On 4 September 2026, KRA issued a public notice requiring all taxpayers in business to keep accurate and up to date stock records which tally with TIMS or eTIMS figures. This means that companies must account for goods as they move through the business, including stock purchased or received, sold, transferred, returned, adjusted or otherwise disposed of.
For manufacturers, this is a critical requirement for tax compliance and might potentially a tax compliance headache and source for generation of tax audits. Unlike retailers or traders, a manufacturer buys raw materials and packaging, converts them into finished goods for sale. The form of inventory changes form at different manufacturing stages. Therefore, tax compliance with this eTIMS requirement needs planning.
Legal basis
eTIMS was introduced in 2024 and has continued to be an area of focus for the current government. In subsequent legislative amendments, the government has sought to find ways to tighten compliance including reverse invoicing, limitations around expense deductibility and penalty provisions. Under the Finance Act 2026, KRA can also prepare prepopulated returns from eTIMS data, including inventory. Once stock is recorded as purchases on eTIMS, KRA will be able to compare the raw materials a manufacturer bought, the finished goods it sold and the stock it reports as remaining.
For a manufacturer, cost of sales varies depending on the industry and accounting practice and due care needs to be exercised when undertaking operations, particularly, because it forms one of the largest expenses in the income tax return.
Challenges
With the introduction of this requirement we foresee the following challenges.
Conversion of inputs - one tonne of raw material does not become one tonne of product due to changes in form in the manufacturing process which might lead to reconciliation differences.
Work in progress - at any time, part of the stock is neither raw material nor finished goods. Businesses with long production cycles need to decide how and when work in progress is recorded, so that month end figures make sense.
Wastage, scrap and by-products. Some processes also create by-products that are sold separately. These must be recorded as adjustments or as separate stock items. Unexplained losses are likely to be queried by KRA.
Transfer of stock across multiple locations for example, manufacturers move goods from the factory to warehouses, depots and distributors. Each transfer needs to be recorded so that stock is not counted twice or lost between sites.
Excisable goods. Manufacturers of beverages, cosmetics, plastics and other excisable products already report production and removals for excise purposes. Their eTIMS stock records will need to line up with these excise records.
Proposed actions
Manufacturers need to ensure that the eTIMS stock purchases tally with cost of sales and any variances identified must be explained. For example, if the cost of sales includes indirect costs and service component, this should be clearly articulated and reconciled by the manufacturer in the event of any audit. Therefore, manufaturers should also conduct regular reconciliation exercises to avoid gaps in the event of an audit
Finally, manufacturers should take part in the KRA consultative forums. Issues such as work in progress, by-products and normal process losses that are specific to the manufacturing sector, should be raised and addressed during these forums to ensure ease of implementation once this initiative is rolled out.
For any further clarifications, please do not hesitate to contact Digitax.