KRA Wants End to KES 5M eTIMS Exemption for Tax Boost
The KRA wants end to KES 5M eTIMS exemption to strengthen tax compliance and revenue collection across Kenya’s expanding informal sector. The Kenya Revenue Authority (KRA) is lobbying lawmakers to reverse the exemption granted to businesses with annual turnovers below KES 5 million, arguing that it undermines the country’s ability to widen the tax net.
Why the KES 5M eTIMS Exemption Exists
Under the Tax Procedures (Amendment) Act 2024, businesses earning less than KES 5 million annually were exempt from issuing electronic tax invoices via the Electronic Tax Invoice Management System (eTIMS). The exemption aimed to reduce the compliance burden for small traders and facilitate access to contracts with larger firms.
This decision followed nationwide public participation sessions and was seen as a support mechanism for Kenya’s vast informal sector.
KRA’s Position: Exemption Hurts Tax Compliance
Despite its intention, the KRA asserts the exemption is now a major barrier to tax base expansion. Only 41% of non-VAT taxpayers have adopted eTIMS, according to the latest KRA data. Officials argue the exemption has discouraged formalization and created a parallel economy of micro-businesses that trade exclusively among themselves, outside the traceable supply chain.
Rispah Simiyu, KRA’s Commissioner for Large and Medium Taxpayers, expressed frustration over the legislative backpedaling. She noted that even after rolling out simplified compliance solutions for small enterprises, many continue to operate in silos.
Implications for Kenya’s Informal Economy
With 85% of Kenya’s new jobs created by the informal sector, the KRA aims to onboard these players into the national tax system. By 2028, the authority targets:
- 12.27 million active taxpayers
- KES 4.59 trillion in tax revenue
Removing the exemption would mandate eTIMS use even among small businesses, improving visibility into financial flows and reducing opportunities for tax evasion and inflated expense reporting.
Before the exemption was introduced, eTIMS made it difficult for companies to claim false deductions because all transactions—including those from small suppliers—were digitally recorded and verified.
Looking Ahead: Will Parliament Act?
The push to remove the KES 5 million exemption comes at a time when Kenya is aggressively digitizing public finance and revenue systems. However, the proposal may meet resistance from small business associations and legislators advocating for informal sector protection.
Nonetheless, the message is clear: the KRA wants end to KES 5M eTIMS exemption not to punish small businesses, but to include them in a modern, transparent tax ecosystem that supports national development.
