As is common with significant changes, confusion is rife. I will highlight some fundamental changes that eTIMs have occasioned and their business implications.
The first significant change concerns how business expenses are treated for tax purposes. Traditionally, the deductibility of business expenses hinged on whether they were incurred wholly and exclusively to generate income.
However, the new system introduces a stringent administrative layer, requiring expenses to be supported by eTIMs invoices for them to be tax deductible, failure of which subjects businesses to a 30% corporate tax liability. This shift necessitates meticulous adherence to eTIMS protocols to avoid unfavourable tax consequences.
Historically, timely payment of balance and instalment taxes posed challenges for businesses due to the intensive process of preparing audited books of accounts early in advance. With eTIMs, live transaction data transmission to the Kenya Revenue Authority enables real-time tax position monitoring.
Automatic invoice reconciliation generates corporate and instalment tax estimates, enabling the taxman to issue accurate and timely tax demands. This change will increase compliance because eTIMS will provide greater visibility of this somewhat forgotten compliance metric.
Thirdly, eTIMs promises to eliminate labour-intensive, in-person tax audits. It empowers the KRA with comprehensive customer and transaction data, enabling automated assessments. By reconciling returns against eTIMs records, the taxman can quickly identify discrepancies.
Taxpayers, therefore, need to be meticulous about their tax records since they bear the burden of proving that a KRA assessment is excessive in the event of an appeal.
Lastly, the KRA has developed a functionality that validates VAT return declarations against eTIMs data. This functionality will likely be extended to corporate tax filings to prevent businesses from claiming non-eTIM invoices for tax purposes.
This will involve pre-populated tax returns, whereby the taxpayer cannot input data manually for tax filing. Further, eTIMs streamline VAT processes by automating registration based on revenue thresholds.
Taxpayers will likely be automatically registered for VAT upon reaching the KES 5 million VATable revenue threshold, eliminating the need for self-declarations for registration.
From our reading of published legislation, no exemption is based on a revenue threshold. As such, save for the stated exemptions, such as imports, interest, salaries, and airline passenger ticketing, all other transactions would be subject to eTIMS.
Given that most taxpayers have yet to transition to the e-TIMS system despite the deadline extension, the KRA is expected to enhance its audit activities to identify instances of non-compliance and support businesses that have yet to transition.
Therefore, embracing eTIMs enables businesses to navigate the evolving tax landscape confidently, ensure compliance, and foster sustainable growth in the dynamic Kenyan business environment.
CPA Beatrice Njeri is a Tax Partner at www.ushuru.co.ke and co-founder of Tarra Agility Africa. beatrice@tarraagility.com
