The Kenya Revenue Authority (KRA) is proposing amendments to the Value Added Tax (VAT) Act to allow KRA to include small businesses in the new mandatory VAT registration plan.
Amendment of Section 34(1) (a) of the VAT Act will do away with the annual turnover requirement of KSh50 million used for VAT registration.
Additionally, the amendment makes it mandatory for all businesses to register as VAT agents, adding an obligation for small businesses that could lead to higher prices for goods and services.
“Remove the VAT threshold of Sh5.0 million to broaden equity, remove tax expenditures, and rationalize zero-rating while cushioning the vulnerable household. Include payment service providers and aggregators for tax-at-source collection. Enhance transaction traceability across the value chain,” read a KRA document on the Medium-Term Revenue Strategy.
All businesses under the new model will need to register and will be required to charge the 16 percent VAT on the sales of goods and services not exempted from duty.
Kenyans say the proposal targets small businesses, increasing compliance costs and administrative burdens. It also contradicts the Medium-Term Revenue Strategy 2024/25–2026/27, which aimed to raise the threshold to simplify tax compliance.
Remittance of the VAT collection will be done every month to the Kenya Revenue Authority for small-scale traders.
Small Businesses VAT Registration
Businesses that generate less than 5 million Kenya shillings and have not been factoring in the consumption tax will now have to raise the cost of production to align with the new model.
A 16 percent VAT will be charged on all goods and services except for goods exempted from VAT, including food items such as maize flour and unprocessed green tea. Medical products such as syringes are also exempt from VAT.
Small business owners under the new model will be required to file and pay the VAT by the 20th of every month.
A record of the sales made will be required to support VAT returns and to notify the KRA of changes in the business.
Also Read: KRA Announces Scheduled iTax Maintenance as Taxpayers Rush to File Returns.
Additionally, the traders will be required to use the electronic tax invoice management system (eTIMS) for tax invoices. The eTIMS will be transmitted to the KRA, which, according to the reports of the KRA, approximately 41 percent of the targeted non-VAT registered taxpayers have onboarded eTIMS.
According to KRA, the move to the new tax model will help Kenya increase VAT revenues to over Sh1 trillion from the current Sh653 billion.
The authority also added that the country currently has 230,000 registered VAT taxpayers and aims to reach 800,000.
KRA eTIMS
Small businesses will use the electronic Tax Invoice Management System to issue invoices on computing devices.
According to the law, for any person to claim their business expense, the expense must be supported by an electronic tax invoice.
All persons engaged in business are required to issue electronic tax invoices, whether or not they are registered for VAT.
Also Read: How to File KRA Returns on Mobile Phone
eTIMS solutions available
- Online Portal for taxpayers that only deals with service provision.
- eTIMS Client software for taxpayers that deal with goods and services and have multiple branches.
- Virtual Sales Control Unit (VSCU) caters to taxpayers with extensive transactions or bulk invoicing.
- Online Sales Control Unit (OSCU) is ideal for taxpayers using an online invoicing system.
Of course, why not kill the small businesses too. Where did these people get their education? non of them seems to know how the economy of a country works 😞.