All invoices for supporting expenditure for tax purposes must have been generated from electronic invoicing management system e-TIMS.
Under Section 15 of the Income Tax, business expenditure provided for deduction in ascertaining the adjusted taxable income for the year must have been incurred wholly & exhaustively in the production of such income and supported by a valid invoice(s) or any other supporting document.
Changes effected under TPA 23 of the Finance Act 2023 introduced additional requirements for the deductibility of business expenditure for purposes of determining taxable income.
Following the provisions requiring that only invoices generated and transmitted through e-TIMs will be allowed, the Kenya Revenue Authority has issued notices directing a mandatory onboarding for all businesses ( both VAT & non-VAT taxpayers) to e-TIMs.
The expected implication is enhanced tax compliance. Undoubtfully, this has a positive effect on the mitigation of tax risk which otherwise is a serious threat to the financial health of businesses.
On the side however, at least in the short run, there are serious concerns about this directive. While the duty of compliance falls fully on the taxpayer, it would be ignorant of the regulators to overlook the fact that the larger majority of small-medium businesses (traders in the whole of the informal sector) lack basic compliance like registering as taxpayers. They do not even have a taxpayer PIN. And therefore, the enactment of TPA 23 of the Finance Act 2023 could be punitive. The dire consequences would be that these traders would be secluded from business activities because they cannot issue e-TIMs generated invoices.
Clearly, also, there is a question of time feasibility. In the most recent notice, KRA gave 31st March 2024 as the deadline for onboarding by non-VAT taxpayers, just months away and hardly enough time for (mama-mboga, farmer, boda-boda) to comply. What then? Important to take into consideration is the fact that the informal sector is the dominant section of the Kenyan economy, and these traders belong here.
Taking measures to caution these traders first could go a long way to reflect the regulators’ good faith. Otherwise, the consequential implications of TPA 23 of the Finance Act 2023 could be fundamentally negative.
