A double-edged sword? Implications of EFRIS as a tool for VAT compliance among small and medium enterprises

Abstract

This study explores the effects of the Electronic Fiscal Receipting and Invoicing Solution (EFRIS) in Uganda on Value-Added Tax (VAT) compliance among Small and Medium Enterprises (SMEs); with a specific focus on the implications of EFRIS compliance for consumer behaviour. Introduced to enhance transparency and ease VAT compliance, EFRIS has some benefits like improved record keeping for businesses and real-time VAT reporting. However, the findings indicate that the system still grapples with issues like the increase in operational and compliance costs, which leads to an increase in the price of consumption and, consequently, consumer pushback. The study highlights the circular effect wherein compliance burdens on traders spread to consumers and ultimately discourage formalisation and compliance. Comparative studies with the Tanzanian, Ethiopian and Rwandan regimes indicate the importance of taxpayer sensitization, gradual implementation and technological infrastructure readiness by the government. The paper finally gives recommendations for policy reforms including better training, flexible enforcement approaches and infrastructure support by the government to ensure EFRIS achieves its intended purpose without straining consumers and jeopardizing SME growth.