Brivester and Company

Update on Manual Invoices and eTIMS

The Kenya Revenue Authority (KRA) has announced that it is working on a solution to ease challenges faced by taxpayers when uploading manual invoices that are not generated under eTIMS.

Currently, the supplier PIN is a mandatory field in the CSV upload template. This has created difficulties for certain types of expenses where suppliers do not issue eTIMS invoices.

KRA has indicated that before the end of May, they expect to roll out a solution that will remove the mandatory PIN requirement for such cases.

This change will be a major reprieve for taxpayers, especially for expenses such as:
1. Bus and matatu fares
2. Boda boda and tuk-tuk fares
3. County Parking fees
4. Land rates payments
5. County levies and cess
6. VAT not claimable / Non Deductible including apportionment.
7. VAT where a business is not registered for VAT

📎 Important Note:
Even with this adjustment, taxpayers MAY still be required to attach or upload supporting documents when declaring these expenses.

1. Expenses Subject to Final Withholding Tax (WHT)
These are expenses where withholding tax deducted is final, meaning the recipient cannot claim a credit or refund, and the income is not included in their annual taxable income.
Common examples:
- Dividends paid to residents and non-residents
- Interest income from:
- Bank deposits
- Treasury bills and bonds
- Royalties paid to non-residents where tax is final
- Management or professional fees paid to non-residents where WHT is final
Why excluded from eTIMS?
eTIMS is mainly for transaction-level VAT and income tax tracking.
These expenses are already fully taxed at source, so eTIMS does not require invoice-level reporting.
Compliance requirement still applies:
Withhold and remit WHT via iTax
Maintain contracts, schedules, and payment vouchers for audit
2. Imports
These are goods purchased from outside Kenya. VAT on imports is:
- Assessed by KRA Customs (ICMS) and
- Paid at the port of entry

Why excluded from eTIMS?
eTIMS captures domestic taxable supplies only. Import VAT and duties are already captured under Customs systems, not via eTIMS invoices.
Accounting & tax treatment:
Posting done using customs documents and not eTIMS invoices. Import VAT is claimed via VAT return using customs reference numbers

3. Services by Non-Residents Without Permanent Establishment in Kenya
These are services provided by foreign entities that are not registered in Kenya and have no fixed place of business in Kenya
E.g:
- Software subscriptions (SaaS)
- Online advertising (Google, Meta, LinkedIn)
- Consultancy or technical services performed outside Kenya
- Cloud hosting and digital platforms

Applicable taxes
- Withholding Tax (usually 20%, unless reduced by a DTA)
- VAT on imported services (reverse VAT / digital VAT where applicable)

Why excluded from eTIMS?
- The supplier cannot issue a valid eTIMS invoice
- Tax obligation shifts to the Kenyan recipient, not the supplier
-
Compliance actions
- Self-account for VAT (reverse charge) where applicable
- Deduct and remit WHT via iTax
- Keep contracts, invoices, and proof of payment

🎓 A Message to School Boards, Tax Directors & Accountants

If you are a school board member, bursar, finance manager, or tax advisor, this is no longer an academic issue — it is a live financial risk.

We are now seeing KRA:
Reconstruct fee structures
Split tuition from taxable services
Apply VAT at 16%
And then penalise schools for not issuing eTIMS invoices on boarding, transport, books, labs, and facilities
Most schools do not get assessed because they are dishonest —
They get assessed because their structures are wrong.

The good news?
This is fixable — before KRA arrives.

A compliant school today needs:
✔ Clear separation between tuition and taxable income
✔ Proper eTIMS setup for boarding, transport, shops & facilities
✔ VAT returns that actually match fee structures
✔ Audit-defensible documentation for Boards and regulators

If your school wants to clean this up, reduce risk, and avoid retroactive VAT, reach out.

At Arphaxad Consultancy Services, we help schools:
1. Rebuild fee structures
2. Design compliant VAT & eTIMS frameworks
3. Prepare audit-ready documentation
4. And brief Boards on their real tax exposure
Prevention is far cheaper than an assessment.

📩 DM me or contact Brivester and Company to streamline your school’s tax position before it becomes a KRA case.

Your Offshore Accounts Are Now Visible to KRA

The Kenya Revenue Authority has published the list of Reportable Jurisdictions under the Common Reporting Standard (CRS), effective for periods beginning 1 January 2025.

This means that foreign bank accounts, investments, trusts, and insurance products held by Kenyan tax residents in the listed jurisdictions will now be automatically reported to KRA by foreign financial institutions.

What’s changed?
✔️ CRS reporting jurisdictions officially gazetted
✔️ Automatic exchange of financial information activated
✔️ Offshore secrecy significantly reduced

Who should be concerned?
1. Kenyan residents with overseas bank or investment accounts
2. Individuals and companies using offshore holding or treasury structures
3. Taxpayers with undeclared foreign income or assets

Why this matters
CRS data is increasingly used to:
1. Trigger tax audits and investigations
2. Support unexplained income assessments
3. Validate foreign income disclosures
4. Strengthen transfer pricing and substance reviews

Practical next steps
🔍 Review offshore holdings
📑 Align CRS self-certifications with actual tax residency
🧾 Regularise past non-disclosures where necessary

💡 The era of “out of sight, out of tax” is over.

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⛽⚖️ Vivo Energy Kenya v KRA (2019): A Major Lesson on Promotional Expenses

Promotions, activations and marketing campaigns are common in the retail and fuel sectors — but KRA closely scrutinizes them. In this case, KRA challenged over KSh 350 million in promotional expenses.

The Tax Appeals Tribunal made one thing clear:
👉🏾 Promotional expenses are deductible ONLY when fully supported with documentation.

Key Findings:
*Expenses must be wholly and exclusively for business (Section 15).
*Missing documentation = full disallowance.
*Promotional costs must show clear commercial intent.
KRA is allowed to rely on accounting records to test the legitimacy of expenses.
Example:
Unproven cost of promotion: KSh 12 million → Disallowed in full
Unsupported supplier contributions: KSh 70 million → Treated as taxable income

🔍 The Retail Message:
Promotions increase sales —but KRA will reject them without documentation.
✔ Agreements
✔ Activation reports
✔ Supplier contributions
✔ POS/ERP evidence
✔ Proof of ex*****on
If it cannot be proven, it cannot be deducted.

🎁 Year-End Bonuses & PAYE — Lessons From KRA v Total Kenya Ltd

As employers issue December bonuses and staff gifts, the landmark ruling in KRA v Total Kenya Ltd remains one of the strongest authorities on PAYE for employee benefits in Kenya.

🔍 Case Facts
KRA audited Total Kenya for under-taxed employee benefits — including housing benefits, motor vehicle benefits, allowances, and non-cash perks.
The total tax demand across various heads (Income Tax, PAYE, VAT, Rental Tax) amounted to approximately KSh 52.3 million.

⚖️ Court Finding
The Court held that:
Any benefit — cash or non-cash — provided because of employment is taxable under Section 5 of the Income Tax Act.
Labels do not change the tax treatment.
Meaning:
• Reimbursements, tokens, allowances, gifts = taxable
• Non-cash benefits must be taxed at fair market value
• Employer carries full liability for PAYE under-deduction
• Assessments include 5% penalty + 1% interest per month

🎄 What This Means for December Bonuses
• Bonuses are taxed in the month paid
• Vouchers, hampers, electronics, and fuel cards = taxable benefits
• All payments must go through payroll
• Documentation must support the payment and valuation

Take Away:
Year-end rewards are great for morale — but must be delivered 100% compliantly.

KRA v Total Kenya Ltd gives KRA a firm legal basis for PAYE audits going into 2025/2026.

TAXATION OF DIFFERENT CATEGORIES OF EMPLOYEES
1. PRIMARY EMPLOYEE
o Tax is applied using the graduated scale rates.
o The employee is granted personal relief.

2. SECONDARY EMPLOYEE
o This refers to an individual who already has another primary employer.
o Tax is applied at the highest rate.
o No personal relief is granted.

3. NON-WHOLE TIME SERVICE DIRECTOR
o Subject to PAYE deductions.
o Tax is applied at the highest rate.
o No personal relief is granted.

4. CASUAL EMPLOYEE
o A person engaged for less than one month, with emoluments calculated based on the period of engagement.
o The engagement is not regular.
o Individuals engaged on a regular part-time basis are not considered casuals.
o Emoluments paid to casual employees are not subject to PAYE.

HOW TO LEGALLY REDUCE YOUR TAX BURDEN IN KENYA
Many businesses in Kenya end up paying more tax than they should, not because the tax system is punitive, but because they fail to take advantage of the legitimate tax planning opportunities already provided in the law.
*Tax planning is legal.
*Tax evasion is illegal.

The objective is simple: pay the correct amount—nothing more.
Below are lawful tax-saving strategies every business should consider:

✅ 1. Claim All Allowable Business Expenses
Properly documented expenses such as rent, utilities, salaries, marketing, travel, repairs, and professional fees all reduce taxable profit.
If it’s wholly and exclusively for business, and well-supported, it’s deductible.

✅ 2. Maximize Capital Allowances
Assets like machinery, vehicles, computers, equipment, and commercial buildings qualify for wear-and-tear deductions and investment allowances.
These significantly reduce taxable income over time.

✅ 3. Choose the Most Advantageous Tax Regime
Some SMEs benefit from Turnover Tax (1%), while others save more under the standard corporate tax regime due to higher deductible expenses.
Selecting the right structure can materially impact your tax bill.

✅ 4. Provide Tax-Efficient Employee Benefits
Employer-funded medical cover, pension contributions, and well-structured allowances can minimize PAYE for staff while remaining compliant.

✅ 5. Utilize Tax-Exempt Investment Channels
Infrastructure bonds, registered pension schemes, and certain collective investment structures offer tax relief and long-term financial advantages.

✅ 6. Structure Your Business Thoughtfully
Depending on your operations, models such as partnerships, family-owned entities, or optimized payroll structures can provide lawful tax efficiencies.

✅ 7. Claim Your VAT Input Credits
If VAT-registered, ensure all eligible input VAT is captured, reconciled, and deducted to avoid unnecessary VAT payments.

📌 Final Thought
With KRA tightening compliance and using data analytics extensively, proactive tax planning is no longer optional, it’s a strategic advantage.
A well-structured, compliant tax approach protects your business, improves cash flow, and enhances competitiveness.

KRA has maintained that from January 2026 all expenses must be supported by Valid E- Tims invoice.
The following will be some exempt expenses
1.Payroll Expenses
2.Imported Services
3.Interest expenses

However KRA has enhanced it's systems and can verify the above expenses without E Tims.
1.Payroll Expenses -Verified against monthly PAYE returns
2.Imported Services-Against VAT(Reverse) returns.
3.Interests Expenses -WHT tax credits on Itax.

Taxpayers should embrace for more tax audits in 2026.

ICEA Lion Life Assurance v KRA (2023): A Big Lesson on Payroll–PAYE Reconciliation

This case shows exactly how IFRS payroll numbers vs PAYE declarations can lead to PAYE assessments — especially when the figures don’t reconcile.

🔢 What KRA Found
IFRS employee costs (IAS 19): KSh 685 million
Directors’ remuneration disclosed (IAS 24): KSh 54 million
PAYE-declared taxable income: KSh 41 million

➡ Unexplained variance: KSh 13 million
Employee commissions expensed: KSh 120 million
Commissions subjected to PAYE: KSh 78 million

➡ Untaxed commissions flagged: KSh 42 million
Staff benefits (housing, car, airtime, medical reimbursements) expensed: KSh 36 million
Benefits taxed under PAYE: KSh 19 million

➡ Untaxed benefits difference: KSh 17 million
KRA treated these variances as undeclared employment income.

🔥 Key Lessons from the Case:
*Commissions, allowances & benefits must be taxed under PAYE, regardless of how they appear in the ledger.

*Directors’ pay disclosed in audited financials (KSh 54M) must match PAYE returns (KSh 41M) — variances must be defended with documentation.

*IFRS payroll expense ≠ PAYE income, but every timing and classification difference must be explained.

*KRA is allowed to use IAS 19 employee costs and IAS 24 management compensation disclosures to test payroll completeness.

*Poor documentation = PAYE liability, because the taxpayer carries the burden of proof.

Final Outcome
Because the employer could not justify the variances, the Tribunal upheld most PAYE assessments, especially on:Commissions,Director benefits, Housing/vehicle utilities & Untaxed allowances.

Takeaway for Finance, HR & Payroll Teams
A clean Payroll Expense (GL) vs PAYE taxable income reconciliation — supported by schedules for:
Accruals
Provisions
Cut-off differences
Benefit registers — is now a non-negotiable compliance requirement.

📢 𝐑𝐞𝐦𝐢𝐧𝐝𝐞𝐫: 𝐞-𝐈𝐧𝐯𝐨𝐢𝐜𝐢𝐧𝐠 𝐟𝐨𝐫 𝐅𝐮𝐞𝐥 𝐒𝐭𝐚𝐭𝐢𝐨𝐧𝐬

Kenya Revenue Authority (KRA) reminds all petroleum retailers to implement the eTIMS Fuel Station System at their outlets. This real-time invoicing solution integrates with forecourt controllers and POS systems to ensure accurate tax reporting.

⏰ Compliance deadline: 𝟑𝟎𝐭𝐡 𝐉𝐮𝐧𝐞 𝟐𝟎𝟐𝟓 (𝐚𝐥𝐫𝐞𝐚𝐝𝐲 𝐞𝐥𝐚𝐩𝐬𝐞𝐝).

⚠️ Retailers who remain non-compliant by 𝟑𝟏𝐬𝐭 𝐃𝐞𝐜𝐞𝐦𝐛𝐞𝐫 𝟐𝟎𝟐𝟓 will face enforcement action as provided by law.

We thank outlets that have complied and remain committed to supporting all retailers in meeting these requirements.