Nowhere to go as KRA installs VAT system to catch tax cheats

KRA’s iTax offices on Mombasa Road. Suppliers of electronic tax records have been urged to cease supplying non-compliant gadgets. [Edward Kiplimo, Standard]

There is nowhere to hide for tax evading traders.

This is after the Kenya Revenue Authority (KRA) gave a timeline for the implementation of a new electronic ledger that captures and sends all transactions, especially invoices, to the tax authorities in real time.

In a notice released yesterday, KRA gave providers of electronic tax registers (ETRs) until January 15, 2022 to adopt the new ETR machines which are configured for real-time transmission of data to the tax register.

This will be achieved through the Tax Invoice Management System (TIMS), an upgrade to the current ETR, which came into effect in August 2021.

“In this regard, KRA will no longer issue non-TIMS compliant ETR purchase approval letters to newly registered VAT taxpayers or to taxpayers intending to replace their existing ETRs,” KRA said in an opinion.

The implementation of TIMS, which is expected to strengthen tax compliance, will continue until July next year, when full merchant integration is expected to have been achieved.

“Therefore, ETR providers are informed about the cessation of the provision of electronic tax registers that do not comply with the 2020 value added tax (electronic tax invoice) regulations as of January 15, 2020”, KRA said.

The intention is to make sure people only claim what is owed when it becomes mandatory, according to Samuel Mwaura, partner in charge of tax services at audit firm Grant Thornton.

Since 2005, traders have been using non-TIMS-compliant ETRs, where an initial increase in value-added tax (VAT) collection of 16% was quickly eroded due to the technological shortcomings inherent in current ETR machines, said Deloitte, in an opinion in 2019.

Some of the shortcomings were due to ETR forgery and misreporting or underreporting of sales transactions, prompting the KRA to streamline the system. “This has resulted in a significant loss of revenue over the years which has had a direct impact on the administration of VAT revenue,” Deloitte added.

VAT is one of the most critical fiscal heads the government relies on to finance its budget with the IRS, given a target of 583.2 billion shillings, or nearly a third of total ordinary revenue. , by the end of June of next year.

Those who do not comply with the regulations will be liable to a fine not exceeding 1 million shillings, or imprisonment not exceeding three years, or both. The legal basis for TIMS is the VAT Act 2013 and the VAT (Electronic Tax Invoice) Regulation 2020.

With TIMS, if you invoice someone, your sale information will go to iTax directly and the expense purchase will go to the other party directly to their iTax account.

Mwaura said KRA tries to make sure people pay VAT in the month they make a sale and claim VAT in the month they hire a service or buy goods.

“The current ETR does not allow sending any data to iTax. You have to make a CSV file (file format that is not completely standardized) and do a self-assessment. But here there will be real-time transmission of data directly to iTax at the push of a button, ”said Mwaura.

Analysts believe the new system will eliminate KRA conflicts and queries from the taxpayer and require traders to provide the documents KRA seeks. “If today you have a problem with KRA in terms of an invoice, you must provide a physical invoice to prove that you have used an invoice to claim VAT,” Mwaura said.

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About Natalee Broderick

Natalee Broderick

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