What happened

The Kenya Revenue Authority (KRA) has been criticised for a blind spot in its electronic Tax Invoice Management System (eTIMS) that pertains to manufacturing stock management. The criticism surfaced in a recent Business Daily commentary that warned the gap could allow some manufacturers to under‑report inputs and outputs, thereby reducing taxable turnover. The article did not cite exact monetary losses but stressed that the issue undermines the integrity of Kenya's tax collection framework. KRA has acknowledged the concern but has not yet announced a concrete timetable for fixing the flaw. Stakeholders, including SME owners and industry bodies, are urging the authority to act swiftly before the loophole widens.

Context and background

eTIMS was introduced by KRA in 2022 as part of a broader digitalisation drive aimed at improving tax compliance across the manufacturing sector. The platform requires firms to upload detailed records of raw material purchases, work‑in‑process inventories and finished‑goods sales, linking each transaction to a unique tax invoice. By capturing these data points in real time, KRA intended to reduce manual audits, curb VAT evasion and create a transparent audit trail for manufacturers of all sizes, from small‑scale processors in Nakuru to large‑scale producers in Mombasa.

According to the Business Daily piece, the blind spot emerges because eTIMS does not fully integrate with certain Enterprise Resource Planning (ERP) systems used by manufacturers to track internal stock movements. When raw material is transferred between warehouses or when work‑in‑process is re‑classified, the system fails to generate a corresponding electronic record, leaving a gap that can be exploited to under‑state taxable output. Industry associations have reported that the issue was first flagged during a 2023 pilot where several firms noticed mismatches between their physical inventory counts and the figures reflected in eTIMS.

KRA’s response so far has been limited to acknowledging the technical shortfall and promising a review. In a statement released in August 2024, the authority said it would convene a working group comprising IT experts, tax auditors and representatives from the Kenya Manufacturers Association to examine the system’s architecture. Past attempts to rectify similar digital gaps—such as the 2021 challenge with the iTax portal’s VAT filing module—took roughly six months to resolve, suggesting that a timely fix is possible if the issue receives priority.

Compared with what is normal

Under normal circumstances, eTIMS captures 100 % of taxable events that involve a change of ownership or a sale to a third party. The system’s design expects each stock movement to be linked to a tax invoice, which is then automatically reconciled against the taxpayer’s declared turnover. In practice, most manufacturers report compliance rates of 85‑90 % for routine transactions, a figure that aligns with KRA’s target for digital compliance. The current blind spot, however, creates an unrecorded segment that could represent up to 10‑15 % of total stock flow for firms that rely heavily on internal transfers, according to industry estimates.

• Normal eTIMS coverage: all sales, purchases and external transfers are logged.
• Current gap: internal stock re‑classifications and intra‑plant movements often bypass the electronic record.
• Potential impact: estimated 10‑15 % of stock value may escape detection, affecting VAT and excise calculations.

Why it matters

The blind spot matters for several reasons. First, it threatens the revenue base that funds public services; even a modest 5 % shortfall in manufacturing VAT could translate into hundreds of millions of shillings lost annually, given the sector’s contribution of roughly Sh30 billion to VAT collections each year. Second, SMEs that rely on accurate tax reporting to secure financing may find themselves at a disadvantage if peers exploit the gap, creating an uneven playing field. Third, the issue erodes confidence in KRA’s digital platforms, potentially slowing the adoption of other e‑services such as iTax and e‑Procurement. Finally, persistent non‑compliance—whether intentional or accidental—could expose firms to back‑tax assessments, penalties and interest, increasing the cost of doing business.

Practical steps

• Review internal inventory logs and reconcile them with the figures shown in eTIMS at least once a month to spot discrepancies early.
• Engage a qualified tax adviser to conduct a gap analysis of your ERP integration with eTIMS and recommend corrective entries where needed.
• Document all internal stock movements with supporting paperwork (transfer notes, batch records) and retain these records for the statutory six‑year period.
• Participate in industry workshops or KRA‑hosted webinars that address the eTIMS blind spot, ensuring your firm stays updated on any forthcoming system patches.

Tax Planning & Compliance specialists at Beavoren Ventures can help manufacturers assess the impact of the eTIMS gap on their tax position, design robust record‑keeping procedures and liaise with KRA to ensure any system‑level changes are correctly reflected in your accounts.

Talk to our team at Beavoren Ventures - info@beavorenventures.co.ke - to set up your systems correctly.

Disclaimer: This article is informational and does not constitute formal tax, audit or legal advice. For guidance specific to your circumstances, please contact Beavoren Ventures.