Future-Proofing Your Business’s Tax Compliance: Why eTIMS is the Answer to Your TIMS Device Woes
Introduction
Kenya’s tax invoicing infrastructure has evolved considerably, reflecting a broader policy objective to digitize revenue administration and reduce compliance gaps. The ongoing transition from the Tax Invoice Management System (TIMS) to the Electronic Tax Invoice Management System (eTIMS) marks a significant shift in tax administration and record-keeping obligations for taxpayers.
While eTIMS introduces more flexible, software-based compliance tools, the transition has generated implementation challenges, particularly for businesses that still use TIMS devices. This article outlines the policy context, compliance requirements, operational pain points, and practical recommendations for businesses navigating this crucial shift.
Policy and Legislative Background
The digitization of Kenya’s VAT framework began in 2005 with the introduction of Electronic Tax Registers (ETRs), mandated under the now repealed Value Added Tax (Electronic Tax Registers) Regulations, 2004. These devices were required to generate real-time transaction records and produce compliant VAT invoices.
Subsequently, the VAT (Electronic Tax Invoice) Regulations, 2020, introduced the Tax Invoicing Management Systems (TIMS), an enhancement of the ETR regime. TIMS aimed to plug loopholes from the earlier regime through:
Seamless integration with iTax.
Integration with trader systems, including Enterprise Resource Planning (ERPs) & Point of Sale (POS) systems.
Standardization and authentication of tax invoices at the time of generation by the trader and transmission to KRA on a real-time or near real-time basis.
Verification of invoice validity by officers, traders, and the general public through the Invoice QR Code or Tax Invoice Checker on the iTax portal.
TIMS introduced the following device types:
Type A: Suitable for small business entities whose record-keeping is manual. Ideal for businesses that conduct sales on the move, due to its portability.
Type B: Suitable for retail outlets and shops that use point-of-sale (POS) terminals.
Type C: Suitable for businesses that have automated their operations. Designed for use with software billing systems and ERP systems.
Type D: Suitable for all types of business entities, offering broad compatibility.
In 2023, the Finance Act, 2023, introduced the Electronic Tax Invoicing Management System (eTIMS). eTIMS is designed as a platform-based solution that allows taxpayers to generate and transmit compliant invoices through a broader range of digital tools, including computers, smartphones, ERPs, and other smart devices.
With effect from January 1, 2024, all taxpayers are required to issue eTIMS-compliant invoices. This obligation was not limited to VAT-registered persons but applies to all taxpayers, subject to narrowly defined exemptions under the Tax Procedures (Electronic Tax Invoice) Regulations, 2024. These exemptions cover, among others:
Employment income (emoluments)
Imports
Investment deductions
Airline ticketing
Financial services (interest, regulated fees)
Final withholding tax payments
Services supplied by non-residents
Notably, amendments introduced in December 2024 require taxpayers to issue invoices on behalf of small-scale suppliers (i.e., those with an annual turnover of less than KShs 5 million) using reverse invoicing mechanisms. Failure to comply results in both penalties and the disallowance of the related expenditure for income tax purposes.
On March 25, 2024, the Cabinet Secretary for the National Treasury and Economic Planning, via Legal Notice No. 64 of 2024, published the Tax Procedures (Electronic Tax Invoice) Regulations, 2024, which solidified the requirement for all persons carrying on business (both VAT and non-VAT registered) to comply with eTIMS obligations.
Transition Pain Points: Type A and C Device Users
While eTIMS was introduced, TIMS devices were not immediately phased out. However, taxpayers who continued to use TIMS devices are still grappling with several significant operational challenges:
Reconciliation Mismatches: A persistent issue is the discrepancy between internal accounting records and the data transmitted to and captured by the Kenya Revenue Authority (KRA) portal. For businesses using Type A devices, which often involve manual record-keeping or less sophisticated digital integration, ensuring all invoices are accurately transmitted to KRA can be a significant challenge, leading to incomplete or mismatched data. Similarly, Type C device users with complex ERPs might find that their systems do not perfectly synchronize with KRA, causing reconciliation headaches.
Auto-Population Issues: Businesses frequently report instances where their internal records differ from what is auto-populated on the KRA portal. This can lead to inaccurate VAT obligations and necessitate time-consuming manual corrections, diverting resources and increasing compliance risk.
Downtimes and Connectivity Issues: Real-time transmission through TIMS can be severely disrupted by unreliable internet infrastructure, especially in areas with poor connectivity. Some businesses have reported daily or weekly interruptions, hindering their ability to issue compliant invoices promptly and transmit data to KRA. This is a common pain point for both Type A and C device users relying on consistent data flow.
Integration Delays and Complexity: A significant number of businesses, particularly those with customized ERP systems (often using Type C devices), have faced technical and logistical challenges in aligning their accounting systems with eTIMS APIs. This is often due to a lack of adequate technical support from vendors or the inherent complexity of integrating legacy systems with new digital frameworks.
Dual Systems Complexity: Some businesses have adopted parallel compliance methods, running both TIMS and eTIMS simultaneously. This creates inefficiencies, introduces reconciliation challenges, and significantly increases the risk of non-compliance during audits due to data fragmentation and increased administrative burden.
Suppliers’ Inefficiencies: The compliance chain is only as strong as its weakest link. If a business's suppliers are not eTIMS compliant or have their own transmission issues, it can directly impact the buyer's ability to claim input VAT, leading to cash flow implications and compliance risks.
Tax and Operational Risks
The challenges highlighted above translate into several significant business risks:
Loss of Expense Deductibility: Expenses supported by invoices that are not eTIMS-compliant will not be deductible for income tax purposes, directly impacting a business’s profitability and tax liability.
Penalty Exposure: Under the Tax Procedures Act, non-compliance with eTIMS obligations triggers financial penalties, adding an avoidable cost burden to businesses.
Cash Flow Implications: System failures, invoice delays, and increased administrative burdens during the transition can have severe cash flow implications, particularly for businesses with high transaction volumes that rely on timely VAT refunds or expense deductions.
Reputational Damage: Persistent non-compliance can lead to a negative standing with the tax authority, potentially resulting in increased scrutiny and audits, damaging a business's reputation and operational efficiency.
Mitigation Strategies
Businesses can proactively manage the risks associated with the eTIMS transition by adopting the following measures:
Fully Transition to eTIMS: The most effective mitigation strategy is to fully embrace and transition to eTIMS. The eTIMS platform is designed to be more reliable and has fewer transmission challenges compared to TIMS devices. This shift helps centralize compliance efforts and reduce system-related discrepancies.
Engage Accredited Integration Partners: KRA has accredited several integration partners to support system upgrades and API integrations. Engaging such reputable providers can help businesses seamlessly integrate eTIMS APIs with minimal disruption, especially for Type C device users with complex ERP systems.
Implement Robust Reverse Invoicing Protocols: For taxpayers working with small traders, robust internal workflows should be developed to generate and retain reverse invoices in accordance with the Tax Procedures Act and supporting regulations. This addresses the challenge of supplier inefficiencies and ensures input VAT claims are compliant.
Prioritize Staff Training and Change Management: Staff involved in sales, procurement, and finance functions must be comprehensively trained on the operational and tax implications of eTIMS. This capacity building is crucial for minimizing compliance risk, ensuring accurate data entry, and facilitating smooth implementation across all business units.
Regular Reconciliation and Data Verification: Establish a routine of daily or weekly reconciliation between internal records and the KRA portal. Proactive data verification can identify and address reconciliation mismatches and auto-population issues before they escalate, ensuring accurate VAT obligations.
What Now?
The migration from TIMS to eTIMS transcends a mere system upgrade; it represents a fundamental redefinition of how tax compliance is monitored, enforced, and integrated into core business operations. For many enterprises, this transition necessitates significant technical and operational realignment. Nevertheless, with diligent strategic planning, effective system integration, and comprehensive staff training, the associated fiscal and operational risks can be effectively managed. Stakeholders are strongly advised to approach this statutory obligation with the requisite diligence, as failure to comply could lead to financial loss and harm the company’s reputation.
DigiTax’s Solution
DigiTax has seamlessly integrated eTIMS requirements into its e-invoicing product providing a streamlined solution for businesses. By using DigiTax, businesses can benefit from;
Unified API Integration: Generate invoices via a single, secure API whether you're using an ERP, POS, or custom system.
CSV and Batch Uploads: Save time by uploading bulk invoices through CSV files and automated batch processing.
Brandable eTIMS-Compliant Invoices: Generate clear, professional-looking VAT and non-VAT invoices, customized with your business logo and contact details.
Support for Various Business Types: From small enterprises to large organizations, DigiTax provides flexible tools to meet your compliance goals.
Built for Scale: Whether you're issuing 50 or 5,000 invoices a day, DigiTax supports high-volume processing without slowing you down.
End-to-End eTIMS Compliance:DigiTax offers a complete solution to manage your entire tax journey from invoice generation and submission to real-time syncing with KRA. With tools for invoice validation, digital reporting, and record-keeping, DigiTax helps businesses stay fully compliant without the manual hassle.
Speak to one of our experts by contacting us through: Email info@namiri.tech or call/Whatsapp 0112685368
