The taxman is facing resistance from some oil marketing companies (OMCs) over plans to integrate all the fuel stations into the electronic tax invoice management system (eTIMS), a standoff triggered by the introduction of installation and maintenance fees for the system.
It has emerged that, unlike other eTIMS solutions that are offered free of charge, the version tailored for petrol stations comes at a cost.
Kenya Revenue Authority (KRA) says the uniqueness of the sector has necessitated a one-off installation fee ranging between Sh20,000 and Sh200,000, as well as an annual maintenance cost that is negotiated with vendors.
In addition, there is a monthly fee of between Sh5,000 and Sh12,000, with payment terms also subject to negotiation between oil marketing companies and the system vendors.
KRA said last week that it has enrolled more than 500 fuel retailers onto eTIMS since December, tightening real-time monitoring of sales as it seeks to curb what it believes has been widespread tax evasion in the sector, with revenues declared by oil marketing companies falling well below what actual transaction data suggests could be collected.
The hooked stations account for about 16 percent of the national fuel retailers’ network, leaving out 84 percent of the players in the close to Sh1 trillion petroleum sector that literally turns the engine of the Kenyan economy.
Insiders at Times Tower say KRA has shown some sympathy toward small, remote fuel dealers, but believes larger OMCs are using the same concerns as cover to sustain tax evasion schemes, often citing spillage, weak sales, or inter-OMC transfer costs to explain revenue shortfalls.
“The big limbo for the KRA is that due to the uniqueness of the sector, the e-TIMs solution is not free. There is an integration fee,” said a source from the KRA who wanted to remain anonymous.
“So there is pushback from the industry in terms of the cost, especially for the smaller OMCs, those from the neighbourhood and rural areas. But the big ones are also jumping on the bandwagon to avoid paying taxes,” the source added.
KRA did not respond to the Business Daily queries on the standoff with some oil marketers. KRA is currently getting feedback from petrol stations in remote areas to come up with a solution that is tailored for them. It expects double-digit growth in tax revenues from the petroleum sector on full on-boarding of fuel stations onto the eTIMS fuel module.
The e-TIMS is a digital platform that requires businesses to issue electronic tax invoices for taxable supplies, allowing KRA to track sales in real time for value-added tax (VAT) compliance.
Fuel has been a rich hunting ground for the taxman, with the petroleum products subject to nine taxes and levies, including Excise Duty, VAT, Road Maintenance Levy, and Petroleum Development Levy.
Other taxes and levies on fuel include the Railway Development Levy, the Anti-Adulteration Levy, the Petroleum Regulatory Levy, and the Import Declaration Fee.
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, 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.
Officials at KRA state that they possess data on all fuel imports entering the country. By applying the pricing model of the Energy and Petroleum Regulatory Authority —the statutory body responsible for the economic and technical regulation of Kenya’s energy and petroleum sectors—they reckon they can estimate the potential revenue from these imports.
“The challenge arises when the tax revenues paid by OMCs from the sale of petroleum products fall significantly below the potential revenue projected from actual import data,” the source noted.
