KRA Wants Small Businesses Put Under Electronic Tax System

The Kenya Revenue Authority (KRA) now wants the December 2023 law that exempted small businesses with annual sales below Sh5 million from the electronic tax invoice management system
(eTIMS), to be lifted.

Even though the exemption was made to free small suppliers from the heavy burden on compliance requirements to get contracts with larger businesses, the Authority now argues that the exemption is currently undermining tax compliance efforts and revenue collection.

Furthermore, KRA now argues the move created a significant obstacle in tracing economic transactions in the informal sector, with only 41 percent of targeted non-VAT registered taxpayers currently onboarded to the system.

Unhappy with the setbacks now looming from the exemption decision, Rispah Simiyu, Commissioner for Large and Medium Taxpayers at KRA, said the exemption has confined smaller enterprises to transacting exclusively with each other rather than integrating them into the formal supply chain.

The electronic invoicing system represents a cornerstone of KRA’s ambitious strategy to expand its active taxpayer base from 9.67 million to 12.27 million by 2028 and increase tax collection to Sh4.59 trillion-nearly double the Sh2.41 trillion collected last year. Before the exemption, the system helped prevent tax evasion by requiring all businesses to issue electronic invoices that simultaneously documented sales for small traders and expenses for larger firms, making it difficult for companies to inflate costs and reduce tax obligations.

With Kenya’s informal sector generating 85 percent of new employment (720,900 jobs last year compared to just 122,800 in the formal sector), bringing these businesses back into the digital tax ecosystem has become a key priority for revenue authorities seeking to meet aggressive collection targets.