Kenya’s Parliament Considers eTIMS Exemption for Small Enterprises

Kenya’s Parliament is considering an exemption for small businesses from the electronic tax invoice management system (eTIMS) to ease compliance burdens. The proposal targets businesses with annual sales below Sh5 million, allowing larger firms to handle electronic invoice generation. The amendments follow concerns raised by stakeholders regarding the technical challenges small enterprises face, which impact their ability to comply with tax regulations. This change aims to promote ease of business operations for the informal sector while enhancing overall tax compliance efforts in Kenya.

The National Assembly Finance Committee in Kenya has proposed an exemption from the electronic tax invoice management system (eTIMS) requirement for small businesses with annual sales below Sh5 million. This initiative seeks to alleviate the compliance challenges faced by micro traders who are currently required to issue electronic invoices with no exception. The proposed change shifts the obligation of creating these invoices from small traders to the larger firms that procure goods from them. This recommendation emerged during discussions on the Tax Procedures (Amendment) Bill, 2024, which has garnered attention from key stakeholders, including the Kenya Association of Manufacturers (KAM).

Many small businesses and farmers lack the necessary infrastructure, such as formal records, Personal Identification Numbers (PINs), and banking access, complicating adherence to eTIMS regulations. The reliance on cash transactions and M-Pesa for operations has further intensified the difficulties associated with compliance. The eTIMS system was established with the intent to enhance tax compliance and minimize evasion, but it has faced pushback, with only 120,000 out of approximately 663,000 registered firms aligned with the new system as of June.

The amendments are seen as a potential relief for small businesses within Kenya’s economy, particularly given the vital role they play in the informal sector. Acknowledging the technical challenges that small firms experience, tax analysts, including those from KPMG and PwC, have indicated that failure to comply with eTIMS could obstruct smaller entities from engaging in transactions with larger corporations. The proposed changes aim to recognize the realities of small business operations while simultaneously working towards a broader compliance goal set by the KRA of having 51% of registered businesses on eTIMS by June 2025.

The context surrounding the proposed exemption for small businesses from the eTIMS requirement emerges from a need to create more favorable conditions for micro and small enterprises in Kenya. Established as part of the Finance Act, 2023, the eTIMS system mandates that all businesses, irrespective of size, issue electronic invoices to enhance tax compliance and expand the tax base. However, many small traders have encountered insurmountable obstacles due to the requirements associated with eTIMS, placing their business operations at risk. Stakeholders have voiced concerns over the potential adverse effects of mandatory eTIMS compliance, particularly for those lacking technical means or financial access. The forthcoming amendments intend to address these challenges to ensure that small businesses can thrive economically while still contributing to the national tax framework.

In conclusion, the proposed exemption from the eTIMS for small businesses marks a significant move towards addressing the compliance burdens that impede micro traders’ participation in the market. By shifting the invoice generation responsibility to larger firms, the amendments aim to facilitate smoother transactions and reduce the compliance gap. This initiative underscores the importance of accommodating the operational realities of small businesses while upholding tax compliance standards. The ongoing discussions in Parliament reflect a concerted effort to support this vital segment of Kenya’s economy.

Original Source: www.mwakilishi.com