Kenya’s Parliament Finance Committee has proposed exempting small businesses from eTIMS, easing compliance challenges for those with annual sales below Ksh 5 million. The shift of electronic invoicing responsibility to larger firms aims to improve small traders’ access to bigger market opportunities, as many currently struggle with the existing eTIMS requirements. This proposal is part of ongoing discussions in the Tax Procedures (Amendment) Bill, 2024, amid concerns about the viability of small enterprises within the tax system.
Kenya’s National Assembly Finance Committee has proposed an exemption for small businesses from the compulsory electronic tax invoice management system (eTIMS) mandated by the Kenya Revenue Authority (KRA). This recommendation, aimed at alleviating compliance challenges for enterprises with annual sales under Ksh 5 million, is pending approval from Parliament. By shifting the obligation of generating electronic invoices to larger firms sourcing from these small suppliers, the initiative seeks to facilitate the participation of micro traders in the supply chain of bigger corporations.
The implementation of eTIMS, which created a requirement for all suppliers to issue electronic invoices, has deterred larger companies from engaging with small traders due to the latter’s inability to comply with invoicing mandates. Public consultations regarding the Tax Procedures (Amendment) Bill, 2024, revealed that difficulties stemming from the eTIMS regulations threaten the viability and competitiveness of micro businesses, many of which operate without formal records, Personal Identification Numbers (PINs), or adequate access to banking services.
Currently, most transactions occur through platforms like M-Pesa or cash, complicating compliance. Despite the motivation behind eTIMS to improve tax compliance and diminish evasion, over 81% of registered firms reportedly do not adhere to its requirements. As of June, only 120,000 of the approximately 663,000 registered firms had signed up for the system. The original objective was to broaden the tax base while ensuring greater accountability in financial reporting by necessitating firms to submit invoices as proof of expenses.
Yet, the low levels of adoption amongst smaller companies arise chiefly from their inadequate technical capacity and understanding necessary for compliance. Experts, including tax consultants, have expressed significant concerns regarding the eTIMS viability for small businesses. KPMG has suggested that the proposed amendments could provide critical relief to these traders, whose contributions are vital to the health of Kenya’s informal economy. Analysts from PwC have noted that failure to comply with eTIMS could severely restrict small enterprises’ engagement with larger companies and limit their growth potential.
The recommended alterations reflect a balanced approach to the realities confronting small businesses while ensuring that tax compliance remains a priority. The initial target set by the KRA anticipated that 51% of firms would register for eTIMS by June 2025.
The electronic tax invoice management system (eTIMS) was introduced in Kenya as part of the Finance Act, 2023, to enhance tax compliance and combat tax evasion. Under this system, all suppliers, irrespective of their size, were instructed to issue electronic invoices, making it challenging for small businesses that often lack the necessary infrastructure and resources to comply. The intention was to widen the tax base but has led to significant difficulties for micro traders, who account for a large portion of the informal economy. The current proposal to exempt small businesses from eTIMS has arisen from growing concerns over the compliance burden placed on them and the potential economic ramifications of their exclusion from formal supply chains.
The proposal to exempt small businesses from the eTIMS implementation marks a significant recognition of the challenges faced by micro enterprises in complying with stringent tax regulations. By allowing larger firms to take on invoicing responsibilities for their small suppliers, the initiative seeks to foster economic inclusivity and enhance participation in Kenya’s commercial ecosystem. Nonetheless, as discussions progress in Parliament, the success of this proposal will greatly depend on its effective execution and the willingness of larger entities to integrate small traders into their supply chains.
Original Source: www.mwakilishi.com
