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.

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 that started from August 2021 ended on 31st July 2022.  The extended deadline for taxpayers to comply is 30th September 2022 as per the public notice issued on 1st August 2022. Extension of deadline for compliance with Tax Invoice Management System (TIMS) - 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 transition period.

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.

NB: The QR Code will only give a result where the invoice has been transmitted to KRA.

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?

Yes, the requirement to adopt a compliant ETR applies to all VAT registered taxpayers regardless of the billing system in use.

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. In addition, upon full implementation, VAT Registered taxpayers will only be able to claim input tax and refunds using TIMS compliant tax invoices.

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

Can a taxpayer issue Credit notes and debit notes?

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. In order to generate a credit or debit note, the taxpayer will need to reference the original invoice number on which the supply was made.

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 utilize their Withholding VAT 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) which states that  “A person convicted of an offence under this Act for which no other penalty is provided shall be liable to a fine not exceeding one million shillings, or to imprisonment for a term not exceeding three years, or to both”

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 by 31st July 2022.  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?

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

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).

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

Can a trader issue bulk credit notes without referencing the original tax invoice?

Section 16 (6) of the VAT Act 2013 requires a credit note to reference the invoice on which the supply was made and the tax originally charged. Therefore, a trader cannot reference multiple invoices in one credit note

When is the supply of goods and services due for VAT?

VAT is due on taxable supplies in the following scenarios, when an invoice is issued, goods are delivered, a completion certificate issued for work done or payment of supply received in whole or in part; whichever comes earlier as stipulated in section 12 of the VAT Act 2013.

At what point should VAT be accounted for in the case of installment payments/hire purchase plans?

VAT shall be accounted for when payment is received whether in whole or in part as per Section 12(3) of the VAT Act 2013.

How do traders account for invoices raised in foreign currency?

The unit of currency to feature in books of account, tax returns and tax invoices must be in Kenya shillings as per Section 23 of the Tax Procedures Act.  Taxpayers are advised to convert the foreign currency into the Kenyan shilling equivalent value using the prevailing CBK mean rate for the day. The foreign currency values may appear on the invoice, however for tax purposes reference will be made to the Kenya shilling values.

How are discounts/rebates (volume discounts or price discounts) treated?

The consideration for the supply (unit price) shall be reduced by the value of the discount or rebate allowed. Any discounts or rebates provided should be accounted for as per Section 13(3) of the VAT Act 2013.

Are payments (disbursements) made by agents such as lawyers, clearing agents, and tax agents acting on behalf of their customers considered taxable when generating an invoice?

The commission or fees charged by the agent for the services rendered is taxable. However, any disbursements paid on behalf of the client do not attract VAT.  The details concerning the disbursement may appear on the invoice the agent issues to their client for services rendered.  Refer to public notice of 11th February 2021   https://www.kra.go.ke/news-center/public-notices/1113-deduction-of-input-vat-by-trade-agents

Can traders issue one invoice for taxpayers who do not need to claim input tax like in the case of B2C sales?

A VAT registered trader is required to issue the customer an invoice for every purchase made as per Section 42 of the VAT Act 2013. There should be no lumping or consolidation of multiple sales into one invoice.

Should taxpayers in the hospitality industry capture 2% of the tourism levy and service charge on the net value of the invoice?

Yes. However , the tourism levy and service charge values will not be included in the details that are transmitted  for purposes of accounting for VAT.