The monthly domestic Value-Added-Tax (VAT) collections by the Kenya Revenue Authority (KRA) have increased by up to Sh10 billion, signalling the gains from a crackdown in hard-to-tax segments, including farmers and small businesses.
KRA Director-General Humphrey Wattanga disclosed that monthly domestic VAT collections have risen to between Sh28 billion and Sh30 billion, up from Sh20 billion, lifted by a requirement that all supply transactions be accompanied by electronic tax invoices generated through the Electronic Tax Invoices (eTIMS).
“We have seen an impact from a revenue perspective. If you look back two or three years, we were collecting domestic VAT at a rate of about Sh20 billion, and over time, once e-TIMS was made mandatory, we have seen that number rise to between Sh28 billion and Sh30 billion,” he said on Thursday during the swearing-in of new KRA board member Risper Olick.
This translates into annual domestic VAT collections of between Sh96 billion and Sh100 billion. Domestic VAT is charged on goods and services supplied within the country by businesses, at a standard rate of 16 percent.
“So, it (e-TIMS) has had a significant impact. And we are working on further simplification of the system to make it easier for all sectors to use e-TIMS,” Mr Wattanga added.
e-TIMS is a digital platform run by the KRA that requires businesses to issue electronic tax invoices for taxable supplies, allowing the taxman to track sales in real time for VAT compliance.
Introduced in early 2023, first as a software-based successor to the earlier TIMS/ETR system, e-TIMS is supposed to curb malpractices such as tax evasion and fraud.
Also, by extending electronic invoicing to businesses, and not just VAT-registered ones, the government is banking on e-TIMS to bring more economic activity into the formal tax system and reduce exemptions that have created gaps in tax compliance.
From January 1, 2024, the KRA said only expenses supported by e-TIMS-compliant invoices would be recognised for income tax deduction purposes, a requirement that has proved challenging for bulk traders such as petrol stations and supermarkets.
This has led to innovations, including reverse invoicing, where the buyer, instead of the supplier, generates the tax invoice for a transaction.
The government has captured transactions worth Sh800 million through reverse invoicing, which it introduced on December 27, 2024, as part of new strategies of reaching businesses that predominantly operated in the hard-to-tax segment of the economy.
The law provides that one can raise a reverse eTIMS invoice for any business whose annual turnover is below Sh5million. In 2024/25, KRA reported having collected Sh2.9 billion through tax base expansion, which refers to the amount collected through taxpayers who were previously not captured in the tax register.
With a target of increasing revenue as a percentage of GDP to 20 percent in the medium term, the government reckons there is an opportunity to collect more from VAT compared to other tax heads, such as income tax.
In the first half of the current financial year, revenue collection hit Sh1.39 trillion against a target of Sh1. 44 trillion. This resulted in a performance rate of 96.2 percent against the target, leading to a deficit of Sh55.5 billion and a growth of 11.6 percent.
