Small Businesses Suffer As Etims Nightmare Unfolds

By the March 31, deadline, less than a quarter (202,291) of the 915,000 businesses the KRA had targeted for eTIMS had complied. The KRA admits that its target of 915,000 - based on active business taxpayers on its system - is still far short of the existing 7 million businesses in the country, according to data from the Kenya National Bureau of Statistics (KNBS).

This means that the 212,291 businesses that had signed up to eTIMS by the end of March represented just 3 per cent of the country's existing businesses.

It is a system that could boost Kenya's tax revenues by bringing on board businesses that have not paid taxes for many years and others that have been playing tricks to reduce their tax burden, but industry experts are concerned about the implementation framework, particularly the timelines and the need to ensure business continuity even as the system is being implemented.

But even as the KRA continues with the implementation of the new system, stakeholders in the business community have raised concerns about the impact on businesses, sounding the alarm that many small businesses in particular are facing huge losses.

The apathy has been attributed to several factors, including many business people not understanding what eTIMS is, technological challenges such as internet and feature phone penetration in the country, user challenges and a general fear among small businesses of falling on the KRA's radar.

There are things that are beyond our control; the internet connectivity in the country stands at about 32 percent. There are three platforms on eTIMS all of which require the internet. Should someone travel from Turkana to Nairobi to get internet connectivity and then go back to conduct business? It cant work like that. The penetration of feature phones is about 62 per cent and smartphones is about 60 per cent. Can we give people more time so that we dont punish them for things that are beyond their control, poses Mr Job Wanjohi, the Chief of Policy and Advocacy at the Kenya Association of Manufacturers (KAM).

Stakeholders in various sectors say that if KRA sticks to its harsh deadline and penalty conditions, the impact will be felt across the economy, with large companies that rely on supplies from small players running out of inputs, small businesses that have yet to comply losing markets and the government losing revenue - the main reason for introducing eTIMS.

Ms Wangwe on Thursday told the that no extension would be granted, adding that taxpayers can continue to onboard noting that the legal provisions apply effective 1st Jan 2024. Penalties will apply as per the TPA Sec 86 which outlines a penalty of double the tax in addition to enforcement measures.

Business-to-business transactions outside the eTIMS system attract a penalty of double the tax due on the transactions carried out, and manufacturers in the agricultural, leather and milling sectors are already crying out that while thousands of their small suppliers remain non-compliant, they have had to stop doing business with them to avoid incurring unnecessary costs.

Most farmers still do not have eTIMS but KRA has stayed put that it will not allow invoices that have not been electronically generated. Currently, business is not happening between manufacturers and players who have not complied, Mr Wanjohi told the , noting that one of the big manufacturers in the Agriculture sector was Farmers Choice, which deals with about 5,000 farmers across the country.

From April 1, 2024, the only business expenses that the KRA will consider deductible when businesses file their income tax will be those that are supported by eTIMS.

This means that when a business incurs an expense in its operations, the invoice it receives from its supplier must be eTIMS compliant for the KRA to allow the expense to be deducted before calculating tax.

The law also imposes a penalty of double the amount of tax payable if a company conducts a transaction with another company outside of eTIMS.

This has prompted large manufacturers and corporates to implement policies in their operations prohibiting purchases from non-eTIMS compliant suppliers to protect themselves from losses, as they would otherwise have to bear the cost of purchases from non-compliant eTIMS suppliers.

Banks, listed companies and large manufacturers have already implemented policies to ensure that purchases are not made from non-eTIMS-compliant vendors.

Kakamega-based Butali Sugar Mills, for example, last week told thousands of farmers who supply it with sugarcane that from April 1 it would not pay for any deliveries that were not invoiced by farmers using eTIMS.

With effect from April 1,2024, each farmer is required to issue an e-TIMS invoice for every cane supply/delivery made to the factory. We will