E-filing system: TRA systems made even better

In the last few years, the Tanzania Revenue Authority (TRA) has embarked on a huge digitization drive that may be easily underestimated. From the aggressive implementation of the E-Fiscal Devices systems to the new filing system that not only encompasses Value Added Tax, but also corporate income tax, Pay As You Earn (PAYE) and Skills Development Levy (SDL) returns, there is a lot that is laudable. The digitization has managed to make tax compliance smoother for every taxpayer.

The TRA embarked on the corporate income tax returns electronic filing system (e-filing system) in August 2020. Tax systems modernization is the centerpiece of the TRA's vision of virtually paperless tax processing to optimize operations and better serve taxpayers. Introduction of the e-filing system has enabled the online filing of returns, reducing physical movement of taxpayers from their offices to the TRA.

The introduction of the e-filing system has saved costs, reduced the paper work and the workload of the TRA officers who are involved in handling the hard copy files, as well taxpayers who had to store the hard copy files and generally reduced the printing cost. For the environmentalist, less paperwork has also been a boon for conservation. Some statisticians actually argue that 14% of deforestation is caused by global demand for paper goods. Also of importance, is that the introduction of the e-filing system has minimized chances of misplacing or losing valuable information, which would previously be stored in hard copy files.

Whilst the above-mentioned advantages are admirable, the management and technical weaknesses of the e-filing system must be corrected as quickly as possible so that the efficiency goals are met, and accurate reporting is achieved.

Capturing of withholding tax for taxpayers of corporate income tax: Some taxpayers are affected by withholding tax as they trade. Withholding tax is ordinarily kept as a credit to be utilized against future liabilities. Therefore, erroneous assessments are issued because the e-filing system fails to capture the tax credit for the taxpayers, and sometimes the provisional taxes paid towards the tax liability for the year of income. As the instalment taxes and tax credits are not captured properly, the e-filing system causes the taxpayer to be issued with incorrect tax assessments.

Incorrect calculation of the Alternative Minimum Tax (AMT):
The base for calculating AMT is on turnover for entities with unrelieved tax losses for three consecutive years. It has been noted that the e-filing system does not capture the correct base for computing the AMT, especially, for the entities with multiple streams of revenue. For example, for entities with multiple streams of revenue, like insurance companies, only their gross premium is captured as turnover, excluding other incomes from investment activities. This may impact taxpayers who may end up falling in the trap of underestimating the tax payable.

Incorrect calculation of penalties and interest. The above challenges may lead to instances where the penalties and interest computed by the e-filing system are overstated.

Limitation of the size of documents to be uploaded in the e-filing system: The size of documents to be uploaded in the e-filing system is limited to 10 megabytes (MB) only. This has posed a challenge for taxpayers with lengthy or complex document structures. For example, Transfer Pricing documentation meant to be filed with the corporate tax return for entities having turnover exceeding TZS 10 billion are often larger than the limited space granted.

E-filing Network Outage: This often experienced during days when e-filing system of the PAYE & SDL returns are due. Now with the recent e-filing system of return of income for taxpayers with year end of December, there has been a major challenge with the system’s network around this time as well. This has resulted in some taxpayers failing to file the tax returns on time. Additionally, the network failure has caused late tax payment by taxpayers as they depend on the self-assessments issued when the tax returns are filed for the indication of the amount of tax payable.

What the TRA can do to rectify the challenges mentioned

The TRA will be prudent to collect and analyze data on challenges experienced by taxpayers when using the e-filing system. This data can be used as feedback on assessing the performance of the e-filing system for the purpose of improving it.

If the feedback on challenges experienced by the taxpayers is dealt with accordingly, it is my belief that the quality of the e-filing system will improve and become more user-friendly and reliable.

The writer is a tax consultant at Deloitte Consulting, Christopher Mwanilwa (cmwanilwa@deloitte.co.tz). The views expressed represent those of the author and do not necessarily represent those of Deloitte.

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