The Kenya Revenue Authority (KRA) has announced plans to improve tax reporting and returns accuracy through an enhanced Electronic Tax Invoice Management System (eTIMS). In a public notice dated September 4, 2026, KRA instructed businesses using TIMS and eTIMS to maintain accurate and up-to-date stock records. The records must account for goods purchased, sold, transferred, returned, adjusted, or otherwise disposed of. This move aims to expose under-declared income and inflated expenses by linking sales, purchases, and costs.
However, experts argue that the current system has a blind spot when it comes to manufacturing stock management. Manufacturers buy raw materials, process them, and sell finished goods, which can lead to discrepancies in stock records due to wastage, evaporation, and work-in-progress. A simple example illustrates the issue: a business buys 100 kilogrammes of raw material, but only 92 kilogrammes become finished product, with eight kilogrammes lost as expected wastage. The current system may flag this as a discrepancy, leading to unnecessary questions from tax authorities.
The issue arises because manufacturers do not produce identical yields every month due to factors like machine efficiency, raw material quality, and seasonality. A fixed standard for stock management cannot be the final word on what counts as acceptable. Experts recommend that KRA recognize manufacturers separately and develop functionality that allows for bills of materials, linking inputs to outputs through standard yields.
Manufacturers are seeking changes to the eTIMS system to accommodate their unique needs. They propose that KRA build in tolerance for wastage and yield variance within a reasonable band, which should be set with industry input and reviewed as processes change. Additionally, taxpayers should have a clear way to adjust and explain stock discrepancies, with a record of the reason and trail of adjustments.
The consultation process between KRA and the business community is set to commence in September. Manufacturers should use this opportunity to make specific asks and shape the framework to accommodate their needs. The goal is to ensure that the eTIMS system is fair and effective for all businesses, including manufacturers.
Better data helps honest taxpayers as much as it helps the revenue authority. However, a system designed around the shop floor of a trader will misread the factory floor, and the cost of that misreading will fall on the businesses that make things, employ people, and pay tax. Manufacturers should take KRA at its word and speak now, while the framework can still be shaped around how factories actually operate.
The author of the article, a tax, legal, and policy expert, emphasizes the importance of manufacturers' input in shaping the eTIMS framework. By working together, KRA and manufacturers can develop a system that is fair, effective, and takes into account the unique needs of the manufacturing sector.
Key points
- Manufacturers require adjustments to the eTIMS system to accommodate their unique stock management needs.
- The current system may flag ordinary production variances as discrepancies, leading to unnecessary tax questions.
- KRA should recognize manufacturers separately and develop functionality that allows for bills of materials and tolerance for wastage and yield variance.
