etims exemption for turnover below 5 million

Last updated January 17, 2024

How this eTIMs Exemption Rule Could Hurt Your Business

The Kenya Revenue Authority (KRA) has introduced the electronic tax invoice (eTIMs) system to facilitate electronic tax invoice management and transmission to KRA on a real time or near real time basis.

This system is supposed to make tax compliance easier and more efficient for both taxpayers and the KRA. However, there is a clause in the Tax Procedures (Electronic Tax Invoice) Regulations, 2023, that could cause more problems than solutions for your business.


What is this eTIMs Exemption Clause?

According to the Tax Procedures (Electronic Tax Invoice) Regulations, 2023, among others, the following transaction is excluded from the requirement of an electronic tax invoice:

Tax Procedures (Electronic Tax Invoice) Regulations, 2023.

10. The following transactions shall be excluded from the requirement of an electronic tax invoice -

> (h) supplies by a resident person whose annual turnover is less than five million shillings;

This means that if you buy goods or services from a supplier whose annual turnover is less than five million shillings, they are not required to issue you an eTIMs invoice.


Why is this eTIMs Exemption Clause a Problem?

You might think that this clause is a relief for small businesses that don't have to deal with the hassle of issuing eTIMs invoices. However, this clause could actually hurt your business in two ways:

  1. First, for tax purposes, you are barred from deducting an expense that you don't have an eTIMs invoice for. This means that you could end up paying more tax than you should, unless you can prove that your supplier was exempted from issuing an eTIMs invoice because of their low turnover.

  2. Second, you have to bear the burden of proof to verify that your supplier's annual turnover is indeed less than five million shillings. This is not an easy task, as you don't have access to their financial records or sales data. You also don't know what evidence the KRA will accept to validate your claim.


How to Deal with this eTIMs Exemption Clause?

The eTIMs exemption clause poses a serious challenge for your business, especially if you deal with multiple suppliers who may or may not fall under the exemption threshold. So, how can you cope with this situation?

Here are some possible solutions:

  1. Ask your suppliers to provide you with a written declaration that their annual turnover is less than five million shillings, and keep a copy of it for your records. This may not be sufficient for the KRA, but it could be a starting point for your defense.

  2. Request your suppliers to issue you an eTIMs invoice, even if they are exempted from doing so. This may require some persuasion or negotiation, as they may not have the necessary equipment or software to generate eTIMs invoices.

  3. Avoid buying from suppliers who are exempted from issuing eTIMs invoices, and look for alternative sources that can provide you with eTIMs invoices. This may limit your options and increase your costs, but it could save you from the trouble of dealing with the KRA.


In conclusion

The eTIMs system is a commendable initiative by the KRA to modernize and streamline the tax administration in Kenya. However, the eTIMs exemption clause is a potential loophole that could create more complications and confusion for your business.

You need to be aware of this clause and its implications, and take proactive measures to protect your interests and comply with the tax regulations.

What are your thoughts on the eTIMs exemption clause? Have you faced any challenges or benefits from it? Share your experiences and opinions in the comments section below.


Written by Joseph Wachira
The author is a senior Tax Consultant and can be reached via wachira@cleartax.co.ke