The integration aims to increase authorities’ visibility into at-the-pump transactions, eliminate fictitious VAT application filings and monitor gas station sales.

Dishonest traders seek out receipts from petrol stations which are not collected by motorists and use them to claim VAT refunds from the taxman, on the grounds that their businesses consume the fuel.

The system, which requires businesses to file receipts or invoices with the KRA as proof of expenses, aims to broaden the tax base as larger businesses report smaller businesses that serve as them to the authority. suppliers.

It also helps reduce under-reporting of sales by gas stations to reduce their profits and pay less tax.

Visibility sales will also help KRA map the spending habits of motorists, with the target being consumers who have high fuel bills but have little to show in terms of taxes paid.

“To streamline VAT on petroleum products, KRA is in the preliminary stage of implementing electronic tax invoicing at gas stations through the integration of eTIMS gas station systems,” KRA said in documents consulted by the Business Daily without giving details.
“This will validate invoices/receipts in real time to facilitate tax refunds.”

Under the scheme, motorists will be required to enter their KRA Personal Identification Numbers (PIN) to trigger the eTIMS receipt.

This is a sign that KRA is finally gaining visibility in sectors with high transaction volumes, such as gas stations and supermarkets, which have proven difficult to integrate with eTIMS.

The Treasury has identified the petroleum products sector as one of the key drivers of tax refunds or expenses which currently stands at Sh393.6 billion.

Tax refunds or expenses are the products of goods and services that are zero-rated.

Under the zero rate, businesses are allowed to ask the tax authorities for a refund of the VAT they pay on inputs such as electricity, fuel and raw materials.

“The main contributors to VAT expenditure were financial and insurance services, electricity, oil, gas, steam and air conditioning. Tax expenditure on import VAT increased from Sh8.8 billion in 2021 to Sh17.2 billion in 2022. This increase is mainly attributed to the increase in import VAT on oils », Indicates the Treasury.

Data from the Energy and Petroleum Regulatory Authority (Epra) shows that there are 140 registered oil traders in the country who sold 5.46 billion liters of petroleum products locally during the year preceding June.

“There is a refueling solution that we are already testing with gas stations. Basically, this solution envisages a situation where eTIMS is integrated at the pump level connecting the fuel dispenser to the point of sale,” said Hakamba Wangwe, KRA Chief Director in charge of eTIMS.

“We have three software providers who offer us this specialized solution. Full deployment is planned for June 2025.”

To shore up revenue, President William Ruto’s administration has stepped up its crackdown on tax evasion and is expected to be more aggressive after this year’s finance bill was withdrawn after deadly protests that killed more than 50 people.

The integration of eTIMS at fuel stations is the latest step taken by the KRA to accelerate the adoption of the mandatory issuance of electronically generated tax invoices from September 1, 2023, in accordance with the Finance Act 2023.

The Act also amended the Income Tax Act to provide that effective January 1, 2024, only expenses supported by eTIMS invoices will be considered eligible for a tax deduction, thereby excluding anyone seeking to reduce their tax liability using invoices generated outside of the eTIMS system.

The rollout of eTIMS was cited as the main reason why VAT exceeded the target in the 2023/24 financial year.

With the integration of gas stations into the system, VAT is set to consolidate its position as a key tax in the authority’s performance.

“Domestic VAT collection stood at Sh314.1 billion against the target of Sh307.8 billion, reflecting a growth of 15.3 per cent from the previous year. Domestic VAT collections exceeded the target of Sh6.3 billion, attributed to the implementation of eTIMS, which improved the compliance of registered VAT taxpayers,” the KRA said in its report on revenue results 2023/24.

The KRA is also trying to attract more small businesses into the tax bracket through simplified filing of returns.

For example, the KRA is set to develop a WhatsApp bot that will allow taxpayers to generate electronic tax invoices using only the popular messaging app, in a bid to further strengthen voluntary tax compliance, especially among small traders.

A WhatsApp Chatbot is a computer program that simulates a human text conversation via the WhatsApp messaging platform.

WhatsApp chatbots can automatically respond to various customer communications, from customer service to sales, and can be integrated through the WhatsApp Business platform.

KRA said the initiative aims to further simplify tax invoicing using the new eTIMS and improve tax compliance, especially for micro, small and medium enterprises (MSMEs).

The move is part of the taxman’s efforts to widen the tax bracket, including compensating non-compliant MSMEs, which are largely informal businesses and traditionally considered difficult sectors to tax.