The Kenya Revenue Authority (KRA) introduced an Electronic Tax Invoice Management System (eTIMS) poised to revolutionise the way businesses handle tax compliance.
The new system, which adds a stringent administrative layer, is expected to streamline tax processes and provide significant benefits to both businesses and the tax authority.
Here, we delve into the primary changes and advantages that eTIMS brings to the table.
Rigorous Expense Deductibility Requirements
One of the most significant changes under eTIMS pertains to the deductibility of business expenses for tax purposes.
Traditionally, expenses had to be "wholly and exclusively" incurred to generate income to qualify for tax deductibility. Under the new system, businesses must support all deductible expenses with eTIMS invoices.
Failure to do so could subject them to a 30 per cent corporate tax liability. This heightened scrutiny means businesses must meticulously adhere to eTIMS protocols to avoid adverse tax consequences.
Real-Time Data Transmission for Accurate Tax Monitoring
Another major benefit of eTIMS is the real-time transmission of transaction data to the KRA.
Historically, businesses faced challenges in the timely payment of balance and installment taxes due to the laborious process of preparing audited books of accounts well in advance.
eTIMS simplifies this by enabling live monitoring of tax positions, ensuring businesses and the tax authority have access to up-to-date financial data.
Automatic invoice reconciliation further enhances this process by generating accurate estimates of corporate and installment taxes.
As a result, the KRA can issue precise and timely tax demands, reducing the likelihood of errors and ensuring greater compliance.
This real-time visibility into tax liabilities is a significant improvement over the traditional methods, which often left businesses scrambling to meet tax obligations.
Reduction in Labour-Intensive Tax Audits
eTIMS also promises to reduce the need for labour-intensive, in-person tax audits. By providing the KRA with comprehensive customer and transaction data, the system facilitates automated assessments.
This automation enables the tax authority to quickly identify discrepancies by reconciling returns against eTIMS records. This shift towards automated audits not only eases the burden on the KRA but also encourages businesses to maintain high standards of financial accuracy.
Enhanced VAT and Corporate Tax Filing Processes
eTIMS introduces functionalities that validate VAT return declarations against eTIMS data, a feature likely to extend to corporate tax filings.
This functionality prevents businesses from claiming non-eTIMS invoices for tax purposes, ensuring a higher degree of accuracy and compliance. The introduction of pre-populated tax returns, where manual data input by taxpayers is restricted, further streamlines the tax filing process.
Moreover, eTIMS automates the VAT registration process based on revenue thresholds. Businesses will be automatically registered for VAT upon reaching the VATable revenue threshold of Ksh5 million, eliminating the need for self-declarations.
This automation ensures that businesses comply with VAT registration requirements promptly, reducing the risk of non-compliance.
How to Register for eTIMS: A Step-by-Step Guide
Registering for the electronic Tax Invoice Management System (eTIMS) is now easier than ever, thanks to the convenient USSD code *222# if you are a sole proprietor or an individual, or you can visit the website, etims.kra.go.ke if you are businesses that provide services only.
This user-friendly platform allows businesses to onboard customers and generate invoices offline, simplifying the process of electronic invoicing.
To learn more about eTiMS and more solutions for your business, visit https://www.kra.go.ke/business/etims-electronic-tax-invoice-management-system/learn-about-etims/what-is-etims