The Kenya National Assembly Finance Committee has proposed an exemption for small businesses from the eTIMS system, which mandates all suppliers to issue electronic invoices. This recommendation aims to ease the compliance burden on businesses with annual sales below Sh5 million and addresses the challenges they face in engaging with larger firms, thus facilitating better economic integration. The proposal is under parliamentary consideration following public consultations highlighting the struggles of small traders.
The Kenya National Assembly Finance Committee has put forward a proposal that seeks to exempt small businesses with annual sales under Sh5 million from the Kenya Revenue Authority’s (KRA) electronic tax invoice management system (eTIMS). This recommendation aims to alleviate the regulatory burden on micro traders, who currently face significant challenges under the existing eTIMS requirements. As it stands, all suppliers must issue electronic invoices, which has made smaller traders less attractive to larger companies, resulting in economic barriers. \n\nThe proposed amendment would reallocate the responsibility of generating eTIMS-compliant invoices to large firms that source from small suppliers. This shift aims to create a more equitable trading environment by enabling small businesses to engage with larger enterprises without the added complexities of electronic invoicing. The discussion surrounding this proposal stems from recent public consultations related to the Tax Procedures (Amendment) Bill, 2024, and highlights the difficulties faced by rural businesses, many of which lack formal records, Personal Identification Numbers, or access to banking services.\n\nMany transactions in this sector often rely on informal methods, such as cash payments or M-Pesa, making compliance with electronic invoicing even harder. The KRA’s original goal of enhancing compliance through eTIMS has not materialized as intended, with over 81% of registered businesses failing to comply with its requirements. Currently, only around 120,000 of the estimated 663,000 firms are registered for the system. \n\nThe eTIMS initiative aims to broaden the tax base through stringent requirements for receipts and invoices as proof of transactions to combat sales inflation and profit reduction for tax benefits. However, the deficient uptake among smaller firms can be attributed to their insufficient technical resources and understanding of the system. Tax analysts, including those from KPMG and PwC, have expressed concerns regarding the detrimental impact of non-compliance on small businesses’ operations with larger counterparts. The proposed amendments indicate a methodical acknowledgment of the need for tax regulation to adapt to the realities encountered by small enterprise operators.
The discussion regarding the eTIMS system is rooted in its introduction under the Finance Act of 2023, which sought to improve tax compliance and reduce evasion in Kenya’s economy. As part of this system, all suppliers, irrespective of size, were mandated to provide electronic invoices, creating an oversight mechanism to ensure businesses accurately report their sales figures and tax liabilities. The ramifications of this requirement have significantly affected small-scale traders, leading to increased challenges in their engagement with larger firms. Public consultations and industry stakeholder dialogues have pointed out the lack of resources and support for these small businesses, validating the need for modifications to the current regulations. As a result, the proposal from the National Assembly aims to address these fundamental concerns and foster a more inclusive economic landscape.
In summary, the Kenya National Assembly Finance Committee’s proposal to exempt small businesses from the eTIMS requirements addresses crucial barriers that currently restrict micro traders within the framework of Kenya’s economic landscape. By transferring the eTIMS invoice generation responsibility to larger companies, the initiative looks to enhance opportunities for small suppliers to engage with larger firms while maintaining a focus on compliance and tax accountability. The suggested amendments reflect a necessary balance between regulatory requirements and the operational realities faced by small businesses, underscoring the pivotal role these entities play in Kenya’s economy.
Original Source: www.mwakilishi.com
