More than half of small businesses in the country have failed to adopt the new internet-enabled tax registers (ETRs) that relay daily sales to Kenya Revenue Authority (KRA) denying the taxman billions of shillings in revenue from value-added tax.
KRA says 94 percent of large businesses making over Sh1.3 billion in revenue annually had acquired the ETRs and integrated with the authority’s system –Tax Invoice Management System (TIMS) ahead of effective date while 82 percent of medium businesses were compliant.
Only 43 percent of small businesses with an annual turnover of less than Sh200 million were complaint, risking a Sh1 million fine or a jail term of three years if they fail to install upgraded electronic tax registers.
About 240,000 businesses are VAT-registered but only 106,000 entities file taxes while the rest are non-filers or nil-filers.
The new ETRs are expected to increase collection from VAT by at least 30 percent or Sh156.93 billion.
“Our focus has now moved from onboarding to compliance through invoice transmission,’’ said TIMS operations chief manager Hakamba Wangwe.
The new ETRs were introduced to send real-time data on traders’ daily sales to KRA and fight tax evasion arising from manual filing and long queues at Time Tower as per regulations announced in 2020.
KRA had extended the deadline for compliance two times in July and in September.
Under the new system, KRA receives sales and invoice data from all registered companies and traders on a daily basis in a fresh push to boost revenue collections and curb tax evasion.
It targets all businesses that have an annual turnover of at least Sh5 million.
The system is expected to net in traders who have not registered for VAT, as transactions will show items bought and amount, hence expanding the 106,000 businesses baseline.
"We expect the number of active taxpayers to go up. We will have more visibility of people who should be registered,” said Wangwe.
“We are moving towards using the data available to us to enhance compliance. Regardless of whether you are on-boarded, you don’t use it in a day or not using the devices we can see.”
KRA collected Sh523.1 billion from VAT in the financial year ended June 2022, a 27.3 percent growth from Sh410.8 billion in the financial year ended June 2021.
The collection represents 4.3 percent of Kenya’s gross domestic product (GDP) of Sh12.098 trillion in 2021, with tax authority looking to raise this to seven percent.
Unavailability of the new upgraded ETRs, high cost of buying them and tight economic conditions for traders had forced KRA to delay the rollout.
It approved 19 suppliers to address the hitches, with the taxman adding that the shortages have been cleared.
Traders were issued with a one and half years window for compliance and cushion them from the cost implication of acquiring the devices.
The ETR is retailing at between Sh45,000 and Sh120,000 while the billing software is about Sh80,000.
Traders had raised concerns about operations challenges faced in integration with the authority’s new system due to retailers’ discounts offered to customers and expatriates’ refunds.