eTIMS for Kenyan salons, gyms and repair shops

Kenya's electronic tax invoicing rules are often discussed as if they only concern VAT-registered traders. They do not. Since 2023 the Kenya Revenue Authority has required every person carrying on business to issue invoices through the electronic Tax Invoice Management System, eTIMS, and a salon, a gym or a repair shop with no VAT registration is squarely inside that rule. This post sets out what KRA's own notices say, what the simplified options are, and the one consequence that catches small businesses out.

The rule, in KRA's words

KRA's public notice of 17 November 2023 states that "pursuant to the provisions of the Finance Act 2023, effective 1st September, 2023, all persons carrying on business, including those not registered for VAT, are required to electronically generate and transmit their invoices to KRA" through eTIMS. The notice lists who that covers: companies, partnerships, sole proprietorships, associations and trusts; persons with income tax obligations including turnover tax and rental income tax; and businesses in every sector, "including the informal sector".

A one-chair salon run as a sole proprietorship paying turnover tax is included. So is a gym that is not VAT-registered because its services sit below the threshold.

The consequence for your customers, and for you

The same notice carries the provision with teeth: "with effect from 1st January, 2024, any business expenditure not supported by a valid electronic tax invoice shall not be deductible for income tax purposes." This cuts in two directions for a service business.

First, your business customers need an eTIMS invoice from you, or they cannot deduct what they paid you. A corporate client who pays a gym for staff memberships, or an office that sends laptops to your repair bench, will increasingly refuse to pay without one.

Second, your own expenses must be supported by eTIMS invoices from your suppliers. The rent, the hair products, the spare parts, the cleaning chemicals: without an electronic invoice, they fall out of your deductions and your taxable profit rises.

The onboarding window that has passed

KRA's notice of 27 December 2023 gave non-VAT registered taxpayers until 31 March 2024 to onboard, and said that during that window "penalties provided in law for failure to issue electronic tax invoices will not be imposed" on them. It also required those who joined to "progressively capture manually generated invoices and receipts issued after 1st January, 2024" up to their onboarding date. That window has closed. A business that has not yet onboarded is now simply non-compliant and should fix that without waiting for another notice.

Simplified options for small businesses

KRA's press release of 4 March 2024 introduced solutions "dubbed eTIMS Lite" for non-VAT registered taxpayers. It describes a USSD option, reached by dialling *222#, and a web option at ecitizen.kra.go.ke, both "accessible through the eCitizen platforms". The release targets "farmers, jua kali traders and artisans amongst others", and its description of businesses with minimal transactions fits many small service shops.

For a seller who struggles even with those, the release describes "the reverse invoicing solution where a seller can/may give consent or authority to the buyer to issue invoices on their behalf". A small supplier can therefore allow a business customer to raise the eTIMS invoice.

Which option fits depends on volume. A salon issuing a handful of invoices a day can live on USSD. A gym with a hundred renewals a month wants invoices raised from the same system that holds the memberships, so that nothing is typed twice.

What a service business should do this month

1. Confirm the business is onboarded on eTIMS under the correct PIN, and that every person who sells can issue an invoice.
2. Issue an eTIMS invoice for every sale, including the small ones; the rule has no minimum.
3. Ask every supplier for an eTIMS invoice and refuse to pay without one, exactly as your customers will do to you.
4. File supplier invoices against the expense they relate to, so the deduction can be defended.
5. For suppliers too small to invoice, use reverse invoicing rather than losing the deduction.

A note on records

The shift to electronic invoicing is, underneath, a shift to keeping a complete record of sales and purchases as they happen. Service businesses that already run every sale through a till and every purchase through a ledger find eTIMS a small step. Those that have relied on a notebook and a drawer of receipts find it a large one, but the work of catching up is the same work that shows where the business actually makes its money. Treat it as that, rather than as a tax chore, and the compliance comes for free.

Sources

1. https://www.kra.go.ke/news-center/public-notices/2071-on-boarding-of-non-vat-taxpayers-on-etims
2. https://www.kra.go.ke/news-center/public-notices/2077-electronic-tax-invoicing-for-non-vat-registered-persons
3. https://www.kra.go.ke/news-center/press-release/2093-simplified-etims-solutions-for-informal-sector-and-small-businesses