seventh Schedule to extend to replacement EFD devices, as the Notice states that the cost of acquiring the EFDs will be financed by the Government.
Purchaser Considerations: Claiming of input VAT
The VAT Act 2014 requires VAT registered persons to be in possession of fiscalised invoices/receipts issued through EFDs to support their input VAT claims (i.e. to recover the VAT that they have paid to their suppliers).
Following the planned upgrade to Protocol 2.1 software, taxpayers will not be able to claim input VAT on invoices/receipts issued through devices with previous software(s). We understand from the webinars conducted by the TRA on this subject that these receipts will soon automatically be rejected on the new e-filing system.
Therefore, it is important that businesses place internal controls to ensure that all EFD receipts/invoices that are issued by their suppliers on or after 7 January 2021 comply with the new requirement.
We understand that receipts issued under the new Protocol 2.1-compliant system will have a verification code to assist to distinguish them from receipts under the former system.
As the deadline of 6 January falls before the VAT return date for January 2021 (which is 20 February for VAT incurred in the month of January), it remains to be seen whether the e-filing system will continue, at least up to 20 February 2021, to accept receipts/invoices for input VAT which were created on non-Protocol 2.1 EFDs before 7 January 2021, but we trust that they will.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.