As Kenya enters the annual tax filing season, the spotlight is on businesses and their compliance with the Kenya Revenue Authority’s Electronic Tax Invoice Management System (eTIMS).
Introduced as part of Kenya Revenue Authority (KRA)’s strategic efforts to enhance tax compliance, simplify invoicing, and improve revenue collection, eTIMS represents a significant shift in how businesses report and manage their transactions.
eTIMS is a software-based solution designed to enable taxpayers to electronically generate and transmit tax invoices in real-time.
The system has been developed to support multiple platforms, ensuring inclusivity across various business scales and technological capacities. This system integrates directly with KRA’s back-end, offering greater transparency, minimising tax evasion, and streamlining processes for both the authority and taxpayers.
The implementation of eTIMS offers numerous benefits for both the tax authority and businesses. For KRA, real-time data submission strengthens its ability to track transactions, detect anomalies, and minimise tax evasion. It also facilitates better policymaking through access to timely and reliable data.
For businesses, eTIMS simplifies tax compliance by automating the invoicing process. The system reduces manual paperwork, minimises errors, and offers a centralised digital record of all issued invoices, greatly aiding in return preparation and audits. Moreover, having an organised and transparent invoicing system enhances a business’s credibility with clients and partners.
From September 1, 2023, all business entities, whether VAT-registered or not, have been required to issue and transmit tax invoices via eTIMS. Recognising the need to accommodate businesses that may need more time to adapt, KRA extended the onboarding deadline for non-VAT registered taxpayers to March 31, 2024.
This phased implementation reflects KRA’s commitment to supporting a smooth transition while maintaining its goal of a more transparent tax system.
However, there are notable exemptions to the eTIMS requirement. Specific transactions such as employment income, importation of goods, capital deductions, bank charges, interest payments, and fees by non-resident entities without a permanent establishment in Kenya are exempt.
Additionally, services subject to final withholding tax, airline ticketing, and internal accounting adjustments fall outside the scope of mandatory electronic invoicing. The Commissioner also has the authority to grant further exemptions on a case-by-case basis.
These exemptions are critical in ensuring that the system is practical and sensitive to the unique operational realities of different business sectors. Businesses are advised to consult tax professionals to understand whether their transactions qualify for exemption and to ensure full compliance where required.
To support micro and small enterprises, particularly those with annual turnovers of less than Sh5 million who may not have adopted eTIMS fully, KRA has introduced a Buyer Initiated Invoicing Solution. This mechanism ensures that even small and informal sector businesses can comply with eTIMS requirements without the burden of installing complex systems.
Despite its benefits, the rollout of eTIMS has not been without its challenges. One major hurdle is limited internet connectivity, particularly in rural and remote areas. To address this, KRA has introduced a USSD-based invoicing alternative, allowing basic mobile phones to be used for compliance without internet access.
Cost is another concern. Many businesses have had to invest in new infrastructure, including hardware, software, and integration services to adopt eTIMS. For small enterprises operating on tight budgets, these costs can be prohibitive.
Furthermore, since eTIMS is regularly updated and improved, keeping up with the changes can be challenging. It is therefore essential for taxpayers to stay alert and informed to ensure compliance.
Failure to comply with eTIMS requirements could have consequences. Under the Tax Procedures Act (TPA), non-compliant businesses risk penalties of up to twice the amount of tax due.
As part of its ongoing efforts to enhance tax compliance through digitisation, KRA has recently launched the electronic Rental Income Tax System (eRITS). This platform is designed to streamline the process for rental income tax compliance, complementing initiatives like eTIMS.
As the tax filing season progresses, the focus for businesses must be on ensuring full compliance with eTIMS.
Taxpayers are encouraged to file their returns well ahead of the deadline as iTax often slows down due to heavy traffic closer to the deadline.
The writer is a Manager in the Tax Compliance department, PwC
