The Kenya National Chamber of Commerce and Industry (KNCCI) has expressed concerns over the proposed imposition of Ksh2 million penalty for non-compliance with the Electronic Tax Invoice Management System (eTIMS) as outlined in the Finance Bill 2024.

In a statement, KNCCI President Dr. Erick Rutto said the proposed penalty will have negative impacts on the performance of Micro, Small, and Medium Enterprises (MSMEs).

“While we recognize the government’s efforts to streamline tax collection and enhance compliance through the adoption of eTIMS, we believe that the proposed penalty is punitive and will have severe repercussions on MSMEs,” stated Rutto.

He explained that MSMEs are the backbone of Kenya’s economy, contributing about 40% of GDP and employing more than 80% of Kenyans.

However, Rutto said majority of the MSMEs have neither clearly understood nor adopted eTIMS since they operate in the informal economy.

This is evidenced by the low performance of the March 31st deadline that saw only 20% of the targeted businesses registered on eTIMS.

Low Revenue & Capacity Building

Rutto further emphasized that the government should invest in comprehensive capacity-building programs on eTIMS before making such suggestions.

Therefore, he called for the provision of clear, accessible information and training to ensure that MSMEs are well-equipped to comply with eTIMS.

“We advise that before implementing such stringent penalties, it is crucial to ensure that MSMEs fully understand the requirements and processes involved in adopting eTIMS,” Rutto said.

“Many small business owners may not have the technical knowledge or resources to implement these systems effectively.”

Rutto revealed that more than half of the MSMEs make less than Ksh1 million annual revenue and risk closure if the bill is implemented.

“In the KNCCI Quarterly Business Barometer Survey for Q2/2024, more than half of the respondents were businesses that have less than Ksh1 million in annual revenue, reflecting Kenya’s economy. Placing a penalty of Ksh2 million a month on businesses that make less than half of that in a year will lead to closures and job losses,” he said.

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Phased Implementation & Other Alternatives

Besides, KNCCI rooted for a phased approach to the implementation of eTIMS to give businesses time to adapt and ensure compliance without the immediate threat of severe penalties.

Rutto asked the government to consider a grace period or a tiered penalty system where initial non-compliance results in warnings or smaller fines, escalating only if non-compliance persists.

“We urge the government to reconsider the proposed penalty and to prioritize capacity-building initiatives to ensure that MSMEs can effectively adopt and comply with eTIMS,” Rutto stated.

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He maintained that KNCCI remains committed to working with the government to enhance tax compliance while also supporting the growth and sustainability of the MSME sector.

Rutto said KNCCI and the government can create an environment where businesses of all sizes can thrive and contribute to Kenya’s economic prosperity if they work together.

“We believe that through constructive dialogue and targeted support measures, we can achieve a tax system that is fair, efficient, and conducive to economic growth,” he said.

Finance Bill 2024 Opposed Proposals

The Finance Bill 2024 has attracted huge criticism especially from the Azimio Coalition and a section of Kenyans.

Sections of the finance bill that have been opposed include the proposed motor vehicle tax, a 16 per cent Value Added Tax (VAT) on both unleavened and leavened bread which had earlier been exempted from taxation.

If passed, the price of the standard 400-gram loaf to increase by at least Ksh10 while motor vehicle owners will pay a motor vehicle tax, with a rate of 2.5 per cent of the vehicle’s value during issuance of insurance cover.

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