The Lower Eastern Times Opening The Third Eye
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A leading tax policy expert is urging a review of the Finance Act 2023’s electronic invoicing (eTIMS) requirements, warning that tying tax-deductible expenses strictly to eTIMS compliance could unfairly penalize businesses—especially Micro, Small, and Medium Enterprises (MSMEs).
Tax analyst Edna Gitachu said the current rules could create a “deductibility crisis” starting January 1, 2026. Under the law, any expense lacking an eTIMS-compliant invoice will automatically be disallowed for tax purposes.
Gitachu highlighted that many legitimate expenses, including payments to government agencies for licenses, may not produce eTIMS invoices.
“You have a genuine expense, but you will be denied that deduction,” she said. “MSMEs trading among themselves cannot always issue electronic invoices, leaving the Revenue Authority without visibility.”
To address this, Gitachu recommends adopting the “Rwanda Model,” discussed at the recent Africa Tax Policy and Business Symposium. Instead of automatically rejecting expenses from non-compliant vendors, Kenya could allow taxpayers to substantiate transactions with alternative evidence, such as contracts or proof of payment.
Gitachu also pointed out a core “accounting mismatch” in KRA’s plan to pre-populate tax returns using eTIMS data. She warned that the system records invoice issuance as immediate income, ignoring standard accounting treatment of deferred revenue.
“If I raise an invoice before delivering a service, that’s deferred revenue—a balance sheet item—but KRA counts it as income. This discrepancy needs correction,” she explained.
Despite these concerns, the Kenya Revenue Authority (KRA) has dismissed calls for delay, noting that the Finance Act 2023 clearly provided legal clarity from January 1, 2024. Officials said the rollout of eTIMS Lite through platforms like WhatsApp and USSD has lowered entry barriers and insisted that alternative reporting methods could encourage fictitious invoices, justifying the strict digital verification requirement.
