Living with the e-tax invoice system

On May 4, 2023, the Kenya Revenue Authority (KRA) published a notice on the enforcement of the electronic tax invoice through software called eTIMS (electronic tax invoice management system).

Through this software, the KRA seeks to ensure all value-added tax (VAT) registered taxpayers generate electronic tax invoices that are transmitted to it in real time or near real time.

Starting from June 1, 2023, all VAT-registered taxpayers are required to only accept electronic tax invoices from taxpayers in compliance with the VAT (Electronic Tax Invoice) Regulations, 2020 (Regulations) for claiming input tax and processing of refunds.

This notice carries some implications that taxpayers ought to be aware of.

By upgrading to eTIMS, the KRA has started a journey towards simplified VAT return filing. This is likely to increase the number of people filing returns as the invoices are sent in real-time or near real-time.

Apart from real-time validation of invoices, it is likely that there will be improved accuracy due to automated VAT data management.

This will subsequently reduce the constant challenge of invoice discrepancies.

Accountability is expected to be enhanced since eTIMS includes an array of features such as the verification of invoice data, the use of standardised tax invoices and pre-filled VAT returns.

The Regulations provide that a business-to-consumer supplier on a digital marketplace from an export country is not required to issue an electronic tax invoice provided that they register as per the Regulations.

The suppliers are, however, required to issue invoices or receipts showing the value of the supply and tax charged for purposes of claiming input tax and processing refunds.

VAT taxpayers will have an easier time getting refunds if they only submit electronic tax invoices. This is because invoices are directly communicated to the KRA in real-time or near real time.

Furthermore, electronic tax invoices ensure the accuracy of tax invoice declarations as well as the reconciliation of submitted returns and payments. As a result, it reduces the time required to audit invoices and execute refunds.

eTIMS is likely to eradicate the need for purchasing lots of hardware. The current system comprises electronic tax registers, which have shortcomings such as high complexity, high costs of acquisition and unreliability that make it difficult for many VAT taxpayers to be compliant.

With the new system, accessibility is guaranteed on various devices such as cell phones and laptops, hence it will be easily available to taxpayers at virtually no cost.

The KRA expects the easy accessibility of this new system to translate into many benefits, including the creation of a fair business environment, enhanced revenue collection, improved ability to forecast revenue collection and increased efficiency in service delivery.

In its notice, the KRA reiterated the provisions of the Regulations, which provide that VAT-registered taxpayers who have not complied to only accept electronic tax invoices will not be issued with their tax compliance certificates.

Therefore, their VAT refunds will not be processed, neither will taxpayers be able to claim input tax.

Under the Finance Bill, 2023 traders who do not issue electronic tax invoices to customers are likely to be fined either Sh1 million or 10 times the amount of tax due, whichever is higher.

The KRA has demonstrated serious commitment to using eTIMS as a means of not just tackling fictitious claims but also as a tool to increase the number of VAT-registered taxpayers from the current 113,239 to more than 300,000.

While this move presents benefits, it also presents challenges to the KRA's revenue collection mission.

One, small businesses within the informal sector may not cope well with the technology and the prohibitive fines that have been proposed in cases of default.

This may further widen the gap between the large corporate entities and the small players.

The KRA has a huge task in aligning its vision with the advancement in technology. Additionally, the guidelines in the National Tax Policy provide that technology should be used in capacity development.

The roll-out of the eTIMS technology will, thus, go a long way in fulfilling this by streamlining the administration of VAT, reducing the number of tax cheats and boosting revenue collection.