Times Tower, the Kenya Revenue Authority's head office in Nairobi.
The Kenya Revenue Authority (KRA) has rescinded its decision to exempt farmers and small businesses with an annual turnover of less than Sh5 million from the requirement to produce electronic invoices for their sales through the electronic tax invoice management (eTims) system.
While unveiling a new eTims solution dubbed ‘eTims Lite’ tailored for non-VAT registered taxpayers on Monday, the taxman said all traders will be required to electronically generate and transmit their invoices.
This is a blow to small-scale traders and farmers who have decried the high compliance costs that will come with producing an electronic invoice for every sale they make.
“KRA would like to remind the public that all persons [running] businesses, including those in the informal sector and small businesses, are required to electronically generate and transmit their invoices to KRA via the eTims system,” the taxman said in a public notice.
Seal leakages
The adoption of technology, including the usage of the e-Tims, is one of the ways President William Ruto’s administration wants to seal leakages.
Initially, the e-Tims was designed in such a way that taxpayers had to have the internet to generate electronic tax invoices from their smartphones.
However, the taxman has changed this by enabling every Kenyan to access e-Tims through the e-Citizen platform and the USSD code *222# if they don’t have a smartphone.
This, the taxman noted, is part of efforts aimed at helping taxpayers comply with the law.
“KRA remains committed to continue supporting and facilitating all taxpayers to comply with the requirements of the law by adopting a facilitative and collaborative approach to tax compliance,” the notice read.
“To this end, we have [provided] e-Tims simplified solutions dubbed e-Tims Lite for non-VAT registered taxpayers. These solutions are accessible through the eCitizen portal via *222# for the USSD invoicing solution and ecitizen.kra.go.ke for the web-based invoicing solution.”
With just weeks to the deadline of mandatory e-Tims on-boarding set for March 31, the latest development signals a below-target uptake, especially by players in the informal sector who were ideally the key target in the directive.
In the Tax Procedures (Electronic Tax Invoice) Regulations, 2023, KRA had listed supplies by businesses with an annual turnover of less than Sh5 million among nine transactions that would be exempted from the electronic tax invoice in a move that spelled relief for farmers and small businesses.
Other transactions
“The following transactions shall be excluded from the requirement of an electronic tax invoice…supplies by a resident person whose annual turnover is less than five million shillings,” the authority wrote in the regulations.
Other transactions included emoluments, imports, interest, airline passenger ticketing, accounting adjustments, fees charged by financial institutions, and services provided by a foreigner without a permanent establishment in Kenya.
The rules, which came into effect at the beginning of the year, require businesses to produce an electronic tax invoice for all the transactions they undertake, failing which they cannot claim the expense when filing for income tax. Last December, KRA had indicated that small enterprises would only be required to show a record of transactions rather than generate electronic invoices as the authority worked on a separate system to accommodate their operations.
According to the taxman, this would shield small businesses from incurring high compliance costs even as there emerged concerns regarding gaps in technology adoption.
Tax invoices
With e-Tims lite, a user who has made sales will be expected to dial *222# after which he or she will get a message, an invoice, which they can then send to the buyer of their goods.
Initially, the regulations required that tax invoices generated from e-Tims have to have the personal identification number of the registered user, the time and date of issuance, the serial number of the invoice, the buyer’s invoice, the total gross and the total tax amounts, requirements that most small businesses could not fulfil.
Others include the item code of supplies, a brief description of the goods and services, the quantity supplied, the unit of measurement, the tax rate charged, the unique register identifier, the unique invoice identifier, a quick response (QR) code and other requirements as may be specified by the commissioner.
KRA’s move to force e-Tims on small-scale farmers in Central Kenya has touched a raw nerve, with crop growers now expected to be on-boarded by the end of this month.
The economy of Central region — which overwhelmingly voted for President William Ruto in the August 9, 2022 elections — is predominantly agricultural with most families relying on the sale of coffee, tea, milk, fruits, and macademia to earn a living.
KRA has been rallying farmers to register for e-Tims on their mobile phones as they will be expected to start generating an electronic invoice every time they make supplies.
Tax obligations
Failure to generate electronic invoices will see cooperative societies or factories fail to claim this expense when filing income tax returns at the end of the year.
With KRA not recognising expenses paid to suppliers not captured in the e-registry, this will reduce a firm’s costs and inflate its profits and ultimately increase its tax obligations.
With e-Tims, the KRA will be able to monitor all business transactions, which the government believes will help increase collections from the hard-to-tax sectors such as agriculture.
