The Tax Procedures (electronic Tax Invoice) Regulations 2024

As of September 1, 2023, electronic Tax Invoice Management System (e-TIMS) compliance became compulsory for all businesses irrespective of their VAT registration status. The critical focus remains on its impact on tax deductibility, effective 1st January 2024, invoices lacking electronic documentation are rendered non-deductible for Corporation Income Tax (CIT) purposes. Consequently, businesses are compelled to engage exclusively with e-TIMS-compliant entities to avoid jeopardizing their tax deductibility status. The Tax Procedures (Electronic Tax Invoice) Regulations 2024, recently gazetted, provide detailed guidelines for implementing e-TIMS.  

In this analysis, we provide a summary of these regulations and the implications they have on businesses.  

Applicability  

These regulations apply to individuals and entities engaged in business activities unless specifically exempted by the law, irrespective of  VAT registration status. The KRA may, by a gazette notice, exempt a person from the electronic tax invoice requirements.  

Use of the System 

Each taxpayer must ensure that; 

• each sale is recorded in the system; and 
• an invoice is generated in respect of each sale through the system. 

 The taxpayer must also— 

• transmit the invoice generated with respect to the sale to the buyer; 
• transmit the invoice details to the KRA; and 
• maintain the stock in and stock out records in the system as follows— 

1. record each local purchase and import; 
2. notify the KRA in writing within thirty days before closure of business indicating records of current stock; 
3. in case there is transfer of stock upon closure of business, the person must notify the KRA in writing of the current stock quantity or levels; and 
4. upon closure of the business, the taxpayer must account for all relevant taxes under the applicable tax laws. 

The KRA may require specific persons to use an electronic tax invoicing system without stock records, including: 

• Persons providing services.  
• Persons not registered for VAT with  annual turnover below KES 25 million (using a simplified system).  

A valid Electronic Tax Invoice 

Every electronic tax invoice generated must include: 

• Personal Identification Number (PIN) of the registered user. 
• Time and date of invoice issuance. 
• Serial number of the invoice. 
• Buyer’s PIN (if intending to claim expense or input tax). 
• Total gross amount. 
• Total tax amount (if applicable). 
• Item code of supplies as provided by the KRA. 
• Brief description of goods and services. 
• Quantity of supply and unit of measure. 
• Applicable tax rate. 
• Unique system identifier. 
• invoice identifier.  
• a quick response code. 

Excluded Transactions:  

Certain transactions are excluded from the electronic tax invoice requirement, including;  

• Imports. 
• Emoluments. 
• Investment allowances including internal accounting adjustments.  
• Airline passenger ticketing.  
• Interest. 
• Fees charged by financial institutions. 
• Expenses subject to a withholding tax that is final. 
• Services provided by a non- resident person without a Permanent Establishment in Kenya. 

Discontinuation of System Use 

In the event of discontinuation due to a change in business model, closure, or any other reason the taxpayer must; 

• Notify the KRA in writing 30 days prior to discontinuation. 
• In cases of unplanned closure, notify the KRA within seven days after the closure. 

Continuity of Operations 

Taxpayers must always ensure the continuity of the system. If unable to use the system for any reason, notify the KRA within 24 hours and record sales using any other means specified by the KRA.  

Offences and Penalties 

A taxpayer commits an offence if that taxpayer:  

• fails to comply with any provisions of these Regulations; or 
• tampers with, manipulates or interferes with the proper functioning of the system including uninstallation and change of the device without notifying the KRA. 

A taxpayer who commits an offence under these regulations is liable to pay a fine of  Kenya Shillings 0ne hundred thousand shillings.  

Conclusion  

Unlike the previous regulations, these newly minted guidelines carry a significant alteration: the removal of the exemption clause for businesses falling below the Kshs.5 million turnover threshold. This amendment means that small-scale income earners do not enjoy exemption from e-TIMS requirements, necessitating the generation of invoices through the system. Consequently, businesses are compelled to engage exclusively with e-TIMS-compliant entities to avoid jeopardizing their tax deductibility status.  

How we can Assist  

At CM Advocates LLP, our Tax Unit is dedicated to providing comprehensive support across a spectrum of tax-related needs. Our team is well-versed in matters of tax advisory, offering strategic guidance tailored to your unique circumstances. We specialize in tax dispute resolution, employing our expertise to navigate complex tax issues and advocate for your best interests. Additionally, our tax planning services are designed to optimize your financial strategies, ensuring compliance while maximizing opportunities for tax efficiency. With our depth of knowledge and commitment to excellence, we stand ready to assist you in achieving your objectives. 

Should you have any questions on this or any other matter, please do not hesitate to contact: Jane Mugo jmugo@cmadvocates.comor Tabitha Muchiri on tmuchiri@cmadvocates.com