January 1, 2024, is the deadline for all VAT-registered taxpayers in Kenya to onboard (move to) e-Tims and the tax commissioner has provided details. Well! Non-VAT-registered taxpayers have until March 2024. As the global economic environment has changed, so has the tax industry in Kenya. Every change brings challenges. Like in any other sector, tax processing affects the tax administration. The tax process has significantly changed over the last couple of years.
Over the years, the government has struggled with tax non-compliance, evasion, and avoidance, especially in the VAT administration. Complying taxpayers have also suffered immensely because they support a large population that should be registered for income tax or are not complying with tax laws and regulations.
With time, electronic data processing has become more popular globally and a practical choice for struggling tax administrations. To manage some challenges, the government introduced i-Tax (to clean up the data story for another day), ETR for VAT-registered taxpayers, TIMs, and now e-Tims.
What is e-Tims?
In this article, we will discuss how e-Tims will affect your tax reporting as a taxpayer.
Simply put, e-Tims is an electronic tax reporting system where all tax-related information, for example, sale data, is transmitted to the tax commissioner using electronic means, such as the Internet or specialized software. For instance, Rose walks to your kiosk to purchase eggs, bread, and milk for her family breakfast, or you operate a “Kibanda” and sell “Chapo madodo,’ and you are on e-Tims; the minute you make a sale, that information is sent to the tax commissioner immediately.
Unlike previous reporting, electronic tax reporting will digitally transmit any tax-related data, such as sales and credit note details and other relevant financial information, to the Tax Commissioner. This electronic data submission will be accomplished through e-Tims, a system specifically designed for tax reporting purposes.
What does this mean? It is simple. Whatever you buy is a sale from a taxpayer. At the end of the month or year, the tax commissioner has information about everything you sold purchased by another taxpayer as long as you transact with persons on e-Tims.
Question?
Have we finally resolved the tax administration challenges? Maybe, maybe not.
Electronic tax reporting and filing, or “e-filing,” has many advantages and drawbacks. By understanding these advantages and disadvantages, taxpayers can make better-informed choices regarding their tax reporting and filing approach.
Advantages of Online Tax Reporting
e-Tims, like any system, has advantages and disadvantages. To many taxpayers, there are many advantages of using e-Tims for tax reporting. What are the benefits of using e-Tims for taxpayers?
Cost of Reporting
e-Tims is cheaper than ETR or TIMs, which had to be purchased. Taxpayers are not purchasing extra gadgets to comply with tax laws and regulations. As long as taxpayers have gadgets (mobile phones, desktops, laptops, tablets, etc.) that can access the Internet, they are good to go. Also, since most of the data will already have been transmitted, some staff members, especially those with data keying and tax filing responsibilities, may not be required.
Access e-Tims
e-Tims is an internet-based system. Wherever a taxpayer is, they can use it as long as they can access e-Tims. This is unlike ETR or TIMs in locations, and you had to be there to make any transaction physically; otherwise, you would carry the gadgets wherever you went.
Accessibility to e-Tims means that you can make a transaction and issue an invoice from anywhere in the world and 24/7, as long as you have access to the Internet and the portal is working.
e-Tims reporting offers unparalleled convenience. Taxpayers can file their taxes electronically while lounging in their homes if they have a computer or smartphone. For example, if you are out of your office, e.g., on holiday in Mombasa or a pilgrimage to Israel or Mecca, and your customers or clients need an invoice to make a payment, you can issue the invoice and get your payment.
Preparing Data for Tax Filing
Those registered for VAT know how difficult and time-consuming it is to prepare and reconcile sales and purchases on time for VAT analysis. Buyers should receive any purchase invoice from sellers on time, sales data needs to be complete, credit notes must be captured, etc. With e-Tims, all your purchase and sales data will be in one location.
There will also be a significant reduction in errors when reporting using e-Tims. Tax software automatically finds errors and prompts users to correct them before submitting. e-Tims will assist in ensuring tax returns are accurate by automatically identifying problems with them.
Tax Returns Filing
The tax law requires that taxpayers file correct tax returns on time. Many taxpayers cannot file tax returns for various reasons, for example, the unavailability of complete data. Now, that is a thing of the past. All your purchase and sales data will be in one place, and the tax returns will be ready, whether every month or annual basis.
The only thing you will be required to do is to confirm the tax returns. You can successfully file your return electronically and receive a confirmation, which will serve as evidence of submission of your tax return.
Tax Payment
Depending on the tax system, taxpayers are expected to make payments every month or annually. The payments must be the correct amount and on time. However, some taxpayers need to do what is required of them. The reason for failure to make the payment is a need for more information on how much to pay, especially regarding VAT input. With e-Tims, you can tell how much you are expected to pay, make the payment upfront, or plan with the tax Commissioner on how to pay on an installment basis.
Mis-use of PIN
VAT administration has given the tax Commissioner sleepless nights. Many taxpayers need to know that others may use their PIN to report sales they never made. This is because i-Tax is not configured to flag unreported sales unless one deliberately tries to do that. You will file your tax returns, and everything will be okay until you are audited and data from your sales data is queried on i-Tax. You may find that some taxpayers have been using your PIN to report sales to use that VAT input to reduce their VAT bill.
Note: – if you doubt your data in i-Tax, ask the tax Commissioner to query – but you will have to provide evidence you never made the sales). With e-Tims, you can get information about who is reporting purchases from you. You can contact the tax commissioner if you did not make the sales. That is why you must confirm your tax return for every reporting period.
Reduced Stress
Taxpayers experience tax-related stress, which affects their health. The tax reporting process from making the sales, purchases, tax (e.g., VAT) analysis, and reporting (e.g., slow i-Tax) is very stressful – learn more from this information product. This affects tax compliance and the health of taxpayers. e-Tims will considerably reduce this stress and improve tax compliance and taxpayers’ health.
Tax Refunds
The tax commissioner is currently holding billions of taxpayer refunds. This money is taxpayers’ operating capital. Though the Tax Procedures Act (2015) provides for payment of interest for any refunds beyond two years, the tax Commissioner has yet to pay. Part of the problem with delayed tax refunds is the time to process.
Before you get paid, the tax commissioner must confirm your tax refund, a process delayed mainly because of either incomplete data or the absence of the data. When a taxpayer reports their transaction electronically, the Tax Commissioner has all the data, and confirming the authenticity of the data will be easy. Processing of tax refunds will be faster, and taxpayers’ suffering may come to an end.
Eco-friendly
Electronic reporting contributes to environmental preservation by reducing paper waste. Moving from paper-based tax returns to electronic filing will require less paper documentation, assisting in forest preservation and reducing carbon footprints. This has no direct advantages to the taxpayers, but taxpayers live on this hard earth.
Every coin has two sides. What are the disadvantages of e-TIMs to taxpayers?
Disadvantages of Using e-Tims
e-Tims, like every system, has advantages and disadvantages. What are some disadvantages to taxpayers of using e-Tims?
Access Gadgets
To access e-Tims, a person will need a smart mobile phone, a desktop, a laptop, or a tablet with internet capability. Many taxpayers, especially those not registered for VAT, need help to afford or have no use for a gadget that can access the Internet. They will be required to buy the gadgets to use e-Tims, which is an extra expense, or use internet cafes to transact their business. This may delay the transactions of sales data to the Tax Commissioner, thus affecting tax reporting, returns, and payments.
Internet Access
To use e-Tims, a person will need to have internet access 24/7. Hence, you will need to have a dependable internet connection. We all know that not all corners of the country have accessible internet 24/7. When there are internet outages or inconsistent service, some taxpayers may only issue invoices if there is an Internet connection. This means some sales data will not be transmitted on time or may never be.
This will affect the availability and correctness of data amounts on the tax returns and payments on time and could cause delays or missed deadlines. However, if the system is configured to transmit the data when internet accessibility is available, it will not be a problem.
Internet Cost
The tax commissioner will penalize taxpayers for failing to remit even kshs 1. i-Tax is configured to levy the penalty and interest. Access to the Internet costs money. Taxpayers are already struggling financially but must access the Internet to use e-Tims. This will cost them money, and it is an unbudgeted expense.
Electricity Outage
The country has been experiencing electricity outages in the recent past. e-Tims will be reliant on power, and if a taxpayer has an alternative power source, for example, from solar or stored power on power banks, they may not access or use e-Tims. The result is that tax reporting will be impacted. Taxpayers may need to figure out alternative power sources.
Literacy Levels
Online tax reporting systems can be challenging for certain people, especially people with low literacy, older people, or remote residents. Only some people have the necessary technological know-how or internet connection. Introducing e-Tims was with the broad assumption that all taxpayers are literate and can use the Internet. We have millions of Kenyans who are illiterate. The ability to use e-Tims is about being literate and being able to use technology.
From the World Bank data sources, the literacy level in the country as of 2022 was 83%. According to Statista, internet usage as of 2023 was 32 percent. This means that some Kenyan taxpayers may need help to use the Internet or any form of technology, which will affect e-Tims use.
Businesses Closure
Some taxpayers have been offering tax services, such as filing tax returns, refund processing, auditing, etc. Any business geared towards tax reporting may no longer be relevant. With e-Tims, some businesses will either be replaced entirely, or the work will be significantly reduced. The companies may have to close shop or re-invent.
Loss of Jobs
Some Kenyan taxpayers have had jobs to support tax reporting. For example, staff in tax departments or cyber cafes. These Kenyans will lose jobs because e-Tims have replaced their services.
Data Security Risks
Cybersecurity is a significant problem with electronic reporting and filing. Online private tax information transmission opens it to identity theft and other cyber threats. The possibility of data compromise exists even with security measures in place.
e-Tims has many taxpayer benefits, including speed, simplicity, and accuracy. Still, it is essential to weigh the advantages against potential disadvantages, such as accessibility concerns and data security risks.
Should the tax commissioner have provided an alternative?
Let us know your thoughts.
dr. wakaguyu
