Two days after the Budget reading, the Finance Bill 2021 was issued in a gazette notice dated June 12, 2021. This Bill became publicly available on June 15, 2021, and following any required amendments it will be finalised and gazetted no later than the end of June as the Finance Act 2021, which will take effect from July 1, 2021. So in effect, at most 15 days for legislators to consider the details of the proposed legislative amendments and for taxpayers to implement system changes to effect the announced changes. By contrast, the legislative process in Kenya and Uganda is such that the Finance Bill is issued at the beginning of May and April respectively - so two and three months respectively before the same 1 July commencement date.
This short time line can work for certain changes which do not require significant system changes - for example tax rate changes are normally relatively straightforward to implement. By way of illustration, the reduction in PAYE and Workers Compensation Fund rates will simply require the new rate to be added to the payroll software. Equally, the Sh100 increase in the road and fuel toll is not complicated to implement as there is a standard process of price review by EWURA and this can be incorporated as part of it.
However, other changes can require significant system changes and take longer to implement - for example, the proposed major changes in this year's Budget speech affecting the telecommunication industry (by way of the mobile money transactions levy and simcard levy); if assented these would require significant system changes to implement, including changes in processes (including a large degree of automation) so that the correct levies are charged.
Another example is the proposed collection of property tax through the electricity bill (i.e. LUKU meters for most). This is really innovative thinking and is likely to ensure that this tax is collected efficiently but the question still arises regarding whether there is sufficient time for the system to be reconfigured so that property tax can start being collected from July 1, 2021? In addition, all kinds of practical questions will arise from stakeholders - for example, is the system able to differentiate between the different types of properties (i.e. ordinary building compared to storey building) and what will trigger the charge to automatically stop when the required tax has been paid?
There is precedence in relation to the difficulties that taxpayers/industries have with changes that require system changes. For example the introduction in the 2016 Budget of VAT on financial services, a change that took the banks a few months to get their systems ready; on top of this there was confusion regarding the process for VAT registered taxpayers to reclaim the input VAT. Again, the introduction of e-stamps for beer, spirits and cigarettes had to be postponed a few times as systems were taking longer to configure (including answers to valid queries regarding returns, breakages etc) than expected. 2013 saw the introduction of excise duty on money transfer with percentages applicable for specific transfer amounts, something which required a lot of configuration by the telecommunication industry; and then just a year later it was agreed that the tax was not sensible and it was repealed. Ultimately a lot of unnecessary cost and inconvenience to affected taxpayers and tax administrators.
A better approach to changes that require new systems/processes would be to ensure sufficient notice of a proposed change. In many countries, where Budget Speech changes are announced that are very fundamental then these are effective a year (sometimes more than a year) later. This may not be realistic in our context but if there was at least three months notice, as applied in Uganda, it could help mitigate practical challenges.
Such a timeline would give taxpayers sufficient time to prepare their systems and there would be no excuses available for not being able to implement the changes from the effective date. This "advance" notice would also give an opportunity for engagement between the stakeholders to ensure that (i) the changes have the consequences intended and (ii) the reporting system changes can be established (for instance avoid the confusion on the documentation required for claiming input VAT on bank charges).
Another measure which may help is the timely issue of regulations to support certain tax amendments, and ideally subject to consultation before being introduced. In addition, the applicable / start date of any regulations should be sufficiently in the future to ensure that all stakeholders have sufficient notice. However, this has not always been the case with a number of cases where the regulations took effect on the date of publication in the Government Gazette; indeed in one case regulations were issued after their commencement date (namely, the Transfer Pricing Regulations applicable from 27 April 2018 but only released in November 2018).
Finally, the TRA can be more comprehensive in its issue of guidance (i.e. its interpretation) of tax provisions, especially new ones. For instance, the Finance Act 2020 introduced the concept of a new concept of "representative assessee" which has led to some confusion on (i) who is captured by these provisions, (ii) how to report them and (iii) what is the process. The issuance of guidance to taxpayers by a tax administration can help (i) provide further certainty to taxpayers, (ii) increase voluntary compliance, (iii) reduce tax disputes and (iv) demonstrate the goodwill of the tax administration. In some countries (eg the United Kingdom), the internal manuals of the tax administration are publicly available to anyone and these serve as guidance. However, even closer to home, a quick look at the website of the South African Revenue Service shows a whole plethora of guidance (called Guide) available. The TRA has issued some guidance (domestic withholding tax in 2019 and transfer pricing guidelines 2020) but more could be done.
In summary, let us consider a much longer timeframe between the issue of the Finance Bill and its implementation - ideally not less than three months - and at the same time ensure that accompanying guidance as well as regulations are also issued on a timely basis. Such changes would certainly help improve the business environment and encourage investment.