Impact of DTS implementation on tax compliance

With effect from 1st November 2019, the Government of Uganda through Uganda Revenue Authority commenced the implemented the Digital Tracking Solution (DTS), a technology solution that was sought to aid tax administration to mitigate revenue losses.

 

The solution was designed to deter existing deficiencies in tracking and tracing of locally manufactured and imported products, which had contributed to less than adequate tax receipts from the manufacturing sector as well as importation of excisable products.

 

DTS provides for application of Digital Tax Stamps by producers and importers, using both automated and manual processes of production. It also provides for verification of goods from the factory/importation to the point of sale.

 

The Digital Stamp is a mark /label applied to goods and their packaging and contains security features and codes to prevent counterfeiting of goods and enable track and trace capabilities.

 

Overall, the DTS implementation status stands at 257% in terms of on boarding taxpayers that were originally scoped to use the DTS at inception of the project. i.e.

• Four hundred and six (406) sites have been registered out of the target of One hundred forty (140) sites.
• Three hundred and seventeen (317) manufacturers of the gazetted products have been registered against the one hundred and seven (107) manufacturers scoped at inception, representing a 262% performance.
• Similarly, eighty-nine (89) importers of the gazetted products have been registered against the thirty-three (33) importers scoped at inception, representing 249% performance.

 

The DTS implementation for Cement and Sugar which started on 1^st April 2021, stands at 55.5% in terms of on boarding local producers scoped to use DTS i.e. ten (10) sites have been registered out of the target of eighteen (18) sites. Importers on the other hand are at 1% with one (1) importer registered out of sixty-nine (69) sites scoped.

 

The number of taxpayers using DTS and contributing to Local Excise Duty (LED) collections has increased significantly with One hundred and nine (109) taxpayers on DTS paying LED in April 2021 compared to forty-three (43) taxpayers in April 2020, a year-on-year growth of 153%.

Fig 1: Analysis of LED Collections for taxpayers on DTS before and after DTS Implementation

 

 

Total no. of registered this FY 2020/21: -

 

Month	Manufacturers	Importers
Jul-20	7	5
Aug-20	12	4
Sep-20	14	14
Oct-20	29	0
Nov-20	18	10
Dec-20	14	4
Jan-21	8	2
Feb-21	20	5
Mar-21	33	9
Apr-21	20	10
May-21	37	7
Total	212	70
Grand Total		282

 

 

DTS revenue performance

Financial year 2020/21.

The current Financial Year (FY) has registered a 11.6% year on year growth in Local Excise Duty collections from 211 manufacturers using DTS. This is from the start of this FY to April-2021, compared to the same period last FY.

Number of taxpayers contributing to Local Excise Duty

More taxpayers are using DTS and paying Local Excise Duty (LED), with One hundred and nine (109) taxpayers on DTS paying LED in April 2021 compared to forty-three (43) taxpayers in April 2020, a year on year growth of 153%.

 

We have noted some challenges in implementation of DTS and these include

Alcoholic substitute products beyond the scope of Excise Duty and DTS.; The alcohol products prescribed for DTS as well as those listed in the second schedule of the Excise Duty Act do not fully exhaust all alcoholic beverages in the market e.g. “Kombucha” products. This has led some local producers to hide behind this product and compete unfavourably, with a cost advantage due to non-payment of Excise duty or Tax Stamp fees. The new policy changes will address this challenge.

Stamp forgeries. This has been mostly manifested in the spirit stamps. This has led to a lot of fake products being found in the market which is a major revenue leakage. URA has increased its surveillance and a number of have been apprehended and fined. We encourage the public to be on the lookout and buy only genuine stamped products. A mobile application will be launched soon to enable consumers verify the genuine stamps.

 

Transition period for cement and Sugar

 

As noted above we are at 55% implementation for both manufacturers and importers of cement and sugar. A three-month transition period was granted to the manufacturers and importers of the prescribed products to register and acquire the digital tax stamps while exhausting any un-stamped products. Thus, enforcement on DTS usage will take effect 1^st July 2021, whereby those that have not yet come on board will be asked to account for any un-stamped products we find in the market.