KRA plan to nab tax cheats faces hurdles, say experts
Kenya Revenue Authority (KRA) will have to work twice as hard if it is to succeed in its pursuit to crack down on tax cheats, analysts say.
The taxman has given suppliers of Electronic Tax Registers (ETR) until January 15 to cease supply of electronic tax registers that are not compliant with the Valued Added Tax (electronic tax invoice) Regulations, 2020, effective January 15, 2022.
Known as Tax Invoice Management System (TIMS), the new systems will be an upgrade of the current ETR technologies, which became effective in August 2021 and whose intention was to minimise value added tax (VAT) fraud through verification of invoice data.
But while the move has been lauded as a revolutionary tool that will enhance tax compliance in the long term, some experts believe the taxman may encounter infrastructural challenges ahead of the full compliance deadline in August.
“I foresee a situation where the Kenya Revenue Authority will have to grapple with infrastructure issues, predominantly on the part of the taxpayer in the event of slow internet connectivity depending on the user’s communication device,” Clifford Omondi, an independent tax expert said in a telephone interview yesterday.
Daily transactions
He argued that having enough servers by KRA that are capable of handling daily transactions from suppliers often running into hundreds of millions of shillings will also be crucial if the process is to be seamless, “otherwise full compliance may be difficult in the initial stages,” said Omondi.
The new system seeks to among other advantages meet real time validation of invoices at the trader tills prior to issuance to the customer and transmission to the taxman as well as improve accuracy in automated VAT data management to address invoice discrepancies.
Its implementation is also expected to boost tax compliance and will run up to August this year when full on-boarding of traders is expected to have been achieved.
It also aims to “build trust between the customer and business entity” with the sole purpose of enhancing the country’s overall revenue collection.
For close to two decades since 2005, traders have been accused of tampering with the flimsy ETR machines to under-declare sales transactions prompting the agency to upgrade its surveillance.
Erick Musau, an investment analyst at the Standard Investment Bank (SIB) says the new move “will be painful in the initial changes,” and could encounter small hitches but would be a huge success in the long term.
“In the short-term it will be a painful process especially for the taxpayer but in the long-term it will be a successful move by the Kenya Revenue Authority.
This will help solve unnecessary backlogs often under the current set up, it is a win-win arrangement for both parties,” notes Mutua.
The agency has eight months to undertake a stakeholder engagement and taxpayer awareness exercise as well as publicity campaigns before its full implementation in August.
Taxable goods
Value Added Tax – often capped at 16 per cent, is charged on supply of taxable goods or services made or provided in Kenya and on importation of taxable goods or services into Kenya.
Those who do not comply with the regulations will be liable to a fine not exceeding Sh1 million, or to imprisonment for a term not exceeding three years, or both, according to the VAT (Electronic Tax Invoice) Regulations, 2020.
