Electronic tax invoice tool could hit ‘hustlers’ hard

The government finds itself unenviably squeezed between a rock and a very hard place.

Looming debts to repay, rising costs of living, war in Europe and Middle East and a shilling that is depreciating faster than my physics marks in high school.

As a result, it has introduced tax changes to try and increase revenue. 

Tax changes 

Whether the tax changes will yield the sought-after revenue remains to be seen. However, of all the changes introduced, e-Tims (electronic tax invoice management system) is likely to have the most devastating impact of all.

On paper, it is a brilliant move. It ensures everyone is using a system linked directly to KRA to issue invoices, so all their sales are recorded. If you want to deduct any expenses, then you must have an invoice, which was passed through the system.

Meaning that sales cannot be under-declared, and expenses cannot be overstated. Sounds brilliant right? So, what could possibly be the problem?

To understand this, you need to bear in mind that Kenya’s informal sector employs over 80 percent of the working population.

This means that unless those people have been sensitised to understand the need for e-Tims, they will essentially be locked out of the market in Kenya.

Think of the boda boda person who does deliveries for your office, if you cannot deduct the courier costs then it means you will stop using them. 

Small scale farmer

Similarly, if you have a lady who cleans your office for a small fee, she will suffer the same fate. The small-scale farmer delivering their products to buyer? Also locked out. While this sounds like a good thing there is a cost.

First, people seeking to comply with the new law will stop engaging small traders effectively killing their trade and ending their source of livelihoods.

Please remember that over 80 percent of the working class is in this category. If these people cannot earn their living from business, poverty levels will increase putting a strain on the already taut government to find a way to support them or crime increases.

Because people must eat to survive.

Second, those who are in the informal sector will not formalise but will now be completely cut off from the system of those operating in formality. For example, if the same boda boda person was making deliveries to a company that is operating in the formal sector, there is a chance that the person will grow enough to realise the need to formalise or in some cases, will get caught by the revenue authority when the formal entity is being audited.

However, when they can no longer offer services to those seeking to comply with the law, that chance is taken away and Kenya runs the risk of further enhancing informality. You will have two systems that operate in complete isolation and that can be dangerous.The government’s campaign platform was bottom-up. 

A government that promised to help the mama mbogas, the small-scale farmers and boda riders. Yet with this one stroke they will likely end the existence of those people. You may think it unbelievable that such categories of persons can be wiped out. If you were alive in the 90s you must remember how there was a small shop at every corner. What happened to the kiosks and the livelihoods they were supporting? The larger supermarkets came and wiped them out.

This is likely to be the case when we force everyone to stop supporting the small businesses.

Why can’t these small informal traders just comply, you may ask. Well first because no one has told them. Though Kenya Revenue Authority has been holding sensitisations, these are yet to reach those not already in their systems. As a tax teacher I must admit that tax is not the easiest thing to understand. We must find ways of breaking down these laws in a way that is easily understood by the masses. Secondly, compliance with e-Tims is expensive. 

When you tell a mama mboga or a small scale farmer or a cleaning lady to purchase a computer or a smart phone on which to install an e-Tims system, learn how to use it and issue invoices through that system so that they can keep getting the little money they need to survive you are effectively asking them to choose between today’s meal and a chance of tomorrow’s meal. In the current economic climate, it is an unfair ask on their part.

Employment opportunities 

It would be pretentious on my part to say that taxing the informal sector is easy. The truth is that it is not. However, the government must admit that the reason the informal sector is this large is due to a failure on its part to provide employment opportunities for a majority of its working force. 
To turn around and punish the same people for its own failures is truly a case of one eating their own children. Considering how devastating an impact e-Tims is likely to have on such a vulnerable sector of the economy it may be prudent for the government to rethink this and ensure they have buy-in from the small traders before rolling it out.

Ms Mutava is associate director, Strathmore Tax Research Centre