On 25 March 2025, the Kenya Revenue Authority (KRA) published the Buyer Initiated Invoicing Guidelines (Reverse Invoicing Guidelines or the Guidelines). The Guidelines detail how small businesses or small-scale farmers, whose annual turnover does not exceed KES 5 million (Small Businesses or Sellers) can comply with the electronic Tax Invoice Management System (eTIMS) requirements.
Pursuant to the Reverse Invoicing Guidelines, the purchasers (rather than the suppliers who are the Small Businesses) would raise the invoices on supplies from the Small Businesses via the eCitizen platform. Notably, the Reverse Invoicing System allows purchasers to raise single invoices for an individual seller or batch invoices for multiple sellers. The invoice raised by the purchaser would then be approved by the supplier via eCitizen or USSD (*222#).
The Guidelines have been published pursuant to section 23A(3A) of the Tax Procedures Act, Chapter 469 of the Laws of Kenya, which provides that where a supply is received from a Small Business, the purchaser shall issue a tax invoice for the purposes of ascertaining the tax liability.
The Guidelines aim to assist purchasers to continue procuring supplies from Small Businesses. The Finance Act 2023 amended the Income Tax Act, Chapter 470 of the Laws of Kenya to include section 16(1)(c) requiring any expenditure of a business to be supported by invoices generated from eTIMS for such expenditure to be deductible in computing the taxable income of such person.
There are exemptions for items that would not be expected to have eTIMS-generated invoices, such as payments of salaries and wages to employees, airline passenger tickets, imports, investment allowances and interest on loans.
The eTIMS compliance requirements were meant to take effect from 1 September 2023. Effective 1 January 2024, any business expenditure not supported by a valid electronic tax invoice would not be deductible for income tax purposes. However, due to practical and administrative challenges experienced by the Small Businesses, non-VAT registered taxpayers were allowed up to 31 March 2024 for onboarding into the e-TIMS platform.
Upon onboarding, the Small Businesses would then be required to progressively capture the manually generated invoices as well as receipts issued after 1 January 2024 until the date of onboarding onto the eTIMS platform.
Whereas the Guidelines do not specify the effective date of implementation, we are of the view that they are final and effective immediately. We have tested the purchaser invoicing on eCitizen and confirm that the reverse invoicing works as envisaged.
Whilst this is a positive development to enable large purchasers to make acquisitions from Small Businesses whilst still being tax compliant, this may add to the administrative burden of purchasers in Kenya. For Small Businesses, this is a relief from the challenges that came with e-TIMS compliance, including technical glitches, complex user interfaces and lack of proper technology.
