Search for Savings & Loans
KRA’s New Tax System for Small Businesses - Money Weekly
News and Analysis

KRA’s New Tax System for Small Businesses - Money Weekly


It is that time of the week again when we look at the news headlines over the last seven days and dissect those that can affect your money. 

Welcome to yet another edition of Money Weekly.

Small businesses have been exempt from the KRA’s new eTIMS system following uproar over high compliance costs and insufficient technology adoption. They will now only be required to show transactions. This is a move by KRA to increase the visibility of the amount of business small businesses conduct.

In the same spirit of visibility and transparency, the Cabinet has approved the implementation of the Treasury Single Account (TSA) to create visibility of government cash resources and transparency in government cash management. The TSA will allow the Treasury to keep tabs on how different government departments are transacting to curb inefficiencies.

Meanwhile, government agencies are making losses with the highest loss registered by the Kenya Railways Corporation, despite the Standard Gauge Railway increasing its revenue and commuters.

Yields on the Eurobond that is maturing in June this year rose by a massive 200 basis points after the government failed to honour its buyback promise. Conflicting updates on debt clearance and recent announcement of eurobond default by Ethiopia are seen by analysts as contributors. . 

This is as the Kenyan shilling hits a new low as it breached the Ksh160 mark against the dollar.

Let’s dive in.

KRA’s New Tax System for Small Businesses

The Kenya Revenue Authority (KRA) is setting up a new system that will require small businesses to show only transactions rather than generating and transmitting electronic invoices through the electronic Tax Invoice Management System (eTIMs)

  • Qualification threshold: The qualification threshold is expected to be capped at the businesses which pay turnover tax. Turnover tax is paid by any Kenyan business with annual sales of more than Ksh1 million but does not exceed Ksh25 million.
  • Purpose of the new system: KRA insists that the purpose of this new system is for the visibility of transactions. Hakamba Wangwe, KRA chief manager for eTims, clarifies, “You don’t have to do stock management. We just need to do visibility; ‘What did you sell to so and so?”

Almost all VAT taxpayers, primarily large and medium, have been onboarded. This new move is expected to cater more to the lower-end taxpayers. 

All VAT-registered taxpayers are required to only accept electronic tax invoices from taxpayers. KRA will not accept invoices from suppliers not captured on e-Tims. 

This means if you want to declare a certain transaction as a business expense, you will then need to produce an electronic tax invoice to support it.

Not recognising expenses paid to suppliers not captured in this e-registry will mean the operating costs of an affected business will appear to be lower thus inflating its profits and ultimately increasing its tax obligations.

As of January 1, 2024, less than 1% of all businesses operating in Kenya that were not registered for VAT but were registered for turnover tax, monthly rental income, partnerships, corporation tax, and individual income tax had registered.

The move has now pushed KRA to extend the deadline for the onboarding of the eTIMS system from January 1 to March this year to increase its uptake.

Key Numbers

Only 6,000 businesses not registered for VAT but for turnover tax, monthly rental income, partnerships, corporation tax, and individual income tax had onboarded eTIMS before the January 1st deadline.

According to KRA data, registered businesses with a PIN are about 663,000 and are expected to be on board by March 2024.

Government efforts to increase VAT have been successful so far. In the first quarter of the current fiscal year, VAT on local products increased by 21.1 percent to Ksh75.8 billion from Sh62.6 billion a year earlier, while VAT on imports grew by 11.7 percent to Ksh77.2 billion in the review period.

The New Government Banking System - Treasury Single Account

The Cabinet has approved the implementation of the Treasury Single Account (TSA). A TSA account is a single account or a set of interlinked bank accounts managed by the government and used to transact by all government ministries, departments, and agencies (MDAs).

The government has made this move for two main reasons.

  • Simplify government banking by minimising fragmentation of government accounts in commercial banks.
  • Increase government cash management transparency through creating visibility of government cash resources.

A TSA account gives central authority to the National Treasury to oversee budget execution. It also cuts administrative costs associated with running multiple bank accounts by the MDAs.

However, the TSA account will exclude government enterprises with operational independence. Initially, it will exclude semi-autonomous government agencies such as the Kenya National Examinations Council (KNEC) and the Higher Education Loans Board (HELB).

The transition to a TSA was announced first in 2016, but regulatory legwork and the required investment in an interlinking system have delayed implementation. The system will have to interlink and automate the National Treasury, the Controller of Budget, and the Central Bank of Kenya.

Kenya's Eurobond Woes Continue

Kenya's risks on the inaugural Eurobond that is maturing on June 24, this year, have increased due to its failure to fulfil a promised $300 million buyback by December 31, 2023. This has made yields on the $2 billion bond taken in 2014 rise by a massive 200.9 basis points. 

The absolute yield rate now stands at 16%, up from a 15-month low of 13%. This is despite the $68.7 million partial payment at the end of last year. The National Treasury, nevertheless, says the buyback plan is still on track to be settled before March.

The government expects to fund the buyback using funds from the IMF, World Bank, and other partners. Furthermore, the government is committed to settling the debt in time despite the additional challenges attributed to defaults by Ghana and Ethiopia on top of a depreciating shilling against the dollar.

How Government-Owned Agencies Are Performing

Kenya Railways Corporation 

According to a Treasury report, the Kenya Railways Corporation made the highest losses among state agencies and semi-autonomous entities, amounting to Ksh33.5 billion. Other entities that made losses include Road Annuity Fund (Ksh12.8 Billion), Kenyatta National Hospital (Ksh3.5 billion); and the Kenya Power and Lighting Company (Ksh3.4 billion).

Standard Gauge Railway

The Standard Gauge Railway (SGR) has kept up a five-year successive annual revenue increase after it reported a 21.2% increase in revenue to reachKsh 18.2 billion in the financial year to June 2023. SGR passengers grew to 2.52 million, while freight haulage grew to 6.29 million tonnes.

National Oil Corporation Kenya 

National Oil Corporation Kenya is in a quagmire. At first, the government wanted to privatise the company, but recently, the president suggested revamping the state-owned oil marketer. The CEO, Gideon Morintat, supports the President’s call for capital injection or a total revamp. These utterances have been met with concerns over mismanagement in the organisation, as evidenced in the latest Auditor General’s report.

Kenya Pipeline Company

Plans to privatise Kenya Pipeline Company are seen as a strategic move amid flagged dealings by the Auditor General. The privatisation is aimed at helping with plans to expand and diversify into the regional markets with LPG and LNG. Although the company is profitable, there have been concerns over revenue leakages and insider dealings.

Kenya Ports Authority 

Kenya Ports Authority plans to offer end-to-end logistics services, a decision that has been criticised. Critics consider the plan a deviation from KPA's primary mandate, explaining that the move will affect more than 1,200 Kenyan clearing and forwarding firms and jeopardise over 10,000 jobs. This move by KPA aims to improve efficiency and reduce costs.

BCLB to curb online betting advertising

The High Court has directed the Betting Control and Licensing Board (BCLB) to ensure that gaming operators stop using the speed dials feature on browsers for online advertising. 

A browser speed dial is a visual compilation of a user's most visited pages, appearing as thumbnails that, when clicked, link to those pages.

The court order explicitly directs BCLB to ensure all gaming operators cease using speed dials, with a follow-up hearing scheduled for May 9, to address other issues not covered in the consent agreement.

Shilling breaches Ksh 160 mark against dollar

The Kenyan shilling has reached a historic low against the US dollar, breaching the Sh160.23 mark on Monday. This continues a trend of record weakening despite the Central Bank of Kenya (CBK) raising interest rates in December to address the local currency's weakness.

The depreciation of the shilling is contributing to a high cost of living, as importers pass on the extra costs to consumers. The Consumer Price Index (CPI) reached a record high in December 2023. Data from Bloomberg ranked the Kenyan Shilling as the seventh worst-performing currency in Africa in the previous year, shedding 20.9% against the US dollar. 

On the other hand, Kenya is set to receive a disbursement of Ksh109 billion from the International Monetary Fund (IMF). This disbursement will bring the total financial support to Kenya from the IMF to Ksh427 billion.

The funds are expected to support Kenya's foreign exchange reserves and in navigating the maturity of the Eurobond in June.

Nonetheless, the CBK rejected Ksh12 billion worth of bids in the sale after receiving bids totaling Ksh57.97 billion and accepting Ksh45.96 billion against a target of Ksh24 billion in the T-bill auction.

Interest rates on Treasury bills (T-bills) rose in the latest auction, reflecting investors' adjustment to the recent increase in the Central Bank of Kenya (CBK) base rate. Here is how the rates moved. 

  • Three-month T-bill rate increased to 16.14% from 16.05%.
  • Six-month T-bill rate increased to 16.18% from 16.09%.
  • The one-year T-bill rate increased to 16.39% from 16.27%.

However, the Treasury has returned to the market to mop up the Ksh12 billion it left on the table with a tap sale. They have issued a new three-year bond and re-opened a five-year bond sold first last July.

Analysts project continued upward pressure on rates due to elevated cash needs by the government to cover budgeted expenditure and debt service in the current month.

Unemployment rate to rise by 2% in 2024

A study by the International Labour Organisation predicts an increase in global unemployment by approximately 1.9% in 2024. In Kenya, the unemployment rate was 4.9% as of January last year, according to Trading Economics.

This comes as workers at Kakuzi Plc, an agribusiness and superfoods producer received a 16% pay increase effective January 2024 for the next two years. The Collective Bargaining Agreement (CBA) was signed with the Kenya Plantation and Agricultural Workers Union (KPAWU), benefiting over 3,350 workers at Kakuzi’s Makuyu operations site.

Other Business News in a Snapshot

Decline in Consumption of Imported Spirits 

Data from the Kenya National Bureau of Statistics (KNBS) indicates a significant decrease in the consumption of imported spirits, including brandy, gin, whiskey, and rum. The drop in imported spirits is mainly linked to a sharp increase in taxes, including a rise in import duty from 25% to 35%. The decline in demand for spirits marks a reversal of a previous trend where spirits, especially premium liquor, had gained popularity among consumers.

High Demand for Cheaper Products Fuels Counterfeit Trade

The Anti-Counterfeit Authority (ACA) in Kenya reveals that the country's high demand for cheaper products drives the trade in counterfeit goods. ACA faces difficulties in combating counterfeiting due to a combination of factors, including staff shortages, challenging economic conditions, and porous borders. The trade in counterfeit goods costs Kenya significantly, with an estimated annual loss of Ksh800 billion. 

Bolt Riders Adds Feature to Cancel Offline Trips

Bolt riders can now cancel a ride by choosing the 'the driver requested payment outside the app' option in certain situations. This functionality enables passengers to promptly respond in scenarios where the driver seeks payment for a trip not facilitated through the app, demands an amount beyond the agreed-upon fare, or suggests cancelling the trip to switch to an offline transaction.

Showmax Announced 14% Price Cut 

Showmax has reduced its prices in Kenya due to intensifying competition in the video streaming market, fueled by global brands like Netflix, YouTube, Prime, and Amazon. Showmax aims to maintain its lead through a price reduction. Kenyan customers will experience a 14.4% drop in the Showmax Entertainment bundle price in February, now set at Sh650 from the previous Sh760. 

High fish feed prices choking aquaculture

Kenya's fish production from aquaculture farming has increased from four to 30 metric tonnes annually. Experts, however, believe Kenya's aquaculture potential could reach 100,000 metric tonnes.Stakeholders are singling out the high cost of fish feed and the lack of certified fingerlings as the foremost challenges facing aquaculture farming in the region.

No items found.

Stephen Kimani aka KIMSpeaks is a thought leader, speaker, and writer. He is also the Founder of Living the DREAM. He is passionate about learning and teaching ideas that empower people to improve the quality of their lives. You can connect with Kimani on LinkedIn.

Get the Money254 App and don't miss out on the next article.

Join 1.5M Kenyans using Money254 to find better loans, savings accounts, and money tips today.

Get it on Google Play
A person holds the Money254 App in their hand.

Welcome to Money254 - your simple way to compare loans in Kenya online.

Money 254 is a new platform focused on helping you make more out of the money you have. We've created a simple, fast and secure way to find and compare financial products that best match your needs. All of the information shown is from products available at established financial institutions that our team of experts has tirelessly collected.

Download the new Money254 App and don’t miss out on the next article.

Join 1.5M Kenyans using Money254 to find better loans, savings accounts, and money tips today.
Get it on Google Play

Learn more about Personal Loans available in Kenya on Money254

Money 254 is a new platform focused on helping you make more out of the money you have. We've created a simple, fast and secure way to find and compare financial products that best match your needs. All of the information shown is from products available at established financial institutions that our team of experts has tirelessly collected.

Instantly search loan products from established providers in Kenya and compare on the terms that matter most to you.
Find the best Personal Loans for me

Don't miss another article - download the new Money254 App Today

Get it on Google Play
Download the Money254 app on Google Playstore

Sign up for our newsletter and get weekly money tips to your inbox.

Get updates from the Money254 team on financial news and new Money254 features.