More than three-quarters of registered companies have snubbed the Kenya Revenue Authority (KRA)’s electronic tax invoice management system (eTIMS), dealing a blow to efforts to drive compliance and curb tax evasion.
Only 120,000 registered taxpayers with business income signed up to eTIMs in the year to June, representing 18.1 percent of about 663,000 firms in taxman’s books, according to an internal document seen by the Business Daily. This means an estimated 543,000, or 81.9 percent, of firms in the KRA register did not subscribe to eTIMs.
The system, which requires businesses to file receipts or invoice with the KRA as proof of expenses, is aimed at widening the tax base as big companies report to the authority small firms that act as their suppliers.
It also helps curb the practice where big firms inflate their sales and narrow profits in the push to pay lower taxes.
Lawmakers amended Section 16 of the Income Tax Act through the Finance Act 2023 that required businesses from January to produce electronic receipts to deduct operating costs such as wages to employees, utilities, supplies, travel, marketing and advertising expenses.
Following an outcry from businesses, the registration deadline was extended to March, meaning all businesses were to onboard eTIMs from April 1 whether they are registered for value added tax obligations or not.
This has allowed the taxman to monitor business transactions on a near real-time basis, enabling it to flag discrepancies in income tax returns filed by firms.
Tax consultants largely attribute the low uptake of eTIMS for business expenses to the majority of smaller firms “lacking the technical infrastructure or understanding to comply swiftly”.
Stephen Waweru, a senior manager for tax services at consultancy and audit firm KPMG, said the slow start could be linked to inadequate training and support offered to small businesses, which form the majority of companies in the country.
“This may be attributed to a lack of awareness, technical difficulties, or resistance from businesses due to the perceived complexity of the new system,” Mr Waweru said.
“This performance could also be viewed as a natural outcome of a phased rollout where early adopters, usually larger or more compliant businesses, sign up first, while smaller or more reluctant businesses follow later.”
Tax invoices generated from eTIMs have the PIN of registered user, the time and date of issuance, the serial number, the buyer’s invoice, the total gross and tax amounts.
Automatic reconciliation of electronic invoices or bills generates estimates of corporate income tax, which is paid in quarterly instalments, allowing the KRA to issue relatively accurate and timely tax demands while raising transparency levels in tax administration.
“This [low uptake] is a disheartening performance, sending a message that businesses are not comfortable with the eTIMS system. But I have noticed that the attachment of deductibility of costs to the eTIMS system means the system is here to stay. So businesses are more inclined to take on the system,” said Philip Muema, managing partner at Andersen Kenya, a tax and business advisory firm.
“It would have been much different if the deductibility of costs had not been linked to the system.”
The KRA expects to list about 51 percent of businesses in its register to eTIMS within the year ending June 2025.
Mr Waweru sees the target as realistic, projecting a performance of between 50 and 60 percent depending on intensity of KRA’s audits, the level of targeted campaigns and incentive packages for compliance.
“Increased awareness could drive adoption, especially among small and medium-sized enterprises [SMEs] that might currently be uncertain about the process. However, full adoption may take longer without sustained enforcement, campaign, and support from KRA,” Mr Waweru said.
The use of eTIMS to determine deductible costs when calculating income tax is in addition to provisions of Section 23 of the Tax Procedures Act which required businesses registered for value-added tax to issue electronic receipts on sales from September 2023.
The requirement for electronic invoices or bills on sales allows the revenue agency to have visibility of claims of VAT refunds by companies.
The compliance amongst VAT-registered businesses — those with annual sales of at least Sh5 million —was higher in the year ended June 2025 at 57 percent. This is after 145,000 of 252,000 businesses registered for VAT signed up for eTIMS in the review period. The KRA has set a target of 75 percent this financial year for VAT-registered firms.
Overall, the compliance for eTIMS — for both VAT and business income — stood at 37.5 percent last fiscal year, the KRA says, projecting the rate to jump to 63 percent by June 2025.
“There is a need to continue with attempts to get public buy-in. Not only businesses need to know that the system is upon us, but even final consumers so that they can ask for eTIMS receipts for their final consumption costs,” Mr Muema said.
The new system requires that all business expenses are supported by eTIMS invoices or bills, failing which companies will be subjected to 30 percent tax on corporate earnings.
Receipts from the domestic VAT stream amounted to Sh313.37 billion for the year ended June 2024, data kept by the Treasury shows, overshooting the target by Sh5.54 billion.
The KRA views the rollout of the eTIMS as a game changer which will finally make VAT the topmost revenue generator, leapfrogging income tax, which is far ahead, in coming years.
“As it is now if there’s one tax head that every single person is paying is VAT. Even to a small child on products which are not exempt [VAT is applicable]. Everybody is incurring VAT,” Commissioner for Domestic Taxes Department Rispah Simiyu said at an earlier sensitisation forum on eTIMS.
“Why then shouldn’t it be the tax head that performs the best? That remains a challenge to us… and it is a challenge that we are taking graciously.”
