Tax experts want delay in e-TIMs rule enforcement

Wednesday, May 22nd, 2024 09:52 | By
Kenya Revenue Authority has sought to assure taxpayers that data in the electronic tax invoice management system is safe. PHOTO/Print
Kenya Revenue Authority has sought to assure taxpayers that data in the electronic tax invoice management system is safe. PHOTO/Print

Tax experts are calling for a delay in the enforcement of a rule that allows business expenses to be tax-deductible only when supported by e-TIMs-generated invoices.

They argue that the rule, which is part of the Finance Act 2023, has posed significant challenges due to low taxpayer compliance, insufficient training, and pending government adoption.

Fredrick Kimotho, the Deloitte East Africa Tax and Legal Senior Manager suggested a reassessment of certain provisions of the Act. “Key among them include the imposition of e-TIMs as a condition for deductibility of expenses, abolition of waiver of penalties and interest, frequency of remitting withholding tax to the Kenya Revenue Authority (KRA),” he said, citing an underwhelming 22 per cent taxpayer compliance on e-TIMS.

Kimotho spoke during a stakeholder engagement on the Finance Bill, 2024. The Bill, which was published on May 9, 2024, and tabled before the National Assembly on May 13, 2024, proposes various amendments to several Acts of Parliament.

Some of the proposed changes include Income Tax Act, Value Added Tax Act, 2013, Tax Procedures Act, 2015, Tax Appeals Tribunal Act, 2013, Excise Duty Act, 2015, and the Miscellaneous Fees and Levies Act, 2016.

As of March 2024, Kenya Revenue Authority’s (KRA) eTIMS tax expert Andrew Momanyi reported that out of the targeted 915,000, only 186,566 taxpayers, a mere 20.39 per cent, had registered with the eTIMS.

“We have a total of 186,566 taxpayers who have actually onboarded eTIMS…and in terms of the target, we were working with 915,000 taxpayers. We are still hoping that people will be able to meet the deadline, as they are allowed to keep onboarding,” he said.

The eTIMS directive has made avocado farmers in Central Kenya argue that this directive is harmful to their trade, prompting exporters to consider relocating to Tanzania, which is perceived as a more business-friendly environment.

Speaking to the Business Hub earlier on, Robert Maina, a tax expert and director at Ernst and Young pointed out that many farmers lack familiarity with electronic invoicing systems and necessary resources such as KRA pins and smartphones.

Technological familiarity

“This lack of resources and technological familiarity is a major obstacle to onboarding,” he said. In light of these challenges, Maina suggested that KRA could consider postponing the deadline, especially considering it is the inaugural year of implementation.

Fredrick Omondi, the Deloitte East Africa Tax and Legal Leader, warned that the proposed amendments to the Bill, which continue the trend of introducing new taxes and increasing existing ones, could have significant economic and fiscal impacts. 

While these measures aiming to boost government revenue, Omondi fears they could reduce purchasing power, increase business costs, and negatively impact the economy. He criticised the frequent changes in tax policy, stating that they increase risks for businesses and compliance costs for taxpayers.

Omondi suggested that the focus should be on improving compliance and economic growth to boost incomes and tax revenues, rather than imposing additional taxes on existing taxpayers and businesses.

The Departmental Committee on Finance and National Planning is seeking public input on the Bill until May 28, 2024.

The Bill is set to be ratified and become law in June, with anticipated amendments resulting from public feedback and parliamentary debate.

This situation underscores the importance of public participation in shaping tax policy and the need for a balanced approach that considers the interests of all stakeholders.

Gladys Makumi, Deloitte East Africa’s Financial Advisory Leader, raised concerns about the proposed levies on essential household items. She warned that these levies, coupled with wages affected by inflation, could reduce private consumption.

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