In a significant relief for the agricultural and small business sectors, the Kenya Revenue Authority (KRA) has implemented targeted exemptions from the electronic tax invoice management system (eTims). With immediate effect, businesses with an annual turnover below Sh5 million are now spared from the electronic invoicing requirement, a move set to alleviate compliance pressures on micro, small, and medium enterprises (MSMEs).
The recently unveiled Tax Procedures (Electronic Tax Invoice) Regulations, 2023, specify nine categories of exempted transactions. Noteworthy among these are supplies by resident individuals with an annual turnover falling below the Sh5 million threshold. The exemptions also cover emoluments, imports, interest, airline passenger ticketing, investment allowances, internal accounting adjustments, fees charged by financial institutions, and services provided by foreigners without a permanent establishment in Kenya.
Of particular interest is the KRA’s forthcoming monitoring system tailored for small businesses in the agricultural sector. This system, currently pending approval, focuses on tracking stock changes rather than the conventional generation and transmission of electronic invoices through eTims. The streamlined approach aims to reduce the reporting burden for farmers supplying cooperative societies.
Starting this month, all businesses must adhere to the mandate of producing electronic tax invoices for every transaction. Failure to comply will result in the inability to claim expenses during the Income Tax filing process.
In a broader fiscal strategy outlined in the National Treasury’s new medium-term plan, a withholding tax of five percent on farm produce sold to cooperative societies and agro-processors is in the pipeline. This strategic move seeks to broaden the tax base and address the perceived under taxation of the agricultural sector, despite its substantial contribution to the economy.
The government’s targeted focus on businesses with an annual turnover below Sh5 million, especially in the vital agricultural sector, emphasizes its commitment to ensuring fair taxation and fostering sustainable economic growth. As these regulatory changes take effect, the business landscape anticipates a positive transformation, providing crucial support to the backbone of the economy—farmers and small businesses.
By: Montel Kamau
Serrari Financial Analyst
11th January, 2023
