The Kenya National Chamber of Commerce and Industry (KNCCI) has voiced strong opposition to the proposed Sh2 million monthly penalty for businesses failing to comply with the Electronic Tax Invoice Management System (eTIMS) as stipulated in the Finance Bill 2024.

While acknowledging the government's goal of streamlining tax collection through eTIMS, KNCCI President Dr. Erick Rutto expressed concern that the proposed penalty is excessively harsh and would have a devastating impact on Micro, Small and Medium Enterprises (MSMEs).

"MSMEs are the backbone of our economy," Dr. Rutto emphasized, "contributing about 40 per cent of GDP and employing more than 80 per cent of Kenyans."

He highlighted that the majority of MSMEs operate informally and have limited understanding or adoption of eTIMS.

was evident in the low registration rate on eTIMS by the March 31st deadline, with only 20 per cent of targeted businesses signing up.

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KNCCI's concerns are further supported by their Quarterly Business Barometer Survey for Q2/2024, which revealed that more than half of respondents were businesses with an annual revenue below Sh1 million.

"Placing a penalty of Sh 2 million a month on businesses that make less than half of that in a year will lead to closures and job losses," Dr. Rutto warned.

The KNCCI advocates for a more measured approach and proposes prioritizing MSME education on eTIMS requirements and processes before implementing hefty penalties.

Dr. Rutto acknowledged that many small business owners lack the technical expertise or resources to navigate eTIMS effectively. 

"We advise that before implementing such stringent penalties, it is crucial to ensure that MSMEs fully understand the requirements and processes involved in adopting eTIMS," KNCCI advised.

"Many small business owners may not have the technical knowledge or resources to implement these systems effectively."

He urged the government to invest in comprehensive capacity-building programs and provide clear, accessible information and training to equip MSMEs for eTIMS compliance.

Furthermore, KNCCI recommends a phased implementation of eTIMS, allowing businesses time to adapt and comply without the immediate threat of severe penalties.

A grace period or a tiered penalty system is suggested, where initial non-compliance would incur warnings or smaller fines, escalating only for persistent offenders.

KNCCI seeks collaboration with the government to find solutions that foster tax compliance while nurturing the growth and sustainability of the critical MSME sector.

Dr. Rutto concluded by urging the government to reconsider the proposed penalty and prioritize MSME capacity building to ensure their successful adoption and compliance with eTIMS.