Background and Objectives
The Kenya Revenue Authority (KRA) has come under fire for its stance on the Kenya Electronic Tax Information Management System (eTIMS). This contentious issue revolves around the exemption of businesses with annual turnovers below KES 5.0 million from issuing electronic invoices. Originally, eTIMS regulations aimed to promote digitalization and streamline tax collection. By removing burdensome compliance, the threshold was intended to open up contract opportunities with larger businesses for small suppliers.
Current Situation and Challenges
- Only 41.0% of non-VAT taxpayers have onboarded eTIMS
- Undermined tax compliance efforts and revenue collection
The KRA’s primary objective is to widen the tax net, trace financial flows, and increase tax revenue. However, the exemption of businesses with low turnovers has hindered this effort. With the informal sector creating 85% of new jobs, it is essential to bring these businesses into the digital tax system to meet collection goals.
Impact on Small Businesses
The Commissioner for Large and Medium Taxpayers at KRA, Rispah Simiyu, expressed her frustration with the legislative setback. She noted that despite offering “multiple simplified solutions” for small businesses to comply, the exemption has confined smaller enterprises to transacting exclusively with each other rather than integrating them into the formal supply chain.
| Year | Active Taxpayer Numbers | Tax Revenue |
|---|---|---|
| 2028 | 12.27 million | KES 4.59 trillion |
| Target | 12.5 million | KES 5.5 trillion |
Opposition to the Threshold
The KRA argues that the exclusion of low-turnover businesses has undermined tax compliance efforts and revenue collection. The tax collector believes that only 41.0% of non-VAT taxpayers have onboarded eTIMS, which is a significant disparity.
“We have been trying to find solutions to make it easier for small businesses to comply with eTIMS, but the threshold has become a significant hurdle. We need to bring these businesses into the formal supply chain to meet our collection goals.”
— Rispah Simiyu, Commissioner for Large and Medium Taxpayers
Way Forward
The KRA is planning to remove the KES 5.0 million eTIMS turnover threshold. This move aims to eliminate the obstacle to tax base expansion and facilitate the integration of small businesses into the formal economy.
- Benefits of Removing the Threshold
- • Increased tax revenue
- • Wider tax base
- • Improved tax compliance
The KRA’s decision is expected to have a significant impact on the tax landscape in Kenya. By bringing small businesses into the digital tax system, the authority aims to meet its collection goals and contribute to the country’s economic growth.
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