The Kenya Revenue Authority (KRA) is linking its Electronic Tax Invoice Management System (eTIMS) to fuel stations to eliminate tax fraud and increase revenues by billions of shillings by monitoring motorists’ diesel and petrol consumption.
This means that every purchase of petroleum products from a filling station from June will be accompanied by an eTIMS receipt or electronic notification, giving KRA a complete view of the volume of business being done by stations across the country.
The integration aims to tighten the authority’s visibility into transactions at the pump and eliminate the submission of fictitious VAT claims as well as monitor gas station sales.
Rogue traders seek to obtain receipts from petrol stations that are not chosen by motorists and use them to obtain a VAT refund on VAT on the basis that their companies consume fuel.
The system, which requires companies to submit receipts or an invoice to the KRA as proof of expenditures, is intended to broaden the tax base as larger companies report to the KRA to smaller companies that act as their suppliers.
It also helps to reduce under-declaration of sales by petrol stations to tighten profits and pay less taxes.
Vision sales will also help KRA map motorists’ spending patterns, targeting consumers who have high fuel bills but have little to show for remitted taxes.
“To simplify VAT on petroleum products, KRA is in the initial phase of implementing electronic tax invoices at gas stations through the integration of eTIMS gas station systems,” KRA says in documents seen by the Business Daily without providing details.
“It will allow the ability to validate invoices/receipts in real time to facilitate tax refunds.”
Under this system, motorists are expected to enter KRA personal identification numbers (PINs) to trigger an eTIMS receipt.
This is a sign that KRA is finally starting to appear in sectors with high transaction volume such as gas stations and supermarkets, which have proven to be an obstacle to integration with eTIMS.
The Treasury has identified the petroleum products sector as one of the key drivers of tax or expenditure recovery which currently stands at Sh393.6 billion.
Tax refunds or expenses are products of goods and services subject to zero VAT.
Under the zero rate, businesses are allowed to claim a VAT refund from the VAT they pay on inputs such as electricity, fuel and raw materials.
“The main contributors to VAT expenditure are financial services, insurance, electricity, oil, gas, steam and air conditioning. Tax expenditure on imported VAT increased from Sh8.8 billion in 2021 to Sh17.2 billion in 2022. This increase is mainly due to an increase in Value added tax on imports of oils.
There are 140 registered oil marketers in the country who sold 5.46 billion liters of petroleum products domestically in the year to June, data from the Energy and Petroleum Regulatory Authority (Epra) shows.
“There is a forward fueling solution that we are already piloting between fuel stations. This solution essentially provides a situation where the eTIMS is integrated into the pump that connects the fuel dispenser to the point of sale,” said Hakamba Wangwi, Principal Director in charge of eTIMS at KRA.
“We have three software providers providing us with this specialized solution. Full rollout will take place in June 2025.”
To shore up revenues, President William Ruto’s administration has deepened its crackdown on tax evaders and is expected to be more aggressive after withdrawing this year’s finance bill following deadly protests that left more than 50 people dead.
The integration of eTIMS with fuel stations is the latest move by the KRA to accelerate the uptake of mandatory issuance of electronic tax invoices from September 1, 2023 in line with the Finance Act 2023.
The law also amends the Income Tax Act to stipulate that from 1 January 2024, only expenses supported by eTIMS invoices will be considered eligible for tax deduction, disqualifying anyone seeking to reduce their tax burden by using invoices generated outside the eTIMS system.
The rollout of eTIMS has been cited as the main reason why VAT will exceed target in the 2023/24 financial year.
With gas stations joining the system, value-added tax is preparing to strengthen its position as a major tax element in the authority’s performance.
“Domestic VAT collections stood at Sh314.1 billion against the target of Sh307.8 billion, reflecting a growth of 15.3 percent compared to the previous year. Domestic VAT collections exceeded the target by Sh6.3 billion,” KRA said in its 2023/24 revenue performance statement. This is due to the implementation of the eTIMS system which has enhanced compliance among VAT registered taxpayers.
The KRA is also trying to attract more small businesses into the tax bracket by offering simplified returns.
For example, KRA is in the final stages of developing a WhatsApp bot that will enable taxpayers to create electronic tax invoices using only the popular messaging app in a bid to further promote voluntary tax compliance, especially among small traders.
WhatsApp Chatbot is a computer program that simulates text-based human conversation via the WhatsApp messaging platform.
WhatsApp Chatbots can automatically respond to various customer communications, from customer service to sales, and can be integrated across the WhatsApp Business platform.
KRA said the initiative aims to further simplify tax invoicing using the newly introduced eTIMS system and enhance tax compliance, especially for micro, small and medium enterprises (MSMEs).
The move is part of the tax official’s efforts to widen the tax bracket, especially by filtering out non-compliant micro, small and medium enterprises (MSMEs), which are largely informal businesses and traditionally considered difficult sectors to tax.