The Treasury is on the spot over the failure of ministries, departments and agencies (MDAs) to onboard their services on the electronic Tax Invoice Management System (eTIMS).
The National Assembly’s Finance and National Planning Committee said it will question Treasury Cabinet Secretary Njuguna Ndung’u on the reasons behind State entities not listing with the new system. The government had set January 1, 2024, as the effective date for the implementation of electronic invoicing.
The deadline was, however, extended to March 30, when all entities whether in the public or private sector, were to be onboarded on the eTIMS. This means that all businesses transacting with other businesses in the country were expected to invoice each other through the eTIMS effective April 1, with the Kenya Revenue Authority (KRA) required to monitor transactions and have better visibility of claims of value-added tax refunds by companies.
“It is surprising to learn from the Kenya Bankers Association (KBA) that ministries, departments, and parastatals have not been on-boarded on the eTIMS system,” Kuria Kimani, who chairs the committee, said.
“We are concerned that some MDAs are not on-boarded into the system. We will put the Treasury to task. They can’t advocate for everyone, including informal businesses, to go on the eTIMS system, and MDAs are not. They should lead by example in complying with the law.”
Mr Kimani said the failure of the MDAs to onboard the eTIMs could explain why some private sector players refused the system.
He spoke during a breakfast meeting convened by the Kenya Bankers Association (KBA) to review the impact of the Finance Act 2023 on the banking sector.
KBA chief finance officer Kennedy Mutisya and PricewaterhouseCoopers' Edna Gitachu shocked the committee when they revealed that MDAs were not onboarded to eTIMs making it difficult to deduct genuine expenses due to lack of electronic invoicing.
"The government has not taken up eTIMS. Parastatals, ministries and agencies are not on eTIMS. Insurance premiums and levies are to be paid through eTIMS. How will service providers get electronic invoices from government agencies?" Ms Gitachu said.
"There is a need to delete section 16(1)(c) of the Income Tax Act which requires that every genuine expense has to be supported by eTIMS invoices."
A report tabled jointly by KBA and PwC shows that the taxpayers continue to face procurement challenges and had resulted in a reduction of the pool of suppliers especially medium small and micro enterprises (MSMEs) that banks have access to.
"We note that in this period, it is likely that taxpayers may not be able to deduct genuine expenses incurred during this time from suppliers who had not on-boarded to eTIMS," Ms Gitachu said.
"Taxpayers continue to face challenges, especially with the VAT auto-populated returns. In February 2024, some taxpayers were not able to claim all their input VAT because of downtime in the eTIMS system."
Ms Gitachu said the implementation window provided by the KRA for testing the system was not adequate, therefore taxpayers were not able to fully understand the new system.
Mr Mutisya said provisions for increased taxation in the Finance Act 2023 had impacted negatively on non-performing loans (NPL) in the banking sector.
"Kenyans have undergone difficult challenges in terms of loan performance. Our clients have struggled to meet their obligation as a result of the Finance Act with the introduction of the Housing Levy and the yet to be effected Social Health Insurance deductions," Mr Mutisya said.
Ms Gitachu, a tax policy consultant, told the committee that the provision that entities pay taxes within five working days had resulted in a 1,300 percent increase in the number of tax payments per year, leading to huge costs on tax administration.
She revealed that preliminary findings of an ongoing study on the impact of the Finance Act, 2023 show that one large bank had recorded 2,950 applications for restructuring of loans worth Sh3.2 billion.
"Per preliminary analysis in our ongoing Total Tax Contribution Report, on average banks spent on average Sh1.18 million each in additional costs for hiring staff for tax compliance of paying taxes within five working days in 2023."
Mr Kimani said the committee will ensure that the Finance Act 2024 will have clear provisions with no ambiguity.
He acknowledged that the failure of the Finance Act 2023, to provide specific monthly dates by when entities should have remitted their tax payments to the taxman may have resulted in increased cost of tax compliance.
Mr Kimani assured the banking sector that the committee would look into conflict between employment and other laws.
