The electronic tax invoice management system (TIMS)

THE ELECTRONIC TAX INVOICE MANAGEMENT SYSTEM (TIMS)

Kenya, like most modern economies, is making use of technology to better streamline its VAT administration. In line with this, Kenya Revenue Authority (KRA) has introduced an electronic Tax Invoice Management System (TIMS) to standardize, validate, and transmit invoices on real time or near real time basis to KRA. The goal is for KRA to increase tax collection, prevent tax evasion, and reduce cases of tax fraud by being in full control of the invoice issuing process.

TIMS is an improvement to the current Electronic Tax Register (ETR) system that has been in use since 2005. TIMS aims at sealing loopholes in the ETR system through:

• Integrating with trader systems,
• Standardizing and authenticating tax invoices issued by VAT traders,
• Transmitting invoice information from trader systems to KRA on real time or near real time basis,
• Integrating with the iTax system,
• Verifying the validity of tax invoice data, and
• Storage of tax invoice data.

TIMS will have the following functionalities:

• Validation of invoices by checking invoice details such as – tax rate, taxable value, total tax, and total gross amount – before issuance of the tax invoice to the customer.
• Transmission of the validated tax invoices to KRA over the internet on a real time or near real time basis.

On 25^th September 2020, the Cabinet Secretary for National Treasury and Planning issued Legal Notice No. 189 on Regulation of Electronic Tax Registers. This stipulates that every VAT registered person should acquire a new ETR system to replace the existing ETR machines. TIMS requires that traders install new ETR machines that will be connected to the KRA online system (iTax). The new ETR machines will then be validating invoice data and transmitting the same to iTax on a real time basis. This therefore requires that the new ETR machines be connected to the internet at all times to enable real time transmission. If the internet is disrupted, traders should continue operations as invoice validation will still be operational. Once the internet is restored, invoices generated will be transmitted to KRA.

Invoice data will be consolidated by the Control Unit, which is a piece of hardware (approved by KRA) that will be installed in a business’ electronic tax register (ETR) or point-of-sale devise (PoS). The Control Unit will validate and sign invoice data before transmitting it to TIMS. TIMS will then transmit the data to KRA’s iTax system for easy filing. The Control Unit will produce additional values which the supplier must include on the invoice given to the customer.

Four types of registers are available, depending on the nature and needs of a business:

• Type A – This is best suited for small businesses whose invoicing is still done manually. It is an ETR with an inbuilt functionality to generate, validate and transmit tax receipts to KRA.
• Type B – This is best suited for retail shops and outlets. The data is transmitted to KRA either from a centralized register that connects to several points of sale or from each individual point of sale that has its own fiscal printer.
• Type C – This is best suited for businesses that have an automated invoicing system and are currently using an Electronic Signature Device. The register connects to a software invoicing system in order to transmit data to KRA.
• Type D – This is suitable for all types of business entities, as it can connect to any of the different types of invoicing systems.

Roll out of the Electronic Tax Invoice Management System began on 1^st August 2021. KRA issued a Public Notice on 13^th July 2021 requiring all VAT registered taxpayers to comply within 12 months from the commencement date, i.e. by 31^st July 2022. If a VAT registered person is unable to comply within the set timelines, the person can apply to the Commissioner for Domestic Taxes for an extension of time to comply, which shall not exceed six months. The application for extension should be made at least thirty (30) days before expiry of the specified period of 12 months, i.e. before 30^th June 2022 but approval of this extension will be at the discretion of the Commissioner.

Non-compliance could lead to a fine of up to KES 1 million, imprisonment of up to three years, or both.

REFERENCES

1. Kenya Revenue Authority (2021). Implementation of the Electronic Tax Invoice: Taxpayer Education. https://kra.go.ke/images/publications/ELECTRONIC-TAX-INVOICE-PRESENTATION—VAT-TAXPAYERS.pdf
2. VatGlobal (2021). Kenya Cracking Down on VAT Evasion with Real-Time Monitoring. https://www.vatglobal.com/kenya-cracking-down-on-vat-evasion-with-real-time-monitoring/
3. PWC (2022). Tax Invoice Management System (TIMS) – Countdown to Go Live Date! https://www.pwc.com/ke/en/assets/pdf/tax-alert-tims-countdown-to-go-live-date.pdf
4. Rödl & Partner in Kenya (2022). Implementation of the Tax Invoice Management System in Kenya. https://www.roedl.com/insights/kenya-implementation-tax-invoice-management-system-tims
5. Kenya Revenue Authority (KRA). Electronic Tax Invoice. https://kra.go.ke/helping-tax-payers/faqs/electronic-tax-invoice
6. Ashif Kassam (2022). Upcoming Enforcement of the Tax Invoice Management System (TIMS). https://www.rsm.global/kenya/insights/tax-insights/tax-alerts/upcoming-enforcement-tax-invoice-management-system-tims
7. Co (2022). Invoice Requirements in Kenya. https://pdf.co/blog/invoice-requirements-in-kenya
8. Pagero (2019). Kenya advances electronic invoicing regulations. https://www.pagero.com/news/kenya-advances-electronic-invoicing-regulations/