KRA Initiates Tailored System to Ease Tax Compliance for Small Businesses

In response to concerns over the high compliance costs and technological challenges faced by small businesses, the Kenya Revenue Authority (KRA) is developing a new system that will simplify the tax process for these enterprises. Starting from January 1, 2024, small businesses will no longer be required to generate electronic invoices but will instead need to show a record of their transactions.

Hakamba Wangwe, Chief Manager for eTims at KRA, highlighted the significant benefits of this new approach, especially for farmers and other lower-end taxpayers who may lack the technical capacity to navigate internet-based solutions. In an interview with Business Daily, Ms. Wangwe emphasized the simplicity of the solution, stating, “All you need is for you to account for a transaction.”

The qualification threshold for this streamlined system is yet to be finalized, pending approval. However, Ms. Wangwe hinted that it might align with businesses subject to turnover tax. Turnover tax applies to Kenyan businesses with annual sales exceeding Sh1 million but not exceeding Sh25 million.

The new system aims to minimize the burden on small businesses by eliminating the need for complex stock management. Instead, businesses will only be required to provide visibility into their transactions. Ms. Wangwe explained, “You don’t have to do stock management. We just need to do visibility; ‘What did you sell to so and so?’”

Additionally, starting January 2024, KRA will integrate e-Tims into other tax categories. To declare a transaction as a business claim, it will be necessary to support it with an electronic tax invoice. Invoices from suppliers not captured on e-Tims will not be accepted, further emphasizing the government’s commitment to real-time sales data and transparency.

Ms. Wangwe acknowledged that the implementation of e-Tims has revealed a significant number of Nil and non-filers, indicating a previous concealment of transactions. The system has successfully onboarded a substantial portion of registered VAT taxpayers, mostly large and medium-sized businesses.

The Chief Manager credited the growth in VAT to the implementation of Tims and e-Tims, highlighting the positive impact on tax compliance. However, recognizing that challenges remain, KRA is committed to cleaning its register and ensuring the accuracy of taxpayer information.

As the government relies on VAT, among other categories, to meet its collection target of Sh2.57 trillion, the introduction of this tailored system reflects KRA’s strategic approach to balance tax compliance and the unique needs of small businesses.

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