The Use of Electronic Cash Registers


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The Use of Electronic Cash Registers

Advantages & Challenges Ghana’s Experience







VADA Conference Abuja - October 27-29, 2010



  1. Introduction

The Government, and indeed VAT Service1, has over the years pursued tax reform initiatives geared towards the simplification of compliance requirements of the value added tax (VAT). It has endeavoured to make the tax system more understandable and more acceptable, particularly targeting the immense revenue potential of the retail/informal sectors in its effort to build a sustainable/buoyant revenue mobilisation base.

The introduction of VAT Flat Rates Scheme VFRS in September 2007 was one such initiative. The VFRS was a simplified system for accounting for the VAT in the informal Sector. It was intended to

  • Be easier to operate by the informal retail sector operators

  • Reduce the burden of compliance on small scale operators

  • Lead to the widening of the tax net.

The piloting of ECR, which commenced on September 2009, was a further initiative to provide transparent view of the (tax) system to the trader by providing simplified transaction processing and recordkeeping, amounts (VAT) owed, updated schedules of payments, dates due and other relevant information, while strategically positioning VATS for improved monitoring and enforcement.

The use of ECR, advantages and challenges – Ghana’s experience, is the subject matter of this paper. To begin with, the paper gives an overview of The ECR System – showing schematic diagram of the main components of the system and how they collectively work. Next, the paper describes The Application of the ECR System by VATS in the pilot run and The Results after 9 months of operation. Advantages are highlighted, and the Challenges posed with the implementation are also mentioned.

Effort has been made to refrain from technical and financial details, and to focus on concepts and principles of the system as implemented in the pilot run.

  1. The ECR System architecture

Appendix A shows a schematic diagram of the system. The main components of the system are:

    1. Servers

Servers host the application and the database. The database keeps logs and records of all transactions that are transmitted from the users (terminals). Two servers are used, with one server acting as redundant backup should the other fail. Data are replicated real time so servers run independent of each other in case of failure.

    1. Terminals

The terminals are online general communications devices (GCD) that support real time as well as store – and - forward transmission of transactions. They are fitted with two in - built SIM cards (from local mobile providers), that enable connectivity with the central database server, with the strongest network being prioritized. When one network is unavailable, an automatic fall-over process immediately reconnects to the next network.

A custom designed thermal paper fitted on the terminal enables printing of transactions, and for that matter, receipts. The dual antenna (internal and external) improves GSM reception, and the terminal works on the grid as well as battery power.

The terminals are permanently connected to the central database and exchanges data information and parameters synchronised on a regular basis.

    1. Workstations

The workstations, normal computers, provide a window to the database on the server. Using the internet backbone and with the appropriate authentication and certificate, the workstations can log on to the server and access information.

    1. Processes

Each GCD terminal is configured with particulars of the trader – TIN, name, address etc. A trader may have more than one terminal configured (with same particulars of the trader).

The trader uses the terminals to capture sales transactions. On confirmation of the transactions, the terminal issues a receipt (invoice) in duplicate, one for the customer and another for the trader (dealer); instantaneously, the transactions are transmitted via GSM to the central database (on the server mentioned above). Thus, details of all transactions of the trader are captured on the server database as and when they occur.

The terminals also enable the trader to file monthly returns electronically, and allow the trader a view of transactions including payments made and payments due.

Workstations provide the tool for VATS officials to closely monitor the transactions on the server on continuous basis. As the workstations are online, they facilitate VATS monitoring of revenue pattern on real time basis. Traders with little or unusual trading activities are, for example quickly identified, and necessary audit or enforcement activities undertaken.

The workstations also used for online cashiering system, where payments are receipted and credited instantaneously to traders.

  1. Implementation/Deployment of system

As mentioned earlier, the deployment of the ECR system was on pilot basis. A 13 - man Joint Implementation Committee (JIC) was constituted with representation from VATS (7) - the sponsors of the project, GUTA (Ghana Union Traders Association) (4) – important stakeholders, and Dart Ltd. - the solution provider of the ECR, to plan and pilot run the system. The Joint Implementation Committee, in line with terms of reference, prepared an action plan and executed a number of activities, including:

    1. Operational Acceptance Criteria

The committee agreed with the solution provider (Dart Ltd.) the following acceptable operational performance level:

  • Percentage of failed transactions versus successful transactions < 5%

  • Average round trip per transaction < 60 seconds

  • Increase in VAT collection above normal projected increase

  • Traders have data (records) verifiable by VATS

    1. System Readiness

The JIC established system readiness by way of the following:

  1. Data Communications

  • Agreement concluded with the Mobile Operators – MTN and TIGO, and an IP Implementation provider selected

  • Mobile Operator communication parameters agreed and live communication tested

  1. Hardware and Site Preparation

  • Servers, terminals and ancillary equipment installed, configured and tested

  • Site preparation completed – air-conditioning, UPS, access and on site performance testing of server and IP, LAN hardware implementation

  1. Software and Database

  • Database structures established on the e-Core database

  • reporting structures and access rights established

  • Database fine tuned, web log-in configured

    1. Target Traders Selection

For ease of administering the project, the selection of traders for the pilot was based on:

  • VAT Flat Rate Scheme (VFRS) Operators

  • Traders registered in Offices in Greater Accra (limited geographic spread)

  • Traders perceived to have poor record keeping habits

One thousand four hundred and ninety four (1,494) traders were selected for the pilot run.

3.4. Training and Public Education

The selected traders were placed in batches of about 15 traders per batch and hands on workshops were organised for them, to ensure proper handling of the terminal devices. Each workshop lasted a whole day. Workshops were also organised for VATS schedule staff on the monitoring tools available on the client workstations

All these training were strategically timed to precede the start date of the pilot run.

Public education programs were also executed both on the print and electronic media, to bring awareness to the generality of the populace. This was important, to prepare customers transacting business with the ECR operators to insist on the approved receipts.

GUTA, as stakeholders of the project, also organised series of seminars for its members, particularly for those traders not participating in the pilot project.

    1. The Roll out

Two thousand (2,000) ECR terminals were made available. Out of this, one thousand eight hundred (1,800) terminals were configured for traders’ use, and ninety one (91) terminals retained in the offices for training. The remaining one hundred and nine (109) ECR terminals remained with Dart Ltd. for replacement of defective terminals.

The start date of the pilot was tuesday September 01, 2009. Two days prior to the start date, a ‘package’ was delivered to each of the selected participating traders. The package contained:

  • ECR terminal, configured with traders’ name and TIN. Some traders requested for and were given multiple terminals configured with the same name and TIN. The terminals had fully charged batteries and were ‘ready-to-go’

  • Charging unit for the battery, to recharge the battery when required

  • Till Receipts (3 rolls), custom designed thermal paper that the terminal prints on, and issued as receipts

  • User Manual, a handy source of reference for the operation of the terminals, and

  • Official letter, informing trader of his/her participation in the pilot project.

An information desk was established to respond quickly to public enquiries, and also serve as a channel for complaints and from traders, complaints ranging from appropriate use of terminal to malfunctioning of terminal – technicians were readied to attend to these complaints.

  1. Summary Results

The result of the nine month project, evaluated against the backdrop of the established Operational Acceptance Criteria is summarised in the table below.

Item

Criteria

Result

Comment

1.

Percentage of failed vs. successful transactions < 5%


0.68 %

3,510 out of 503,550 transactions stuck in terminals due to connectivity problems added to database retroactively

2.

Average round trip time < 60 seconds


14.38 s

98 % of transactions received within average 10.73 seconds. Other 2 % delayed due to connectivity

3.

Increase in VAT collections via ECR for pilot period against previous year


31.4 %

Average general increase in VAT collections (paper based) during that period was 7.4 %

4.

Real time summary reports of VAT collections by predetermined aggregation criteria (location etc.)


Yes

Real time reports via e-Core web interface. Reports include Revenue, Filing, Payment, Irregularities etc.

5.

VAT registered trader have data verifiable by VAT service officials


Yes

Real time reports via e-Core web interface. Reports include Revenue, Filing, Payment, Irregularities etc.

6.

Ability to retrieve valuable statistical reports from informal sector


Yes

Real time reports via e-Core web interface. Reports include Revenue, Filing, Payment, Irregularities etc




  1. Advantages

The application of ECR technology created a number of advantages for both the trader and for VATS.

For the trader the advantages included

  • A quick, accurate and easy way of recording sales and issuing receipts

  • An easy access to sales information within selected periods

  • A convenient way of keeping track of stock

  • Alerts for returns and payments due

  • Elimination of calculation errors on returns

  • Stress free filling of returns

  • Accurate, current, and transparent information on accounts

  • Easy compliance

For VATS the advantages included

  • Convenient monitoring of daily, weekly, monthly revenue due Government.

  • Convenient monitoring of individual trader’s sales pattern to uncover malfeasance or unusual trading activities.

  • Easy monitoring of all forms of non-compliance

  • Reduction in the need for frequent audits

  • Having more personnel available for enforcement

  • Whole range of management reports available on the fly

  • Increase in compliance

  • Increase in revenue




  1. Challenges

There were few teething problems during the early days of the roll out. There were issues of store assistants who needed to learn to operate the terminals, customers who would not accept the receipts issued out from the terminals and traders who made wrong entries out of ignorance.

There were however, more challenging issues to crop up later, some of which have since been resolved, others still outstanding.

    1. Terminal Switch-on – The switch-on initialisation process of the terminal tended to take too long. When idle, the terminal shut off automatically, to preserve battery power, and when re-activated, the terminal took long time to re-connect to server in readiness for use. The ‘waiting period’ was embarrassing to traders and customers alike.

Reconfigurations made later on, on the terminals have increased the idle time before switch off, and allowed faster initialisation processes.

    1. Connectivity – There were few pocket areas where the terminals had poor connectivity with the server. Again there was poor connectivity (due to congestion) at month endings when traders needed to file return, cancel transaction or print sales report.

Dart Ltd. has reworked the mobile provider failover strategy and terminals were able to connect again.

    1. Faulty terminals - Few terminals had defective keypads and had to be replaced. Efforts were made to replace them with the urgency required, but the process of reconfiguring new terminals required time which the traders couldn’t afford.

    2. Information on Receipts (Tills) – The till (customer) receipts did not bear name and TIN of customer. This created difficulties for customers who needed to prove ownership of till receipts to make claims.

Software issue, Dart Ltd. has rectified this.

    1. Till Returns – On filing return electronically, the hard copy print of the return (Form D/VAT20) did not have ‘taxable sales’ information. This information is needed when processing the hard copy on VIPS.

Software issue, Dart Ltd. has rectified this.

    1. Electronic Cashiering – One feature of the ECR system was to issue receipts online. This feature could not be implemented fully because of statutory requirements regarding the use of invoices for receipting of Government revenue. This created backlog of unprocessed payments; payments made did not reflect on the e-Core database. Problem was compounded as the system charged interest on outstanding debt (though payment had been made), resulting in distorted trader liabilities and consequently traders’ apprehension of the integrity of system.

The interest-charging module has since been de-activated and all interests levied rolled back. It is important that management seeks the appropriate authorisation for the full implementation of the electronic cashiering in order to reap the full benefit of the process.

    1. Synchronizing e-Core with VIPS database - The VAT Information Processing System (VIPS) has hitherto been the main computer system for the administration of VAT. The introduction of the ECR therefore brings to two, the number of computerised systems administering VAT. The e-Core system and the VIPS are currently two disparate systems but their common data ought to be synchronized. The delayed deployment of the electronic cashiering mentioned above and other militating factors have created deficiencies and in-balances on the two databases. There is therefore the need to synchronize the two databases.

Dart Ltd. and VAT Services are working on synchronizing both databases.

    1. Public Education – There was limited public education of the system in view of the ‘pilot’ implementation and limited geographic spread of taxpayers involved. Intensive public education is very vital ain getting the public to ‘buy in’ the system, and contribute to high compliance by way of demanding ECR receipts for all purchases made.



  1. CONCLUSION

The result of the piloting, so far, has been very encouraging – compliance level (from participating traders) was good and revenue improved. Monitoring tools available, though not fully used, made the trend of transactions very transparent, easy to determine on real time basis, which traders were non-compliant. The pilot also brought to the fore:

    1. The readiness of traders to confidently file return electronically and make payment promptly. The full deployment of the cashiering component will be an added motivation for traders.

    2. Control and Verification (Audit) visits reduced to minimal – the result of transparency of transactions on database, making it irrelevant to follow-up with a visit to check on transactions. The time thus saved, could be used to improve enforcement. The enforcement process itself was made easier with the aid of the monitoring tools,

    3. Reduced pressure at the banking hall at month endings.

    4. Report generated on the fly, and even on the field.

To sum up, the Electronic Cash System is an innovation that has great potential for administering the tax, particularly as it benefits both the tax administrator and the tax payer.

Appendix A





1 VAT Service currently does not exist due to institutional transformation of the Revenue Agencies that brought about the GRA. However, the name VAT Service is still used for convenience and easy reference


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