Background: What is eTIMS?
The Electronic Tax Invoice Management System (eTIMS) is Kenya Revenue Authority’s (KRA) advanced digital platform for issuing, transmitting, and storing tax invoices electronically. It was introduced as an enhancement of the original Tax Invoice Management System (TIMS) and the Electronic Tax Register (ETR) regime to modernize invoicing, improve real-time reporting, and enhance transparency in the tax ecosystem. eTIMS became effective for all taxpayers from 1 September 2023, with expanded requirements taking full effect from 1 January 2024. Expenses not supported by a valid eTIMS/TIMS invoice from that date are generally not eligible for income tax deductions.
The objective of eTIMS is to reduce tax evasion, strengthen compliance, digitize records, and ensure taxpayers and KRA have synchronized transaction data. All business transactions must be reported electronically to eliminate cash-based under-reporting and enhance revenue collection.
2. eTIMS Exemptions Explained: Which Transactions are Excluded?
While the eTIMS regime applies broadly, certain transactions are exempted either by statute (automatic exclusions) or at the discretion of the Commissioner of KRA. The key categories of exemptions are as follows:
2.1. Statutory/Automatic Exclusions Under the Tax Procedures (Electronic Tax Invoice) Regulations
These are transactions that do not require issuance through the eTIMS platform by default:
- Emoluments: Salaries, wages, and benefits subject to Pay As You Earn (PAYE).
- Imports: Goods imported under the applicable customs laws.
- Investment Allowances: Internal accounting entries and related adjustments.
- Airline Passenger Ticketing: Charges for airline travel ticketing.
- Interest and Financial Charges: Interest income, and fees charged by financial institutions.
- Final Withholding Tax Payments: Expenses subject to final withholding tax.
- Services by Non-Residents: Services provided by a non-resident person without a permanent establishment in Kenya.
- Other Specific Exclusions as Provided Under Section 23A of the Tax Procedures Act.
These exclusions reflect activities that either do not constitute sales of goods or standard services in the traditional sense, or are covered under separate tax documentation regimes.
2.2. Commissioner-Granted Exemptions
Beyond the statutory exclusions, the Commissioner of KRA may grant exemptions by Gazette notice to specific persons or transactions. An example includes businesses where income is received exclusively through a payment platform recommended by the Commissioner, provided the relevant transactional data is electronically transmitted to KRA’s systems. The Commissioner must specify reasons in the Gazette for both granting and potentially revoking such exemptions.
Also read: Don’t Let the Kenya Revenue Authority (KRA) Knock Twice: Common Tax Return Mistakes to Avoid
2.3. Transitional and Temporary Arrangements
During the onboarding period for non-VAT registered taxpayers (extended to 31 March 2024), KRA waived penalties for failure to issue eTIMS invoices. Onboarding allowed businesses to migrate into the system and progressively upload manually issued invoices issued from 1 January 2024 up to the onboarding date.
3. Eligibility Criteria and Who Needs to Comply
eTIMS applies to all persons carrying on business, irrespective of VAT registration status. However, practical approaches to onboarding and compliance differ:
- VAT-registered taxpayers are mandated to issue eTIMS invoices for all supplies.
- Non-VAT registered taxpayers, including those under Turnover Tax or other simplified regimes, were given a compliance window and can use eTIMS Lite solutions (via eCitizen portal or USSD) tailored for micro and small taxpayers.
- Small service providers and digital platform merchants may use simplified eTIMS interfaces where applicable.
The Regulations clarify that even simplified or integrated electronic systems may be accepted where they meet KRA’s requirements for data integrity, transmission, and storage.
4. Legal Framework Supporting eTIMS Exemptions
The eTIMS regime is supported by a suite of legal instruments:
4.1. Tax Procedures Act (TPA) and Section 23A
The TPA establishes the mandate for electronic tax invoicing and allows the Cabinet Secretary and Commissioner to set requirements for digital invoicing. Section 23A specifically provides for the definition and treatment of electronic tax invoices and the authority to exempt certain transactions from these requirements.
4.2. Tax Procedures (Electronic Tax Invoice) Regulations, 2024 (Legal Notice 64 of 2024)
These Regulations detail the technical and procedural specifications for compliant systems, outline transaction exclusions, and provide for Commissioner-granted exemptions. They also specify system capabilities such as unique identifier issuance for invoices, data transmission requirements, and record-keeping standards.
4.3. Finance Act Provisions
The Finance Act 2023 and subsequent legislative updates expanded the requirement to include all taxpayers and clarified that only valid eTIMS or TIMS invoices support deductible business expenses for income tax purposes.
Collectively, these form the legal backbone of Kenya’s e-invoicing regime, ensuring uniform application and enforcement across sectors.
5. Penalties for Non-Compliance
Failure to comply with eTIMS invoicing requirements can result in significant consequences:
5.1. Statutory Penalties
- Invoicing Violations: A person who fails to comply, tampers with, or interferes with the eTIMS system (e.g., uninstalling devices or failing transmission) may be liable for penalties amounting to two times the tax due on the affected transaction.
- Data Manipulation and Tampering: Acts that compromise data integrity can attract penalties under the Tax Procedures Act and supporting Regulations.
5.2. Indirect Financial Consequences
- Disallowance of Expense Deductions: From January 2024, expenses not supported by valid eTIMS/TIMS invoices are not deductible for income tax purposes, effectively increasing taxable income and tax liability.
- Tax Assessments and Audits: KRA can issue assessments based on digital trails from eTIMS and other data sources if records are missing or inconsistent.
- Compliance Certifications: Non-compliant taxpayers may be denied Tax Compliance Certificates, which can affect public procurement eligibility and business transaction opportunities.
Penalties are designed not only to enforce compliance but also to promote accurate digital reporting and reduce revenue leakage.
6. Practical Implications for Businesses
While eTIMS exemptions provide limited relief for specific transactions, most businesses must transition fully to electronic invoicing. Strategic actions include:
- Onboarding timely to the eTIMS platform and ensuring all systems are compliant.
- Reviewing excluded transactions to understand when electronic invoicing is not required versus when documentary support suffices.
- Maintaining digital records that can be matched to tax returns to avoid disallowances or additional tax liabilities.
- Monitoring legal updates, as criteria for exemptions and enforcement mechanisms continue to evolve.
CONCLUSION
The introduction of eTIMS marks a fundamental shift in Kenya’s tax administration toward real-time reporting, enhanced transparency, and data-driven enforcement. While the law provides for specific invoicing exemptions, these are narrowly defined and strictly regulated. Businesses must clearly distinguish between exempt transactions and those that require full eTIMS compliance to avoid penalties, expense disallowances, and adverse tax assessments. As enforcement intensifies, proactive compliance is no longer optional—it is a critical business risk management function.
If you are unsure whether your transactions qualify for eTIMS exemption, need assistance with onboarding, or want to ensure your invoicing processes fully align with KRA requirements, engage a professional advisor early.
Eliacc supports businesses across sectors with eTIMS registration, exemption reviews, system alignment, and ongoing tax compliance advisory. Reach out to us to safeguard your operations, protect deductibility of expenses, and remain confidently compliant in an increasingly digital tax environment.
