Summary
- The Kenya Revenue Authority (KRA) published a notice in the... local media recently calling for views and comments on the draft Value Added Tax (Electronic Tax Invoice) Regulations, 2019 from members of the public, manufacturers, wholesalers, retailers and the larger trading community.
- This notice followed an earlier one that informed manufacturers and suppliers of fiscal devices about the issuance of new specifications of Electronic Tax Registers (ETRs) in line with the requirements of the VAT Act 2013.
The Kenya Revenue Authority (KRA) published a notice in the
local media recently calling for views and comments on the draft Value
Added Tax (Electronic Tax Invoice) Regulations, 2019 from members of the
public, manufacturers, wholesalers, retailers and the larger trading
community. This notice followed an earlier one that informed
manufacturers and suppliers of fiscal devices about the issuance of new
specifications of Electronic Tax Registers (ETRs) in line with the
requirements of the VAT Act 2013.
According to the
earlier notice, the enhancements were necessitated by a review of the
reporting system in iTax to require online transmission of transaction
data to the KRA through the Tax Invoice Management System (TIMS). TIMS
is set to enable seamless population of taxpayers’ VAT returns hence
reducing filing errors and ultimately reducing the cost of tax
compliance.
The last time KRA attempted a similar
changeover was in 2005 after the introduction of Value Added Tax
(Electronic Tax Registers) Regulations, 2004. This move was met by stiff
resistance from the business community back then. The matter was
eventually settled in court after the KRA proved it honoured some of the
taxpayer demands like allowing the cost of purchasing the device to be
fully recovered from VAT payable (if purchased prior to last day of
2006).
It is now 14 years later and the taxman is
really emphatic about embracing technology fully in its operations as
communicated in the recent Annual Tax Summit 2019. The questions
lingering around the new roll out mainly challenge the interests of
traders like cost of compliance and data security. I prefer to call the
new tax registers – smart registers. Just like a Smart TV is deemed
‘smarter’ than a digital or normal TV because of its ability to access
the internet via Wi-Fi, the TIMS system will integrate trader systems
(ETRs) with iTax through the internet to allow generation of electronic
tax invoices and their transmission.
The revised ETR
specifications raise no doubts that current ETR machines or systems may
not be compatible with TIMS. The business community may be interested in
identifying the bearer of the cost of replacing existing systems within
their premises. It will also be of concern to see how compatible TIMS
will be with the normal business operations and working systems of
taxpayers. Any disruptions may not be admitted by taxpayers hands down.
It is evident that the KRA was unable to fully roll out the
previous ETR specifications to sectors like international air transport
and online markets. The previous ETR regulations were not compatible to
regulated industry practices like air ticketing. International passenger
air ticketing is monopolised by an online system run by IATA, the
industry regulator. Similarly, most online market portals simply connect
buyers to sellers and will naturally run paperless transactions. To
date, such transactions remain incompatible with the current ETR
specifications. Will the KRA remain tolerant to the operations of some
of these sectors when rolling out TIMS? or will it demand a mass
disruption of the industry players by insisting on compliance at all
costs?
Another major concern is data security. TIMS
will enable the KRA to make enhancements to iTax so as to increase its
efficiency and effectiveness in tax administration through
simplification of its user’s interaction. This will be accomplished by
use of a Control Unit connected or integrated to existing trader
systems. The Control Unit will perform the functions of tax invoices
validation, encryption, signing, transmission and storage. The
communication between the Control Unit and the TIMS Application server
at the KRA will be over the Internet. One of the principles of taxation
is confidentiality. The Tax Procedures Act 2015 guarantees taxpayer
confidentiality by even criminalising offenders. What measures has the
KRA coded in TIMS to ensure taxpayer confidentiality as per the Law?
Will taxpayer data and information collected by TIMS and transmitted
through the internet be strictly confidential and used exclusively by
the KRA?
Furthermore, data protection and security laws
around the world emphasise the fair obtaining and further processing of
personal data (with direct consent) and data security of the personal
data once collected. Kenya’s data protection legislation is currently
limited to the Constitutional provisions under the 2010 Constitution.
There are currently two draft Bills on data privacy and protection in
Kenya. The absence of a data protection law makes the disclosures to be
made subject to abuse, even with the framework under the Tax Procedures
Act 2015.
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