What is an Electronic Tax Register?
An electronic tax register (ETR) is a cash register that records sales and issues ETR receipts to persons who purchase vatable goods and services in Kenya. The ETR stores VAT-related data created each time a vatable supply is made.
The Value Added Tax (Electronic Tax Invoice) Regulations 2020, requires those who make vatable supplies to upgrade their ETR. The upgrade was influenced by the need to authenticate the accuracy of the tax invoice data generated by the ETR at the point of sale. The upgraded ETR can do this through a validation process whereby: the electronic version of the tax invoice issued to a customer, is transmitted to KRA over the internet in real time.
The transition from the old ETRs to the upgraded ETRs was scheduled to take effect on 31st July 2022. However, the compliance timeline was extended to 31st December 2022 due to shortage of upgraded ETRs in the market. As such, the filing of VAT returns using the tax invoices generated from the upgraded ETRs begun on 1st January 2023.
What Does the Regulation require you to do?
The Regulation requires taxpayers who have a VAT obligation registered against their tax PIN to:
- Record each sale in the upgraded register.
- Generate a tax invoice for each sale.
- Issue a purchaser with the generated tax invoice, for the purchase made.
- Issue the Commissioner with a tax invoice generated from a sale, and which contains the tax PIN of the ETR’s registered user.
- Ensure continuity of the upgraded register where power supply is interrupted.
- Issue a written notice to the Commissioner within 24 hours, of their inability to use the upgraded register and record sales using any other means suggested by the Commissioner.
What are the issues Emerging from use of the upgraded ETR?
- Steady internet
The machine works on a real-time basis: the data is transmitted to the iTax system immediately the tax invoice is generated. This is only possible where the machine is relying on strong internet connection.
- Validating the Tax Invoice
This is done by scanning the bar code on the tax invoice. However, when the machine is not properly configured or is not connected to the internet, there will be no data in the iTax system which implies that the tax invoice is invalid.
- Credit and Debit notes
Credit note has to be made on the same day sales are made. However, this might be impossible on days where sales for the subsequent month is less than the credit note amount.
- Special Character for Service Set Identifier (SSID) (Wi-Fi name and password)
Depending on the ETR machine model in use, special characters such as: !@# may not fit within the alphanumeric buttons of the ETR. The machine requires reprogramming to enable it accept the special characters.
- Issuance of Invoice and Inconsistency in Filing
The 2020 regulations provide that the invoice number printed on the tax invoice, shall be used for VAT filings purposes. As such, a tax invoice number that is different from the electronic tax invoice number is deemed invalid.
- ETR receipts printed not available in the iTax system
All the printed ETR receipts can be verified upon scanning their QR Code. However, a situation may arise where the information on the particular receipt is not populating in the iTax system even where the machine is connected to a strong internet.
What are the Possible Mitigation Measures?
- Ensure your ETR is powered by strong internet connection whenever it’s in use.
- In order to effectively verify the validity of the tax invoice, wait at least 5-10 minutes after the issuance of the ETR receipt then scan the QR code. The ETR receipt’s information will pop up on the screen if it is valid.
- For consistency, use the ETR tax invoice number for filing VAT returns instead of the normal company invoice document, to prevent any inconsistencies that might arise by using the different invoice numbers. Use of different invoice numbers is common amongst purchasers and suppliers.
- Reconfigure the Wi-Fi router or hotspot parameters to remove any special character in the SSID. That is, for Wi-Fi name and password, put only alphanumeric.
- Make a credit note on the same day the sales were made. Where this is impossible, and a credit note is made on a different day, then ensure that the sales for that day is equal to or greater than the amount being credited in the credit note.
- Debit note should be an additional sales amount to the already existing tax invoice issued.
Point to Note: Different ETR machines have different procedures for issuing debit and credit notes.
- When receipts cannot be verified through the scanner, a manual verification can be done to check whether the total sales for the month have been captured. You’ve done all this and still no luck? Consult your ETR Machine supplier.
In Conclusion
Despite all the initial hiccups, the upgraded ETR is worth a try because it adds value to the taxpayer in the following manner—
- Filing VAT returns has been simplified through the pre-filled VAT returns.
- Allows one to confirm the validity of a tax invoice through the invoice number checker on the iTax portal or by scanning the QR Code.
- It is a solution to the VAT inconsistency that arises when a purchaser and supplier declare different information in the iTax system regarding a particular invoice.
Article credits to Jully Kamollo and Darwin Omondi