Small businesses will only be required to show a record of transactions rather than generate electronic invoices as the Kenya Revenue Authority works on a separate system to accommodate their operations.
Starting January 1, 2024, every transaction has to be backed by an electronic invoice but the taxman wants to shield small businesses from this requirement owing to high compliance costs and concerns of gaps in technology adoption.
In the new system whose rollout is yet to be approved, rather than generating and transmitting electronic invoices through the electronic Tax Invoice Management System (e-Tims), small businesses will only show transactions.
Hakamba Wangwe, KRA chief manager for eTims, said the system will be of great benefit to farmers who don’t have the technical capacity to operate within the various internet-based solutions.
“So what happened is that we have worked on a further simplified solution for the lower-end taxpayers,” said Ms Wangwe in an interview with Business Daily.
Ms Wangwe said that the KRA will cap the qualification threshold for this category subject to approval. However, she noted that they might cap it at the threshold of businesses that pay turnover tax.
Turnover tax is paid by any Kenyan business with annual sales of more than Sh1 million but does not exceed or is expected to exceed Sh25 million in any year of income.
“So that if you are falling in that category of the lowest end of taxpayers, then we have solutions that are being developed that are very simple. All you need is for you to account for a transaction,” added Ms Wangwe.
“You don’t have to do stock management. We just need to do visibility; ‘What did you sell to so and so?” she added.
Starting January next year, the KRA will also be integrating e-Tims to other tax categories, which means if you want to declare a transaction as a business claim then you need to support it by producing an electronic tax invoice.
The taxman will not accept invoices from suppliers not captured on e-Tims, an internet-enabled tax register that relays real-time sales data to the taxman for firms registered to collect value-added tax (VAT).
By not recognising expenses paid to suppliers not captured in the e-registry, this will reduce a firm’s costs and inflate its profits and ultimately increase its tax obligations.
Ms Wangwe said that the implementation of the e-TIMS has so far captured a lot of Nil and non-filers, an indicator that for long these taxpayers were concealing their transactions from the taxman.
So far the KRA has on-boarded almost all the registered VAT taxpayers, who include mostly large and medium taxpayers. There are a total of 250,000 registered VAT taxpayers, with 76,960 having been on-boarded through TIMS, which uses electronic registers.
Another 53,010 have been on-boarded through e-Tims with the administration of President William Ruto emphasising the use of technology to net more taxpayers.
Some 3,500 that are already on board are not VAT-registered.
“Ideally, if the register we have for VAT is accurate then we should have the entire 250,000 on board,” said Ms Wangwe.
“Should this number not come through then we are going to take some cleaning of our register because we have some entities that need to be registered especially the non-filers.”
The VAT, which is charged at 16 percent, is one of the tax categories that the government will rely on to meet the collection target of Sh2.57 trillion.
The e-Tims, said Ms Wangwe, is already providing the KRA with that much-needed visibility.
“I can tell you for a fact we have had a situation where taxpayers have actually been perpetual nil filers and then they come to this implementation and now they have to start filing payment returns.” She also attributed the growth in VAT to the implementation of Tims and e-TIMS. “That means it has had an impact.”
In the first quarter of the current fiscal year, VAT on local products increased by 21.1 percent to Sh75.8 billion from Sh62.6 billion a year earlier. However, the target of Sh79.2 billion was missed by Sh3.4 billion.
The VAT on imports meanwhile grew by 11.7 percent to Sh77.2 billion in the review period.
The KRA also wants to use the new system to recruit more VAT agents, noting that there are many businesses with a turnover of more than Sh5 million a year, the threshold for collecting VAT on behalf of the taxman, but which have not been registered because their transactions are not visible to the KRA.
