What is the legal basis for introduction of the electronic tax invoice?

The VAT Act of 2013 and the VAT (Electronic Tax Invoice) Regulations, 2020 provide the legal basis.

When is the effective date for adoption of the electronic tax invoice?

The effective date is 1st August 2021.

Who is required to comply with the electronic tax invoice requirements?

The requirements are applicable to all VAT registered taxpayers.

Who is required to comply with the electronic tax invoice requirements?

The requirements are applicable to all VAT registered taxpayers.

What are the timelines for complying with the requirement to have an electronic tax invoice?

The twelve-month transition period starts from August 2021 as per the notice below:  Extension of Time to Comply with the Value Added Tax (Electronic Tax Invoice) Regulations, 2020 - KRA

What if a person is unable to comply within the 12-month period, can they apply for an extension of time?

Yes. Where a person is unable to comply within the timelines provided, they will be required to apply to the Commissioner for extension of time, which shall not exceed six months, as provided in the Regulations.

The application for extension shall be made in writing thirty (30) days before the expiry of the twelve-month period from 1st August 2021.

What is TIMS?

The Tax Invoice Management System (TIMS) is an upgrade of the current Electronic Tax Register (ETR) regime that was rolled out in 2005.

It will facilitate electronic tax invoice management through standardization, validation, and transmission of invoices to KRA on a real time or near real time basis.

What is the criteria for on-boarding?

A taxpayer must:

  • Be VAT Registered as per the provisions of the VAT Act 2013
  • Have an invoicing system with the capability to transmit invoices to KRA systems
  • Have internet connectivity

How can a VAT Registered taxpayer come on-board TIMS?

KRA has published guidelines for taxpayers which can be accessed on this link;

https://kra.go.ke/images/publications/Guidelines-for-VAT-Taxpayers-2021.pdf

What are the key features the public should look for in a tax invoice?

The following are the key features in a valid invoice:

  1. PIN and Name of trader;
  2. Time and Date of the Invoice;
  3. Invoice Serial Number;
  4. Buyer PIN (Optional)
  5. Total Gross Amount;
  6. Total Tax Amount;
  7. Tax Rate;
  8. Total Net Amount;
  9. Unique Register Identifier;
  10. Digital Signature (QR Code);

Taking into consideration the transition period, the new features e.g. the QR Code, will only be visible once a VAT registered trader his using the Tax Invoice Management System.

What happens when the VAT rate changes?

ETR Suppliers will support the traders to automatically update the tax register to reflect the change.

What happens in case of loss of internet connection?

The VAT taxpayer should continue using the tax register as usual. Once the internet connectivity is restored, the invoices generated and stored in the tax register’s memory will be automatically transmitted to KRA.

What happens in the event of a malfunction of the tax register?

A trader will be required to report the malfunction of the register to a service person, and report to the Commissioner in writing within 24 hours.

 In the period that the ETR is not working the trader will record sales using any other means as specified by the Commissioner.

I run a small retail business with turnover of less than KES 1,000,000/-. Am I required to comply with the electronic tax invoice requirements despite not meeting the VAT obligation threshold?

Only VAT registered taxpayers are required by law to use a tax register as per the VAT Act (2013) and the VAT (ETI) Regulations (2020)

 

My billing system is fully automated – must I still get an ETR to issue tax invoices?

Fully automated businesses will be required to use compliant Electronic Signature Devices (ESD).

What are the offences and penalties for non-compliance with the VAT (ETI) Regulations 2020?

Failure to comply with the Regulations is an offence which will attract penalties as specified in Section 63 of the VAT Act, 2013, that is, they shall be liable to a fine not exceeding Kshs. 1 million, or to imprisonment for a term not exceeding three years, or to both.

Where can I find the list of Approved ETR Manufacturers and Suppliers?

KRA has published the list of approved Suppliers and their Manufacturers on the KRA website which can be accessed via this link: https://kra.go.ke/images/publications/List-of-Approved-ETR-Suppliers-as-at-14th-December-2021.pdf

Can a taxpayer issue Credit notes and debit notes?

In the TIMS environment, taxpayers will be able to issue credit notes and debit notes as provided for in Section 9 (2) the VAT (Electronic Tax Invoice) Regulations 2020.The taxpayer will need to reference the PIN number and the original invoice number before issuing the credit or debit note. 

Are taxpayers still required to withhold VAT?

Withholding VAT will still be operational as per Section 25A of the VAT Act 2013.  Traders will continue to issue invoices as usual and utilise their WVAT credits in their respective VAT returns every month.

How do I correct errors in data capture?

Data entry errors made when generating an invoice may be corrected through issuance of credit notes or debit notes  which must reference the original invoice number.

 

How does a VAT registered taxpayer comply with the requirements of the electronic tax invoice?

By adopting a compliant ETR. This is what you need to do:

  1. Refer to the KRA website for the list of approved ETR Suppliers to get in touch with.
  2. Once you acquire a compliant ETR, the device will be auto activated through iTax to enable invoice validation and transmission to KRA.
  3. In order to activate the ETR, the VAT taxpayer is required to acknowledge the ETR assigned to them by responding to the confirmation email from iTax

What are the benefits of complying for VAT taxpayers?

  • Fostering a fair business environment
  • Pre-filled VAT return; simplified return filing
  • Auto activation of the Electronic Tax Register
  • Faster processing of VAT refunds
  • Non-intrusive verification of tax matters

What are the different types of ETRs?

Type A - suitable for small business entities whose record keeping is manual and those who do sales on the move, e.g. van sales since the ETR is portable

Type B – suitable for retail outlets and shops using point of sale terminals

Type C- suitable for businesses that have automated their operations and are using software billing systems/ERPs.

Type D – suitable for all types of business entities

What happens to my previous ETR in case I have to replace it?

Where a taxpayer replaces the existing tax register, they are required to safeguard the previously used tax register in line with requirement to keep records for five years as stipulated in Section 23 of the Tax Procedures Act, 2015 (TPA).

What additional features do the compliant ETRs have?

  1. Validation of invoice data at the point of issuing an invoice
  2. Generation of a unique QR code
  3. Generation of a unique invoice number for every invoice/receipt; control unit invoice number
  4. Transmission of the electronic tax invoice to KRA on a real-time or near real time basis
  5. Capture of buyer PIN (optional); only for those who intend to claim input VAT
  6. Generation of credit and debit notes to correct or amend an invoice

What are some of the key features of a valid tax invoice/receipt?

  • PIN and Name of trader;
  • Time and Date of the Invoice;
  • Description of goods/services
  • Unit cost;
  • Quantity of supply
  • Total Gross Amount;
  • Total Tax Amount;
  • Tax Rate;
  • Unique invoice number;
  • Unique ETR identifier/serial number;
  • Digital Signature (QR Code);

What happens in case of internet downtime? Can I continue to use the ETR?

Yes. The VAT taxpayer should continue using the tax register as usual. The process of invoice validation and generation of the QR code by the ETR does not require internet connection.

Once the internet connectivity is restored, the invoices generated and stored in the tax register’s memory will be automatically transmitted to KRA.

Can I correct or amend an invoice that has already been transmitted to KRA?

Yes. The ETRs have the ability to generate credit or debit notes for purposes of amending or correcting invoices. The credit/debit note will also be transmitted to KRA and must make reference to the original invoice number.

What are the offences and penalties for non-compliance with the VAT (ETI) Regulations 2020?

Failure to comply with any of the Regulations will result in penalties as specified in Section 63 of the VAT Act (2013).

What should I do if my ETR device memory is full?

KRA will no longer issue approval letters for replacing ETR device memory and taxpayers are required to migrate to TIMS compliant devices as per the public notice issued on 23rd  November below:

https://kra.go.ke/en/media-center/public-notices/1527-requirements-for-uptake-of-the-electronic-tax-invoice

Can I still purchase the older models of ETR devices during the transition period?

VAT registered taxpayers are required to transition to ETR devices that conform to the requirements of the VAT (Electronic Tax Invoice) regulations 2020.  Further, sellers of ETR devices are requested to stop selling non-compliant devices as from 15th January 2022  as per the public notice below: 

https://kra.go.ke/en/media-center/public-notices/1527-requirements-for-uptake-of-the-electronic-tax-invoice

Does every taxpayer have to purchase a new ETR device?

No, upon assessment of the existing device or invoicing system, the ETR Supplier will advise on whether a taxpayer will need to replace their device or upgrade it in order to comply with the requirements