Tanzania manufacturers outline positives, negatives of electronic tax stamps

Dar es Salaam. The Electronic Tax Stamps (ETS) have had both positives and negatives during the past one year of its implementation in Tanzania, manufacturers said on Wednesday.

The government announced plans to adopt the ETS and drop the physical paper stamps in June 2018 amid protests from manufacturers that the decision by Tanzania Revenue Authority (TRA) would increase their cost of production.

But with the traditional paper stamps being heavily linked to incidents of tax evasion, TRA went ahead and a Swiss firm, Société Industrielle et Commerciale de Produits Alimentaires (SICPA), won the tender and subsequently signed a contract with the taxman for supply, installation and provision of supporting software and hardware for ETS management system. Actual role out of the ETS took place in January 2019.

Almost one year since the ETS was adopted, manufacturers now say they were in full support of the system, noting however that the government could consider bringing the costs down as a way of cutting their production costs.

The sentiments were raised in Dar es Salaam during the past two days when the Parliament’s Budget Committee visited offices for TRA as well as those (offices) for some manufacturers with a view to understanding how the system operates.

It was the Budget Committee that opposed the government’s introduction of the ETS when the idea was moved in Parliament by the Minister for Finance and Planning, Dr Phillip Mpango in June 2018.

But when it visited Tanzania Cigarette Company (TCC) and Serengeti Breweries Limited (SBL) in Dar es Salaam, the committee was told that the introduction of ETS has had both positive and negative outcomes on manufacturers’ operations.

TCC, which has ETS’ stamped on its products since January 15, 2019, said the system has, among other issues, enabled a level playing field for manufacturers in terms of tax compliance.

“It has helped us in combating the trade of fake cigarettes as well as in tracking and tracing of our products and this permits
other manufacturers to know who has produced what, when and where the products have gone,” the TCC Plc’s director for legal and corporate affairs, Mr Godson Kizila, told the committee.

He however noted that despite the benefits, the introduction of ETS has raised their production costs by up to 319 per cent.

“The current rate of $20 per 1000 stamps from
$4.77 per1000 stamps translates into an increase of 319 per cent which is too high,” he said.
He said TCC spends over $6.98 million (Sh13.8 billion) yearly and expects to spend $29.9 million (Sh69 billion) in five years.

“The stamps have impacted the company’s profitability, cash flow and dividends payable to shareholders,” he said.

TCC proposes that for ETS smooth implementation, the rate should of $8.55 per 1000 stamps for cigarettes whose raw materials are domestically sourced by at least 75 percent.

The company also proposes that ETS’ be purchased using local currency.

“High ETS cost has been absorbed through product pricing which has negatively affected the business through consumer down trading to more affordable products which eventually affected profitability,” he said.

The SBL corporate relations director, Mr John Wanyancha said the aim of ETS was to protect consumers against illicit and counterfeit products.

He noted that ETS also ensures that manufacturers do not under-declare their production volumes.

“If the system has benefited Tanzania Revenue Authority (TRA), then we are happy,” he said.

TRA deputy commissioner Msafiri Mbibo said that during the tour they were able to dialogue with manufacturers in a number of issues including ETS as well as other tax related issues.

“Both SBL and TCC have expressed satisfaction over ETS because it has enabled businesses grow,” he said.

The chairman for the Parliamentary Budget Committee, Mr Mashimba Ndaki said they will engage relevant government bodies in ensuring that the raised challenges get addressed.

“We will also take the issues up during the budget session,” he said.