Manufacturers and traders risk a Sh1 million fine or a jail term of three years from this month if they fail to install and only use upgraded electronic tax registers (ETRs) at their premises.
The taxman on Tuesday warned it had started the crackdown on non-compliant traders.
Under the new system, Kenya Revenue Authority (KRA) will receive sales and invoice data from all registered firms and traders daily in a fresh push to boost revenue collection and curb tax evasion.
“KRA would like to remind the public that effective June 1, 2023, all VAT registered taxpayers are required to only accept electronic tax invoices from registered taxpayers...for purposes of claiming input tax and processing of VAT refunds,” said the taxman.
“Enforcement measures shall be instituted against VAT-registered taxpayers who will not comply by June 1 2023.”
The new system grants the taxman real-time access to invoices. It also means businesses will not use suppliers who do not have a Tax Invoice Management System (TIMS) machine.
“Input VAT can only be claimed if supported by a TIMS invoice,” said Nikhil Hira, a tax expert and business partner at Kody Africa LLP.
“For income tax purposes, deduction will not be permitted without a TIMS invoice.”
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The move comes as the taxman moves to seal revenue leaks and boost State coffers as part of the efforts to reduce reliance on public debt.
Traders will also be required to seek the taxman’s permission to perform any other business the next day under the system, meaning incorrect or incomplete data logged the previous day could lock them out.
Businesses have been digging deeper into their pockets to bear the cost of procuring the new registers. Besides the upgraded ETR software, traders are supposed to procure software for the devices.
The ETR retails at between Sh45,000 to Sh120,000, while the billing software is about Sh80,000.
Suppliers have been recording booming business amid the scramble by firms to comply. The new ETR will upgrade the current manual tax registers that store sales data for scrutiny by KRA after 30 days.
“The system seeks to enhance compliance. With the existing situation where we have most of the processes being manual, we don’t have visibility of vatable transactions,” Hakamba Wangwe, the KRA chief manager in charge of TIMS operations, said earlier.
The new ETRs will be connected through the Internet to KRA’s systems, allowing the taxman to monitor all transactions in the traders’ point of sale and invoicing systems.