With the lapse of the deadline for signing up to the electronic tax invoice management system (eTIMs), the Kenyan business world has moved to implementing the new model which heralds a profound transformation in tax compliance in the country.
As is common with major changes, confusion is rife. I will highlight some of the key changes occasioned by eTIMs and their implications on businesses.
The first major change relates to the treatment of business expenses for tax purposes. Traditionally, deductibility of business expenses hinged on whether they were incurred wholly and exclusively to generate income. However, the new system introduces a stringent administrative layer, requiring expenses be supported by eTIMs invoices for them to be tax deductible, failure of which subjects businesses to a 30 percent corporate tax liability. This shift necessitates meticulous adherence to eTIMS protocols to avoid unfavourable tax consequences.
Historically, timely payment of balance and instalment taxes posed challenges for businesses due to the intensive process of preparing audited books of accounts early in advance.
With eTIMs, live transaction data transmission to the Kenya Revenue Authority (KRA) enables real-time tax position monitoring. Automatic invoice reconciliation generates estimates of corporate and instalment tax, enabling the taxman to issue accurate and timely tax demands. This change is expected to occasion greater compliance because eTIMS will provide greater visibility of this somewhat forgotten compliance metric.
Thirdly, eTIMs promises to do away with labour-intensive, in-person tax audits. eTIMs empowers the KRA with comprehensive customer and transaction data, enabling automated assessments. By reconciling returns against eTIMs records, the taxman can speedily identify discrepancies. Taxpayers therefore need to be meticulous about their tax records since, in the event of an appeal, they bear the burden to prove that a KRA assessment is excessive.
Lastly, the KRA has developed a functionality that validates VAT return declarations against eTIMs data. This functionality will likely be extended to corporate tax filings to curtail businesses from claiming non-eTIMs invoices for tax purposes. This will involve pre-populated tax returns whereby the taxpayer will not be permitted to input data manually for tax filing.
Further, eTIMs streamlines VAT processes by automating registration based on revenue thresholds. Taxpayers are likely to be automatically registered for VAT upon reaching the Sh5 million VATable revenue threshold, thereby eliminating reliance on self-declarations for registration.
From our reading of published legislation, there exists no exemption that is based on a revenue threshold, and as such, save for the stated exemptions, such as imports, interest, salaries and airline passenger ticketing, all other transactions would be subject to eTIMS.
Given that a majority of taxpayers are yet to transition to the e-TIMS system, despite the deadline extension, it is expected that the KRA will enhance its audit activities to identify instances of non-compliance and support businesses yet to transition.
Therefore, embracing eTIMs enables businesses to navigate the evolving tax landscape with confidence, ensuring compliance and fostering sustainable growth in the dynamic Kenyan business environment.
The writer is a tax partner at Tarra Agility Africa. [email protected]
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