Kenya’s Parliament is considering a proposal to exempt small businesses from the eTIMS system, aiming to ease compliance challenges for entities with annual sales below Sh5 million. The initiative seeks to transfer invoice generation responsibilities to larger firms, addressing barriers faced by small traders as public consultations inform the Tax Procedures (Amendment) Bill, 2024.
The National Assembly Finance Committee in Kenya has proposed an exemption for small businesses from the Kenya Revenue Authority’s (KRA) electronic tax invoice management system (eTIMS). This initiative seeks to alleviate the compliance burden on businesses generating annual sales under Sh5 million, awaiting Parliamentary approval. Currently, the eTIMS mandate obliges all suppliers to issue electronic invoices, which has made it difficult for small traders to engage with larger firms due to their lack of ability to generate compliant invoices.
The recommended changes would transfer invoice generation responsibilities to larger firms procuring goods from small suppliers. These recommendations stem from public consultations regarding the Tax Procedures (Amendment) Bill, 2024, which aims to address the compliance challenges faced by farmers and small enterprises lacking formal business records. Many transactions occur via cash or M-Pesa, complicating adherence to eTIMS regulations. This mandatory eTIMS system, introduced under the Finance Act, 2023, intended to reduce tax evasion, yet has experienced considerable resistance, with over 81% of registered firms failing to comply as of June.
The KRA indicated that only 120,000 of approximately 663,000 firms had registered for eTIMS. The initiative aims to broaden the tax base by requiring receipts or invoices as proof of expenses, thus preventing sales manipulation for reduced tax liabilities. However, limited adoption among small businesses highlights the lack of necessary technical infrastructure and understanding. Tax consultants and analysts have expressed serious concerns regarding eTIMS viability for small enterprises, and KPMG noted the importance of the proposed amendments in providing essential relief for small traders in the informal sector.
Analysts from PwC have previously warned that non-compliance with eTIMS could jeopardize small businesses’ transactions with larger companies. The suggested amendments underscore the need to reconcile tax compliance with the operational realities of small enterprises. Originally, the KRA set a target for 51% of businesses to register for eTIMS by June 2025, highlighting the ongoing initiatives towards regulatory compliance in Kenya.
The proposal to exempt small businesses from eTIMS arises in response to the increasing challenges they face with compliance. eTIMS mandates all businesses to issue electronic invoices, which significantly affects small traders who often lack the capacity or resources to comply fully with these requirements. The National Assembly Finance Committee is actively seeking to mitigate these difficulties, particularly for informal enterprises which constitute a vital aspect of Kenya’s economy. The context includes ongoing efforts to enhance tax compliance while recognizing the operational limitations experienced by smaller entities within the commercial landscape.
In summary, the proposed exemption from eTIMS for small businesses is a significant step towards reducing compliance burdens on traders with annual sales below Sh5 million. By shifting invoice generation responsibilities to larger firms, this initiative could enhance the operational capabilities of small businesses while fostering greater engagement with larger companies. As the Tax Procedures (Amendment) Bill, 2024 progresses, it reflects a pragmatic approach to balancing tax regulations with the realities faced by small enterprises in Kenya’s economy.
Original Source: www.mwakilishi.com
