The Kenya National Chamber of Commerce and Industry has expressed concern over the proposed imposition of a Sh2 million penalty for non-compliance with the Electronic Tax Invoice Management System (eTIMS) as outlined in the proposed Finance Bill 2024.
In a statement by KNCCI president Erick Rutto, KNCCI said while they recognize the government's efforts to streamline tax collection and enhance compliance through the adoption of eTIMS, they believe that the proposed penalty will have severe repercussions on Micro, Small, and Medium Enterprises.
"MSMEs are the backbone of our economy, contributing about 40 per cent of GDP and employing more than 80 per cent of Kenyans," Rutto said.
He said the majority of them operate in the informal economy and have neither clearly understood nor adopted eTIMS.
"This is evidenced by the low performance of the March 31 deadline that saw only 20 per cent of the targeted businesses registered on eTIMS," the KNCCI president said.
"In the KNCCI Quarterly Business Barometer Survey for Q2/2024, over half of the respondents were businesses that have less than Sh1 million in annual revenue, reflecting Kenya's economy. Placing a penalty of Sh2 million a month on businesses that make less than half of that in a year will lead to closures and job losses."
KNCCI advised that before implementing such stringent penalties, it is crucial to ensure that MSMEs fully understand the requirements and processes involved in adopting eTIMS.
It said small business owners may not have the technical knowledge or resources to implement these systems effectively.
"The government should invest in comprehensive capacity-building programs and provide clear, accessible information and training to ensure that MSMEs are well-equipped to comply with eTIMS," Rutto said.
Additionally, KNCCI said a phased approach to the implementation of eTIMS would allow businesses time to adapt and ensure compliance without the immediate threat of severe penalties.
"A grace period or a tiered penalty system could be considered, where initial non-compliance results in warnings or smaller fines, escalating only if non-compliance persists," the KNCCI president said.
KNCCI said it is committed to working collaboratively with the government to find solutions that enhance tax compliance while also supporting the growth and sustainability of our vital MSME sector.
"We believe that through constructive dialogue and targeted support measures, we can achieve a tax system that is fair, efficient, and conducive to economic growth. We urge the government to reconsider the proposed penalty and to prioritize capacity-building initiatives to ensure that MSMEs can effectively adopt and comply with eTIMS," Rutto said.
"Together, we can create an environment where businesses of all sizes can thrive and contribute to Kenya's economic prosperity."