The Finance Act of 2023 introduced a transformative amendment, Section 23A, to the Tax Procedures Act, marking a significant shift in electronic tax invoicing for non-VAT taxpayers.
Starting January 1st, 2024, only expenses supported by the electronic Tax Invoice Management System (eTIMS) will be considered tax-deductible. The accompanying draft Regulations detail stringent requirements for eTIMS invoices, including QR codes, unique identifiers, buyer information, and tax specifics.
Businesses must maintain meticulous stock records and notify the Kenya Revenue Authority (KRA) of stock levels 30 days before ceasing operations. Challenges arise when businesses can’t use eTIMS, requiring immediate notification to the KRA within 24 hours.
However, enforcing eTIMS, especially for small Kenyan businesses in the vast informal sector, poses challenges. Without widespread eTIMS adoption, many small-scale businesses risk exclusion from the market, impacting viability. This exclusion carries costs, potentially leading to increased poverty levels and straining government support systems.
The proposed tax changes seemingly contradict the government’s bottom-up approach, posing a threat to small-scale traders and marginalized individuals. Compliance challenges, including lack of awareness and financial burden, may widen the gap between formal and informal economies.
In essence, these tax changes, while aiming to streamline tax invoicing, risk exacerbating the divide between formal and informal economies, jeopardizing livelihoods in the latter. Sensitization and support mechanisms are crucial to ensure these changes don’t inadvertently harm Kenya’s diverse business landscape.
