The introduction of eTIMS changes almost every aspect of corporate tax compliance in Kenya – in some ways, the old order is gone and a new order is here to stay. How, you ask? Tax Deductibility of Expenses

What eTIMS does is to introduce a new administrative layer when determining if an expense is tax deductible. The old order required simply that an expense be incurred wholly and exclusively to generate business income, and where this test is met, then the expense became tax deductible. Now with eTIMS, if such a business expense is not supported by an eTIMS invoice, this expense becomes non-deductible and 30% corporate tax would be due on it.

Payment of Instalment and Balance of Tax

Many Kenyan businesses do not pay balance of tax and instalment tax on time. This is because historically, audited books of accounts would need to be prepared, before a tax computation is ready. This tax computation would then inform the appropriate tax liability. As eTIMS transmits live transaction data to KRA, each taxpayer’s tax position would be known well in advance, with an estimate of corporate tax and instalment tax being generated through automatic invoice reconciliation. Remember only eTIMS invoices (both income and expense) represent “tax legitimate” transactions. This will mean that the iTax system, working through eTIMS, will be in a position to send a taxpayer an accurate and timely tax demand based on the declared eTIMS numbers.

Automated Tax Assessments

In a world where KRA has all customer data, the age of in-person audits is dead. We expect that KRA through eTIMS will reconcile the tax returns filed by a taxpayer (PAYE, Corporate Tax, VAT) and automatically issue a tax assessment on the basis of any material variances.

It is good to already appreciate that even now, the burden of proving that a tax assessment by the revenue authority is excessive sits with the taxpayer and not with the KRA. As such, we expect these automatic (system-generated) tax assessments to become commonplace and for the need to challenge them to increase.

Automatic VAT Declaration and Registration

We expect that more taxpayers will see instances where they are automatically registered for VAT once they achieve KES 5M in VATable revenue. This is because with eTIMS applicable to non-VAT registered taxpayers, and with the nature of sales already declared (i.e. ) exempt, zero-rated and VATable, a threshold trigger can be placed on the KES 5M mark. This would mean that the KRA does not need to rely on the self-declaration of the taxpayer in determining VAT registration.

KES 5m Exemption May Not Apply

Given the KRA’s latest public notice, it appears to us that the requirement to register for eTIMS applies to everyone, and that the so-called Mama Mboga Exception (for persons earning revenue less than 5M) has been done away with. This we think is a matter that requires clear confirmation from KRA as the matter remains unresolved. 

Brave New World

Ushuru Masterclass has always been ahead of the curve. We’re here to ensure that eTIMS is not a nightmare for your tax compliance teams.

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