Importance of ETR compliance for Small Businesses in Kenya.

by Winnie Kahara

Image courtesy of Steve Buissine from Pixabay

Why is this ETR important?

Did you know that KRA is upgrading the current Electric Tax Register (ETR) regime to the Tax Invoice Management System (TIMS)? The Tax Invoice Management System (TIMS) is an upgrade of the current Electronic Tax Register (ETR) regime that was rolled out in 2005.

The TIMs system is used to increase VAT compliance, minimize VAT fraud and Increase Tax Revenue. It facilitates electronic tax invoice management through standardization, validation, and transmission of invoices to KRA on a real time or near real time basis

All VAT registered taxpayers shall be required to comply with the requirements of the Regulations on the implementation of the Electronic Tax Invoice within a period of twelve (12) months from the date of the Roll out. The effective rollout date was 1st August 2021.

Some of the unique features of the Tax Invoice generated from a register will be a serial number that can be verified on the ITAX, unique invoice number, a QR code and a buyers pin.

Through the QR code, you can know the status of the transaction and whether tax has been accounted for, have an easy follow up of input tax claims as details are already captured in the system, simplified tax filing and reduced error margins for taxpayers.

In my opinion, TIMS will make VAT compliance easier for taxpayers but some of the major drawbacks will be in cases where one has internet downtime or keys in the wrong details i.e., invoice amounts.

What happens to businesses who do not comply?

1. Businesses should file the VAT returns on or before 20th of the following month. Failure to which there is a penalty on late filing: Whichever is higher between, Kshs. 10,000 and 5% of the tax due.

2. There is also a penalty for businesses who file the returns and make a late payment. The Penalty on late payment is 5% of the tax due and a late payment interest of 1% per month on the unpaid tax until the tax is paid in full.

How can a business get set up for ETR?

Registration is done online via iTax. Once registered, the business will be required to account for VAT charged on their taxable supplies through online monthly returns and pay any VAT due. ETR machines can be bought from a KRA approved supplier.