There is nowhere to hide for traders that have been evading tax.
This is after the Kenya Revenue Authority (KRA) gave a timeline for the implementation of a new electronic register that captures and sends to the taxman all transactions, especially invoices, in real-time.
In a notice yesterday, KRA gave suppliers of Electronic Tax Registers (ETR) until January 15, 2022 to adopt the new ETR machines that are configured for real-time transmission of data to the taxman’s register.
This will be achieved through the Tax Invoice Management System (TIMS), an upgrade of the current ETR, which became effective on August 2021.
“In this regard, KRA will no longer issue approval letters of purchase of non-TIMS compliant ETR to newly VAT registered taxpayers or taxpayers intending to replace their existing ETRs,” said KRA in a notice.
Implementation of TIMS, which is expected to boost tax compliance, will run up to July next year when full on-boarding of traders is expected to have been achieved.
“Consequently, suppliers of ETRs are notified to cease supply of Electronic Tax Registers that are not compliant with Value Added Tax (Electronic Tax Invoice) Regulations, 2020 effective January 15, 2020,” said KRA.
The intention is to ensure people only claim what is due when it becomes mandatory, according to Samuel Mwaura, a partner in charge of taxation services at Grant Thornton audit firm.
Since 2005, traders have been on non-TIMS compliant ETR, where an initial increase in the 16 per cent value-added tax (VAT) collection was shortly eroded due to inherent technological shortfalls in the current ETR machines, said Deloitte, in an advisory in 2019.
Some of the shortfalls were due to tampering of the ETRs and mis-declaration or under declaration of sales transactions, pushing the KRA to streamline the system. “This resulted in significant loss of revenue over the years, which directly impacted on VAT revenue administration,” added Deloitte.
VAT is one the most critical tax heads that the government relies upon to fund its budget with the taxman given a target of Sh583.2 billion, nearly a third of the total ordinary revenue, by end of June next year.
Those who do not comply with the regulations will be liable to a fine not exceeding Sh1 million, or to imprisonment for a term not exceeding three years, or both. The legal basis of TIMS is the VAT Act of 2013 and the VAT (Electronic Tax Invoice) Regulations, 2020.
With TIMS, if you invoice someone, the information of your sale will go to iTax directly and the purchase of expense will go to the other party directly on their iTax account.
Mwaura said KRA is trying to ensure people pay VAT on the month that they make a sale and claim VAT on the month they have incurred a service or purchase of goods.
“The current ETR does not enable any data to be sent to iTax. You have to do a CSV file (file format that is not fully standardised) and do a self-assessment. But here there will be the real-time transmission of data directly to iTax at the touch of a button,” said Mwaura.
Analysts reckon that the new system will eliminate conflict and queries from KRA to the taxpayer and force traders to provide documents sought by KRA. “If today you have a problem with KRA in terms of an invoice you have to provide a physical invoice to prove you used an invoice to claim a VAT,” said Mwaura.