The latest gazettement of Kenya Subsidiary Legislation 2024 eliminates these exemptions, compelling all businesses, regardless of size, to comply with the digital invoicing system.
The original exemption was announced in the Tax Procedures (Electronic Tax Invoice) Regulations, 2023, identifying small-scale suppliers as among those not required to adopt the new system.
This exemption was further affirmed in a draft released in January 2024 by the KRA which explicitly stated that supplies by resident persons generating less than Ksh5 million annually would be excluded from the eTIMS requirement.
However, the deadline for mandatory onboarding, which lapsed last month, saw a lacklustre uptake, particularly among informal sector businesses, who were the primary targets of this regulation.
According to KRA data released last month, the tax man registered only 186,530 taxpayers on the eTIMS platform — a significant shortfall from its target of 915,000, marking an 80 per cent deficit.
Introduced in 2022, TIMS, and subsequently eTIMS, were envisioned as enhancements to the Electronic Tax Register (ETR) system that has been operational since 2005.
The Finance Act 2023 brought about the next evolution with eTIMS, designed to offer a streamlined, flexible option for electronic invoicing, which became mandatory from September 1, 2023.
According to the Finance Act, 2023, from January 1, 2024, expenses not supported with valid TIMS or eTIMS-generated invoices would be ineligible for income tax deductions. This includes expenses such as emoluments, imports, investment allowances, interest, and air passenger ticketing.
Despite an initial compliance deadline set for January 1, 2024, the KRA extended the deadline to March 31, 2024, to accommodate more businesses.
This move was in response to considerable public outcry, particularly from small-scale entrepreneurs and informal sector participants who argued the requirements were too onerous given challenges such as lack of access to necessary technology and poor internet connectivity.
Many small business owners have expressed concerns that the sudden policy change could severely disrupt their operations.
Critics argue the requirement for all businesses, regardless of size, to issue electronic invoices can impose significant technological and financial burdens on smaller enterprises, which may not have the resources to meet these demands.
The decision to remove the exemption spells further difficulties for these small operators, who must now navigate the complexities of digital compliance amidst the everyday challenges of running their businesses. Critics argue that this could widen the gap between larger companies and smaller, local businesses, potentially pushing the latter out of the market.
Meanwhile, several transactions such as imports, emoluments, and services rendered by non-residents remain exempt from the eTIMS invoicing requirement.
These exceptions, however, do little to assuage the concerns of small business owners who now face the daunting task of integrating into a digital system that was primarily designed with larger entities in mind.
The Kenya Revenue Authority (KRA) has set an ambitious goal to gather Ksh2.787 trillion in revenue by June 2024.
However, as of December, the collections had lagged in the first five months of the fiscal year, underperforming not only against this year's target but also falling short of the collections in the previous fiscal year.
