Tanzania traders object to tax deal for ETS management system

Tuesday October 31 2017

The system will replace paper-based tax stamps

The system will replace paper-based tax stamps initially attached to cigarettes, wines, and spirits. PHOTO FILE | NATION 

CHRISTOPHER KIDANKA
By CHRISTOPHER KIDANKA
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Swiss Firm SCPA Ltd is in a tight spot after manufacturers opposed a tender it was awarded by the Tanzania Revenue Authority to supply, install and support software and hardware for an electronic tax stamp (ETS) management system.

Manufacturers say the tender was not awarded competitively and that the terms inappropriately require them to pay for the installation of the stamp machines, which is basically an investment obligation of the contractor.

They are not only opposed to the introduction of the system due to the cost nature of the deal, but they are also uncomfortable with the contractor, who is accused of corrupt practices in Kenya, Brasil, Albania and Morocco.

Makers of beer, soda, juice and cigarettes want the contract nullified and a meeting convened involving the vendor, taxman and stakeholders.

The Swiss company’s subsidiary in Kenya was granted a tender of a similar nature last year, but was accused of securing it courtesy of fraudulent documents.

In Tanzania, manufacturers say the SICPA system, which is about to commence this year, will actually increase production costs.

Serengeti Breweries Ltd managing director Helene Weesie said the move will push the tax rate to $10.1 per 1,000 units, resulting in an additional $100 million annual cost to the industry.

The ETS means a vendor will install machines to mark tax compliance right from the manufacturing process.

According to the deal, the cost of that investment will be borne by the manufacturers, who will meet the contractor’s investment costs on top of their own costs of doing business.

The system will replace paper-based tax stamps initially attached to cigarettes, wines, and spirits. The taxman is proposing to replace the old system with an electronic one, but this time, extending it to all excisable products including beer and sodas, in order to check counterfeiting and promote tax compliance.

Speaking at a meeting between the government and the private sector, Ms Weesie said the cost of running the equipment and the impact on production efficiency would be an additional cost to industries that already operate with tight profit margins.

She said there are other vendors who offer the same system at a fraction of the cost of SICPA’s and faulted the argument by the Tanzania Revenue Authority that the introduction of electronic stamps will help, saying combat counterfeiting does not hold true since beer, water and soft drinks are not prone to counterfeiting.

Proponents argue that the additional cost is likely to invoke price increases passed on to consumers, which will limit market growth for these products, which in turn will decrease tax revenue.

The taxman proposes ETS on all excisable products effective this year.

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