About 60 percent of small businesses registered for Value Added Tax (VAT) have failed to comply with a directive by the Kenya Revenue Authority (KRA) to fit mandatory internet-enabled tax registers (ETRs) by the close of the deadline on Wednesday, placing them at risk of a hefty Sh1million fine each.
Data by the KRA showed that only about 43 percent of VAT-registered enterprises with an annual turnover of Sh5-200milllion had complied with the order to fit ETRs linked to the taxman’s Tax Invoice Management System (TIMS) by the November 30, 2022 deadline.
Manufacturers and traders who fail to upgrade to ETRs at their business premises risk a fine of Sh1 million or a jail term of three years.
Hakamba Wagwe, the head of TIMS at KRA said the taxman remains determined to connect more traders to its system to help improve transparency.
“Even though their contribution is not so much, the small taxpayers make up the biggest population in Kenya’s VAT register. Despite the deadline that lapsed on November 30th, there is still some work that will be going on through December to ensure that small taxpayers are on boarded to TIMS. We are hoping to bring it to at least 60 percent from 43 percent” she told Daily Nation in an interview.
Manufacturers and traders are expected to install the upgraded ETRs that will enable the KRA to receive real-time data on traders’ daily sales, an upgrade from the current manual tax registers that store sales data for scrutiny by the KRA after 30 days. Besides the upgraded ETR devices, traders are supposed to procure software.
KRA however said that an estimated 94 percent of large taxpayers had complied with the directive by the lapse of the deadline.
“Among the large taxpayers, we have on-boarded 94.0 percent, and only very few have not fully on boarded to the Tax Invoice Management System. For the medium taxpayers, we are at 82 percent and it is still a work in progress but it is a good figure considering their revenue impact. Among smaller taxpayers is where we need a lot of work to be done because compliance with the transition to TIMS is at 43.0 percent”, says Wagwe.
With the ETR-TIMS installations, KRA now projects to grow its VAT collections by at least 30 percent.
This means that the authority targets collecting at least an extra Sh122.3 billion in one financial year, bumping up VAT revenue collection to Sh530.0 billion in one financial year. If fruitful, it will be the first-time revenue collection through VAT will be breaching the half-a-trillion shillings mark.
KRA says that it is now embarking on a clean-up exercise of the VAT register as the authority looks to weed out tax cheats and seal revenue leakages. According to data from the National Treasury, Kenya foregoes an average of Sh383.9 billion shillings worth of would-be tax revenue every year, with VAT accounting for the lion’s share of this revenue leakage at Sh 314.7 billion or just about 82 percent of the total amount.
“Half the number of taxpayers who are registered for VAT are either not filing returns at all or filing nil returns. We have a category of taxpayers who we can see are either non-filers or nil filers yet they have on boarded TIMS and are transmitting invoices” Ms Wagwe said.
The new automated registers will help KRA receive sales and invoice data daily in the latest push to curb tax evasion and boost revenue collections.
KRA had first set a July 31, 2022 deadline for installation of the internet-enabled ETRs but twice extended it to September 30, 2022, and later to November 30, 2022, after traders registered challenges with accessing the required gadgets.
The migration from ETR to TIMS is informed by Legal Notice 189 of 2020, popularly known as the VAT Electronic Tax Invoice Regulations of 2020, which were gazetted by former Treasury Cabinet Secretary, Ukur Yatani, on September 25, 2020.