Q. When did these electronic tax invoice regulations go into effect in Kenya, and who needs to comply with them?
The electronic tax invoice regulations went into effect 1 August 2021. They are applicable for all VAT registered taxpayers in Kenya.
Q. How long do organizations have to comply with electronic tax invoicing?
The KRA defined a transition period of one year from 1 August 2021 to 31 July 2022. The deadline for compliance with TIMS has now been extended to 30 September 2022.
Q. What if a taxpayer is unable to comply within one year? Can the taxpayer apply for an extension?
When a taxpayer is unable to comply with the timelines given, they’ll need to request an extension from the Commissioner. As per the regulations, the extension period should not be more than 6 months.
Q. What is TIMS?
TIMS is an improvement of the ETR regime that was introduced in 2005 to achieve VAT compliance and reduce VAT fraud. The main objectives of TIMS include:
1. Generating standardized tax invoices and receipts
2. Simplifying tax return filing (as the fields are pre-filled)
3. Real-time invoice validation
4. Continuous invoice data verification to avoid tax fraud attempts
TIMS helps achieve these objectives by integrating seamlessly with trader systems (like Electronic Tax Register, Enterprise Resource Planning, and Point Of Sale systems) and iTax. It is also responsible for storing the tax invoices, and it provides information on the validity of tax invoices by mandating invoice QR codes or tax checkers on iTax portal.
Q. What are the criteria that a taxpayer should fulfill before applying for electronic tax invoicing?
A taxpayer must fulfill the following conditions before achieving compliance:
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Be VAT registered based on the provisions mentioned in the VAT Act 2013
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Own an invoicing system to transmit invoices to KRA
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Have uninterrupted internet connectivity
Q. What are the mandatory fields in a tax invoice in Kenya?
Each invoice is supposed to contain the following fields:
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Register PIN of the user
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Time and date
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Serial number
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Buyer’s PIN
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Total gross amount
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Total tax amount
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Item code as prescribed by the Commisioner, according to the ACT
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Description of items being sold
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Quantity of supply
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Unit of measurement
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Tax rate charged on each item
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Unique register identifier
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Unique invoice identifier
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QR code
Q. What happens when there is a change to the VAT rate in Kenya?
ETR suppliers will update the tax register so that the traders are able to see the changes.
Q. What happens if the internet connection gets disconnected?
The taxpayer can continue to use the tax register. Once the internet connectivity is restored, the invoices stored in the tax register’s memory get transmitted to KRA.
Q. What should I do if there’s a tax register malfunction?
The registered taxpayer is the one responsible for making sure that the register is functional at all times and arranging for backup in case of power outages. In case the register stops working, the registered person must notify the Commissioner within 24 hours of malfunction. Furthermore, the transactions will be recorded by any alternate means prescribed the Commissioner until the register gets fixed and the entries are repeated into the register.
Q. Is it necessary to have an ETR even if the billing system is automated? What are the penalties for non-compliance with the VAT regulations?
Yes, it is necessary to have a compliant ETR despite having a billing system.
Non-compliance with the VAT regulations is a punishable offense in Kenya and the taxpayer will attract penalties as per the rules specified in the Section 63 of VAT Act, 2013. The taxpayer may be forced to pay a fine of no more than Kshs. 1 million, imprisoned for a maximum of three years, or both.
Q. How can I find the list of approved ETR manufacturers and suppliers?
Here’s a link to the KRA’s website where they have published the list of approved suppliers and manufacturers of ETRs.
Q. How can erroneous data be corrected in an invoice?
Data entry errors can be rectified by issuing credit and debit notes, which must contain the original invoice number.
Q. What are the benefits of compliance for VAT taxpayers?
1. Promoting fair business environment for taxpayers
2. Enabling faster processing of VAT refunds
3. Automatically activating the tax register
4. Providing an opportunity to simplify VAT return filing by pre-filling data
5. Helping to build trust between various business entities
6. Encouraging taxpayers to take the necessary steps to stay compliant at all times
Q. What are the different types of ETRs?
There are four types of ETRs:
TYPE A: An integrated ETR that is capable enough to generate, validate, and transmit tax invoices/receipts to the KRA. This type of register is suitable for small businesses and businesses on the move (like van sales).
TYPE B: Validating and transmitting invoices can be done in two ways here –
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One to many – There’s one centralized tax register that connects several POS systems
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One to one – Each POS terminal connects to an independent fiscal printer.
This type of register is mainly useful for retail outlets and businesses.
TYPE C: A control unit (i.e. an independent tax register) that connects it to an ERP for validating and transmitting invoices/receipts to the KRA. Many businesses that have automated their invoicing and are using Electronic Signature Devices (ESDs) fall into this category.
TYPE D: This tax register can connect with different invoicing systems like ETR, POS, or ERP and is suitable for all types of businesses.
15. What should I do if the ETR device memory is full?
You’ll need to replace your ETR and migrate to a TIMS compliant device.
16. How do I account for invoices raised in a foreign currency?
The unit of currency used in the book of accounts, tax returns, and tax invoices should be the Kenyan shillings. Taxpayers can refer to the CBK mean rate for a day and convert any foreign currency into Kenyan shillings. Although the foreign currency can appear in an invoice, for tax purposes, the value will be in Kenyan shillings.