KRA bets on new VAT system to net extra Sh400bn

The agency is targeting to collect at least Sh3 trillion by June

In Summary
  • VAT collections for the financial year ended June 2022 amounted to Sh523.10 billion
  • So far, 67,954 taxpayers have onboarded the system as at March 6, 2023
The KRA headquarters at Times Tower in Nairobi
The KRA headquarters at Times Tower in Nairobi
Image: FILE

The Kenya Revenue Authority (KRA) is counting on the electronic Tax Invoice Management System(eTIMS) to collect an additional Sh400 billion in Value Added Tax (VAT).

The tax agency is targeting at least Sh3 trillion in the current financial year and over five trillion in the medium term. 

Briefing the media on the new system, KRA's deputy commissioner for medium taxpayers, George Obel said its is currently being piloted.

He said once fully rolled out, it will facilitate compliance, as taxpayers will transmit electronic invoices at their own comfort.

"Through integration with eTIMS, businesses will benefit from real-time invoice transmission providing accuracy in tax invoice declarations and reconciliation between filed returns and payments," Obel said. 

Last week, KRA rolled out the software version of the system that will be available as an online portal, a mobile application, and an application that facilitates integration with existing billing systems.

The eTIMS system is also set to incorporate a Supply Chain Module (SCM) to manage the taxpayer’s inventory thus providing visibility to taxpayer transactions from the point of acquisition to the point of sale increasing the compliance of taxpayers.

Obel said that the new system will fully address issues of missing trader invoices and fictitious claims as all transactions will be visible to the taxman, thus increasing collections.

"The version is set to complement the TIMS where businesses were expected to acquire internet-enabled tax registers (ETRs) which capture and send all real-time transactions to the taxman,'' Obel said.

He added that they decided to roll out the new version after a number of taxpayers cited challenges in adopting TIMS due to the high cost of the ETRs which ranges from between Sh35, 000-40,000.

“eTIMS has been rolled out to complement TIMS after we got to learn about challenges faced by taxpayers in moving to the new system. We want to facilitate compliance to tax requirements at a minimised cost,” he said.

According to the taxman, 67,954 taxpayers had on-boarded the system as at March 6, 2023, against a total number of 113,239 active taxpayers. The agency expects to on-board the rest by end of the pilot phase. 

This means the balance of 45,285 are targeted to on-board eTIMS.

The taxman rolled out the solution after a benchmark with Rwanda, which has also adopted a similar solution that pushed up VAT collection.

Kenya’s tax-to-GDP ratio is currently at 15.3 per cent with VAT accounting for 4 per cent, while Rwanda’s tax-to-GDP ratio is 16.9 per cent with VAT accounting for 7 per cent.

“Due to the progressive implementation of the Electronic Billing Machine (EBM) in Rwanda, there has been a significant growth in VAT collection, which currently represents the largest share of tax revenue," said Obel.

VAT collections for the financial year ended June 2022 amounted to Sh523.10 billion, an equivalent of 27.72 percent of the Sh1.92 trillion ordinary revenue.


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