Key Updates and Industry Concerns on eTIMS

The Finance Bill 2023, enacted on June 26, 2023, introduced significant amendments to various tax laws, including the Income Tax Act and the Tax Procedures Act. These changes aim to bolster revenue for government priorities, enhance tax compliance, and streamline tax administration for the fiscal year 2023/24.

Notably, Section 12 of the Finance Act 2023 revised Section 16 (1) of the Income Tax Act, stipulating that no tax deductions will be permitted for expenditures or losses unless supported by invoices generated through an electronic tax invoice management system (e-TIMS). However, the Act allows for potential exemptions for certain transactions, such as emoluments, imports, investment allowances, interest, airline passenger ticketing, and similar payments, as specified by the Commissioner in a Gazette Notice.

In line with this, the Kenya Revenue Authority (KRA) announced on November 7, 2023, that starting January 1, 2024, all business expenditures must be supported by e-TIMS-generated tax invoices to qualify for tax deductions.

To facilitate compliance, KRA conducted multiple engagements, including with the Kenya Association of Manufacturers (KAM) on December 14, 2023. During this forum, KAM members raised several critical issues concerning the implementation of e-TIMS. Key concerns include:

– Informal Sector Transactions: Many KAM members source raw materials and services from informal sector providers (e.g., farmers, mechanics) who may lack awareness, technology, or connectivity.

– Remote Areas: Suppliers in remote regions may face technological and network challenges.

–  Brokerage and Markets: Transactions through brokers or open-air markets may not comply with e-TIMS requirements.

– Transportation and Labour Payments: Clarification is needed on handling payments for transportation, temporary labour, and casual workers.

– Bank and Mobile Payments: Guidance is required on how to treat bank and mobile money charges.

– VAT Exempt Companies: Addressing the treatment of VAT-exempt or zero-rated entities, such as EPZ companies.

In response to these concerns, KAM has proposed several recommendations:

1. Extension of Deadline:  A one-year extension, moving the effective date to January 1, 2025, to allow for comprehensive stakeholder sensitization, including suppliers in the informal sector.

2. Ongoing Engagement: Regular meetings with KAM to address challenges and ensure a smooth transition to e-TIMS.

3. Collaborative Committee: Formation of a working committee involving KRA, manufacturers, retailers, and farmers to facilitate effective implementation.