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November 15, 2023
2023-1897

Kenya requires non-VAT-registered taxpayers to onboard on e-TIMS

  • The Kenya Revenue Authority now requires all taxpayers carrying on business to onboard on the electronic Tax Invoice Management System (e-TIMS).
  • Taxpayers should ensure electronic generation and transmission of invoices through e-TIMS with effect from 1 January 2024.
  • Failure to register exposes a taxpayer to a penalty that is twice the amount of tax due and makes the expense nondeductible for corporation tax purposes.

The Kenya Revenue Authority (KRA) has issued a public notice (November 2023) requiring all taxpayers carrying on business, including those not registered for value added tax (VAT), to onboard on the electronic Tax Invoice Management System (e-TIMS). The electronic Tax Invoicing Management system was introduced in Kenya following the gazettement of the VAT (Electronic Tax Invoice) Regulations, 2020, which replaced the electronic tax register in force since 2005. Pursuant to the regulations, only VAT-registered taxpayers were required to maintain an electronic tax invoicing system. The regulations also prescribed the details that an electronic tax invoice should have, including buyer pin (optional), unique register identifier (control unit serial number), unique invoice identifier (control unit invoice number) and a quick response (QR) code.

The KRA facilitated the transition to Tax Invoice Management System (TIMS) and VAT-registered taxpayers were required to have complied with the regulations by 30 November 2022. On 1 February 2023, the KRA introduced e-TIMS as an alternative to TIMS electronic tax register (ETR) devices. Unlike TIMS, which is device/hardware based, e-TIMS can be accessed through computers and mobile phone applications (i.e., software based — software as a service (SaaS)). All data generated through TIMS/e-TIMS is transmitted in real time to the KRA, giving the KRA visibility of revenues generated by taxpayers before tax returns are filed.

The KRA further issued a public notice indicating that, effective 1 June 2023, taxpayers would only be allowed to claim input VAT against invoices that have been generated through TIMS/e-TIMS. Importantly, the notice clarified that for VAT purposes, a tax invoice would be deemed valid only if it was generated through TIMS/e-TIMS. Also, taxpayers who do not use these invoices will not be entitled to VAT refunds.

The KRA however noted a limitation in that e-TIMS was restricted to taxpayers registered for VAT. In a bid to broaden the application of e-TIMS, the Finance Act 2023 introduced two critical provisions:

  1. Section 23A of the Tax Procedures Act empowers the KRA to establish an electronic system for the issuance of tax invoices and maintenance of stock records. The requirement became effective on 1 September 2023. Emoluments, imports, investment allowances, interest, airline passenger ticketing and similar payments were exempted from the requirement to comply with e-TIMS. The Commissioner also has the power to exempt any person from the requirement by notice in the Gazette.
  2. Section 16(1)(c) of the Income Tax Act disallows the deduction of any expenses (for income tax purposes) that are not generated through TIMS/e-TIMS, effective 1 January 2024.

Exercising the power provided under Section 23A of the Tax Procedures Act, the Commissioner issued the public notice reminding all taxpayers carrying out business, including those not registered for VAT, to register and ensure electronic generation and transmission of invoice through e-TIMS with effect from 1 September 2023.

All taxpayers carrying out business and whose operations are not exempted under Section 23A of the Tax Procedures Act are encouraged to heed to the public notice. The penalty for default is twice the amount of tax due. In addition, a person who does not have invoices issued through e-TIMS will not be eligible to deduct the expense in arriving at taxable income for corporation tax purposes.

Next Steps

Newly registered taxpayers and non-TIMS/e-TIMS registered taxpayers should onboard at the earliest opportunity.

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For additional information in respect of this alert and its contents please contact the following:

Ernst & Young (Kenya)

Published by NTD's Tax Technical Knowledge Services group; Carolyn Wright, legal editor

 

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