Kenya’s National Assembly Finance Committee has proposed exempting small businesses from eTIMS, which mandates electronic tax invoices. This change aims to ease compliance for businesses with annual sales below Sh5 million, addressing challenges that prevent micro traders from engaging effectively with larger companies. The proposal aligns with broader efforts to enhance the operational viability of small enterprises and improve their interactions within the economic framework.
The Kenya National Assembly Finance Committee has proposed an exemption from the Kenya Revenue Authority’s (KRA) electronic tax invoice management system (eTIMS) for small businesses. This recommendation targets establishments with annual sales below Sh5 million, intending to alleviate compliance challenges that hinder micro traders from engaging with larger companies. Currently, all suppliers must issue electronic invoices regardless of their size, placing small traders at a disadvantage, as larger firms often prefer suppliers capable of generating eTIMS-compliant invoices.
The proposed amendments would shift the obligation of generating electronic invoices to larger companies procuring goods from small suppliers. This proposal surfaced after public consultations on the Tax Procedures (Amendment) Bill, 2024. Stakeholders, such as the Kenya Association of Manufacturers (KAM), noted that the eTIMS requirements present significant hurdles for farmers and small businesses, many of which lack formal records, Personal Identification Numbers (PINs), or banking capabilities. Small transactions, often conducted through M-Pesa or cash, further complicate compliance.
Although the introduction of mandatory electronic tax invoices through eTIMS aimed to boost tax compliance and minimize evasion, resistance has been substantial, with over 81% of registered firms failing to comply with eTIMS mandates. As of June, the KRA reported that merely 120,000 of the approximately 663,000 firms had registered for eTIMS. The primary objective of eTIMS is to widen the tax base by ensuring that firms submit receipts or invoices as proof of expenses, thus reducing the potential for sales inflation or profit minimization aimed at lowering tax obligations.
Concerns regarding the practicality of eTIMS for small enterprises have been expressed by tax consultants and analysts. KPMG has indicated that the proposed amendments could offer vital relief to small traders, who are pivotal to Kenya’s economy, particularly within the informal sector. Additionally, analysts from PwC have warned that failure to comply with eTIMS could significantly obstruct small businesses’ transactions with larger entities. These proposed modifications reflect a prudent approach that balances the necessity of tax compliance with the genuine challenges faced by small enterprises. Initially, the KRA targeted a 51% registration rate for businesses by June 2025.
The topic of this article centers around the recent recommendation by Kenya’s National Assembly Finance Committee regarding the eTIMS system and its impact on small businesses. The electronic tax invoice management system was instituted to enhance tax compliance and minimize evasion, particularly among larger firms. However, the rigid requirements have posed significant challenges for small enterprise operators, who often lack the infrastructure and capacity to comply with electronic invoicing mandates. The ongoing discussion around this proposal reflects a growing recognition of the economic role small businesses play, especially within the informal sector, and the need for a regulatory framework that acknowledges their unique circumstances.
In conclusion, the proposed exemption from the eTIMS for small businesses represents a significant step towards facilitating better engagement of micro traders with larger firms. By shifting the obligation of electronic invoice generation to larger companies, the amendments aim to alleviate compliance burdens, thereby promoting inclusivity within the economy. This approach not only supports the operational realities of small businesses but also acknowledges their vital contribution to the overall economic landscape of Kenya. The final decision awaits parliamentary approval, which will determine the future landscape of tax compliance for small enterprises in the country.
Original Source: www.mwakilishi.com
