Kenya’s Parliament Seeks eTIMS Exemption to Support Small Businesses
Kenya’s National Assembly Finance Committee has proposed exemptions from the eTIMS for small businesses with annual sales under Sh5 million. This aims to ease the compliance burden and enhance business engagement. Stakeholder concerns prompted the suggestions, as many small enterprises struggle to comply due to limited resources. Current mandatory eTIMS requirements have led to low uptake among small traders, raising doubts about its implementation’s feasibility.
The National Assembly Finance Committee in Kenya has recommended that small businesses be exempt from the electronic tax invoice management system (eTIMS) mandated by the Kenya Revenue Authority (KRA). This proposal aims to reduce the compliance burden for enterprises with annual sales below Sh5 million, which struggle to meet the eTIMS requirements. Presently, all businesses are obligated to issue electronic invoices, a mandate that has created substantial challenges for smaller traders who lack the necessary infrastructure to comply. The recommendations suggest transferring the responsibility of generating electronic invoices to larger firms that procure goods from small suppliers.
Public consultations regarding the Tax Procedures (Amendment) Bill, 2024, revealed significant obstacles facing micro traders, as they often do not possess formal records, Personal Identification Numbers (PINs), or banking facilities. Transactions within this sector frequently occur via mobile payment systems or cash, complicating adherence to the eTIMS framework. Initially introduced to promote tax compliance and curtail evasion, eTIMS has met resistance, evidenced by over 81% of registered firms failing to comply, with only 120,000 out of approximately 663,000 firms having registered for the program by June.
Despite its intent to broaden the tax base by requiring proof of sales through receipts or invoices, the system has seen minimal uptake among small businesses, mainly due to their limited technical resources and knowledge. Concerns regarding the viability of eTIMS for small traders persist, with professionals from firms like KPMG identifying the potential relief the proposed amendments could offer to these vital components of Kenya’s economy. Furthermore, PwC analysts have warned that failure to comply with eTIMS may impede small businesses’ transactions with larger enterprises. The current recommendations recognize the necessity of balancing tax compliance demands with the authentic challenges faced by smaller entities while KRA set a target for 51% registration by June 2025.
The context of this discussion revolves around the implementation of the electronic tax invoice management system (eTIMS) in Kenya, designed to enhance tax compliance and mitigate evasion. Introduced as part of the Finance Act, 2023, eTIMS mandates all businesses, regardless of size, to issue electronic invoices. This requirement, however, disproportionately affects small traders, particularly those with minimal sales and technological resources, creating friction in their ability to engage with larger firms. The recognition of these challenges has led to public consultations and resulting proposals to amend the existing tax procedures, considering the unique circumstances of micro-entrepreneurs and their role in the informal economic sector.
In conclusion, the proposal by Kenya’s National Assembly Finance Committee to exempt small businesses from the eTIMS system is a strategic response to the unique challenges these enterprises face. By suggesting that larger firms assume the responsibility for electronic invoice generation, the recommendations aim to alleviate the compliance burden and enhance participation among small traders within the economy. This initiative demonstrates a pragmatic approach to tax compliance while acknowledging the essential contributions of micro traders.
Original Source: www.mwakilishi.com
