Globally, countries especially across Middle East (Gulf countries) and Africa like Tunisia, Uganda and Egypt are racing towards implementing electronic tax invoice. The wave is already being felt locally with Kenya Revenue Authority (KRA) rolling out the hardware-based electronic tax invoicing which commenced on 1st August 2021; with a deadline for complying extended to 31st July 2022 for every taxpayer to implement.
The overall objective for e-invoicing is to increase VAT compliance, minimize on VAT fraud, increase tax revenue and for economic analysis and prediction based on accurate data.
Changes in tax policy, however doesn’t hold water in a vacuum without a legal back up as defined in domestic rules. The Income tax law therefore was amended to reflect the policy by incorporating the following legal Provisions to govern the compliance and enforcement on e-VAT invoicing. These included:
- VAT Act, 2013-section 43 (4): States that the commissioner may require any person to use an electronic tax register (ETR) as may be prescribed, for the purpose of accessing information regarding any matter or transaction that may affect the tax liability of the person.
- Tax Procedures Act (TPA) 2015 – Section 75: States that the commissioner may authorize the submitting of tax documents (tax returns and tax invoices) through the use of information technology.
- The VAT (Electronic Tax Invoice) Regulations, 2020: Gazetted on 25th September 2020, Legal notice 189 and public notice published on 13th July 2021 provided for an extension of timelines to comply. In addition, the regulations provide for a period of 12 months to comply.
In light of the recent developments in Kenyan taxation system, the emerging areas of clarifications in the VAT (Value-Added-Tax) chain analysis were noted to guide the taxpayers. They included but not limited to:
- Tax Point
- Legal Provisions – VAT Act 2013 Section 12. Time of supply of goods and services. States that the time of supply shall be:
- Date on which the goods are delivered/services performed
- Date a certificate is issued by an architect, surveyor or consultant
- Date of issuance of an invoice
- Date in which payment for the supply is received in whole or in part
- Instalment Payment Plan/Hire Purchase
- Legal Provisions – VAT Act 2013 Section 12. Time of supply of goods and services. (3) If;
- Goods are supplied under a rental agreement or
- Goods or services supplied are made by metered supplies; or under an agreement that provide for periodic payments, then;
- The goods or services shall be treated as successively supplied for successive parts of the period of the lease or agreement or as determined by law
- The time of each successive supply shall be earlier of the date on which payment of the successive is due or received.
- Discount and rebates: Legal Provisions – VAT Act 2013 Section 13. Taxable Value of supply.
- (3) The consideration of supply, including a supply of imported services, shall be the total of –
- The amount in money paid or payable, directly or indirectly, by any person for the supply. Reduced by any discounts or rebates allowed and accounted for at the time of supply.
- Credit notes: Legal Provisions – VAT Act 2013 Section 15. Deemed taxable supply.
- Where goods are returned to the registered person or, for a good and valid reason, the registered person reduces the value of the supply after the issue of a tax invoice, a credit note shall be issued for the amount of the reduction.
- A credit or debit note issued under this section shall be serially numbered and include details of the name, address and personal identification number (pin)of the person to whom it is issued and sufficient details to identify the tax invoice on which the supply was made and the tax that was originally charged.
- Consolidating of B2C sales: Legal Provisions – VAT Act 2013 Section 42. Tax Invoice
- A registered person who makes a taxable supply shall at the time of supply furnish the purchaser with the tax invoice containing the prescribed details for the supply.
- Capture of non-fiscal data: The Tax Invoice Management Systems (TIMS) compliant will be configured to transmit only the fiscal details of the invoice to KRA, which include but not limited to;
- PIN of seller, Date and time of transaction, Invoice number, Description of supply, Unit cost, Quantity, gross amount, Taxable amount, tax rate charged and tax amount.
Key to Note:
- The unit of currency in books of account as per TPA 2015 sec 23-book keeping, shall be in Kenya shillings.
- For a foreign currency invoice, the recommended exchange rate to be used is the CBK (Central Bank of Kenya) rate for the day.
- Where tourism levy is captured on an invoice, only the fiscal data relating to computation of VAT will be transmitted to KRA less the value of tourism levy and service charge.
Way Forward for MNEs
One issue for MNEs is the requirement for a hardware-based e-invoicing in order to comply with the local laws. MNEs have options of outsourcing to local companies to comply with this requirement. This notable change in tax policy, comes at a time when OECD (Organization for Economic Co-operation and Development) 15 Actions on BEPS (Base Erosion and Profit Shifting) is being implemented globally to curb tax avoidance and evasion by MNEs with aggressive tax planning; in order to instil transparency and accountability.
The introduction of e-invoicing in Kenyan jurisdiction means that income derived by MNEs, shall be subjected to the domestic rules as stipulated in VAT Act 2013, TPA 2015 and VAT Regulations Act 2020. Therefore, MNEs information on Sales data whether operating in the digital economy or has a physical presence shall be stored locally to aid in revenue collection, and curb any tax avoidance and evasion at the same time.
KRA in its effort to assist VAT registered businesses to comply, has partnered with local suppliers and manufacturers to support TIMS implementation. This therefore could foster increasing localisation presence requirements for Multinational Enterprises.
In conclusion, while the law provides for a transition period of 12 months (1st August to 31st July 2022); VAT registered MNEs are encouraged to commence the analysis of business preparedness early for planning purposes, in order to determine the degree of change required.
Author: Eddie Opiyo