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Kenya: Development by the KRA of an alternative to the Electronic Tax Invoices Management System for SMEs

28 December 2023
– 2 Minute Read
| Tax

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Overview

  • The Kenya Finance Act amended the Income Tax Act to provide that expenditure and losses from transactions not supported by an electronic tax invoice generated from an electronic tax invoice management system (e-TIMS) would be disallowed save where the transaction is exempt from that requirement.
  • To comply with the e-TIMS requirement, businesses need to purchase electronic tax registers whose costs are prohibitive to small enterprises. The small enterprises have pushed back on the requirement to acquire electronic tax registers owing to the high costs and different levels of technology adoption across the country.
  • In response, the KRA is developing alternative guidelines for small enterprises which pay turnover tax (a tax paid by businesses whose aggregate annual sales or turnover are more than KES 1 million but do not exceed KES 25 million in any year of income).

The Finance Act, 2023 amended the Income Tax Act to provide that with effect from 01 January 2024, expenditure and losses from transactions not supported by an electronic tax invoice generated from an electronic tax invoice management system (e-TIMS) would be disallowed save where the transaction is exempt from that requirement. The requirement shall allow the Kenya Revenue Authority (KRA) to have a real-time view of transactions which are subject to invoices as they occur.

In order to comply with the e-TIMS requirement, businesses would need to purchase electronic tax registers whose costs are prohibitive to small enterprises. The small enterprises have pushed back on the requirement to acquire electronic tax registers owing to the high compliance costs and different levels of technology adoption across the country.

In response to the concerns raised by the small enterprises, the KRA is developing alternative guidelines for small enterprises which pay turnover tax (a tax paid by businesses whose aggregate annual sales or turnover are more than KES 1 million but do not exceed KES 25 million in any year of income). The guidelines are intended to protect small enterprises by reducing their level of compliance and having them only show a record of transactions rather than generate electronic tax invoices. Further, it is expected that the guidelines will enable large and medium-sized enterprises that incur expenses or losses from transacting with such small enterprises to claim the expenses or losses even though they are not supported by e-TIMS electronic tax invoices.

Be that as it may, it is important to note that as of this moment, the requirement that all transactions shall issue an e-TIMS electronic tax invoice as of 01 January 2024 remains in force. We shall keep you updated once the alternative has been gazetted or a draft policy has been shared with the public.