Kenya Revenue Authority (KRA) is considering roping more traders in the 16 per cent Value Added Tax (VAT) bracket after the taxman sent a circular reminding traders to register and comply with the electronic tax Invoice management systems (eTIMS). In what is part of a scheme meant to digitise Kenya’s tax collection processes and enhance compliance, the taxman has been pushing all traders to generate and transmit their invoices electronically to KRA via the eTIMS.

Business expenditure

“Effective 1st January 2024, business expenditure not supported by an eTIMS generated tax invoice is not deductible for tax purposes,” read part of the notice in a local daily.

To facilitate compliance, the taxman said that “KRA has availed various solutions including simplified solutions dubbed e-TIMS Lite” for non-VAT registered traders.

The introduction of eTIMs which was launched in 2022 and mandatory requirement for all could have serious implications on small and low-margin businesses, especially in the informal sector. Among others, they will now have to grapple with increased compliance costs, administrative burdens, and cash flow pressures. The reminder by KRA comes just days after President William Ruto’s senior economic advisor Moses Kuria hinted mobile money, including M-Pesa, will be converted into Electronic Tax Registers (ETRs) by December 25, 2024.

Given that most firms already operate in a challenging economic climate, they are likely to face liquidity issues if mobile money transactions increase in cost.

Kuria, however, retracted the remarks on M-Pesa pay bills being converted to Electronic tax receipts (ETR) by December as being mistaken. In a clarification on X, Kuria said the directive will not only affect M-Pesa but all payment service providers, including banks terming it an industry issue. As KRA pushes for businesses to comply with eTIMS, around three-quarters of registered enterprises in the country snubbed the system in its first year of operation.