The Kenya Revenue Authority’s recent public notice titled ‘TCC Enhancements’ falls short of a junta’s decree.
The six-point notice stipulates as a must-have for any TCC applicant in business to be compliant with Tax Invoice Management System (TIMS) registration, including Value-Added Tax (VAT) Special Table status.
This development deserves a four-point scrutiny. Specifically, how it affects small and medium enterprises (SMEs) whom it should benefit in a bid to shore up tax equity and fairness.
Section 34 of VAT Act sets Sh5 million annual turnover as legal basis for registered person. The mandatory TIMS notice invariably gives a knockout jab to any taxpayer in business regardless of this statute. The philosophy behind eTIMS was to leverage technology to enhance visibility of transactions and simplify record-keeping.
By fiat, the KRA constructively obviates the threshold by circumventing the law. Section 34 (1) (b), also created ‘moratorium rule’ of 30 days for newly registered persons. That’s also scattered to the four winds.
Globally, tax incentives are critical enablers to doing business. When we create stringent rules (outside the law), deploy enhancements (iTax) to preclude more from accessing lifeline services and distort best practices in business accounting, we inevitably kill entrepreneurship.
Take the case of a young SME trader who registers company as single director. Assume their aim is to access NYOTA fund, Sh50,000 and bid to supply counties with necessaries. Unwittingly, the TCC pre-qualification obligates him to acquire eTIMS gadget or laptop, at Sh40,000 whichever is lower hence, extinguishing the poor fellow’s NYOTA to ashes ab initio.
The KRA seems to have adopted the shoot-to-kill approach literally in implementing tax laws.
The contestations around Special Table Guidelines still remain as fresh as mint regarding underlying costs of input claims it chipped away, with six-month rule under section 17. The current notice assumes a dual-attack not only to section 34 but also undermines section 20, whereby hardship, inequity or expense may cause tax forfeiture. The taxman literally squeezes water off the rock.
It is a statutory obligation under section 67 that any regulations designed to enhance VAT collections be subject to approval by Parliament. The notice defies this reality by inviting the public to ‘stakeholder engagement on case-by-case basis’, after decree is issued.
That is a classical notion of asking the cart to pull the horse. It is sad when that cart is Mama Mboga.
While technology is key to deepening tax collections, KRA must balance compliance with empathy. It is imperative to act within the letter of the law lest it kills global brands at infancy while mistaking circumventions of the law for innovation.