Why petrol stations are resisting new tax invoice system

Kenya’s petroleum sector is headed for a showdown with the taxman as a majority of petrol stations remain non-compliant with the new tax reporting directive, just a day to the December 31 deadline. 

This is especially the case for many small and medium sized petrol stations that do not have the financial muscle required to implement and maintain the new system. 

A petroleum industry lobby said 98 per cent of petrol stations have not complied with the directive by the Kenya Revenue Authority (KRA) to implement the Electronic Tax Invoice Management System (eTIMS) for fuel stations by December 31 this year.

The United Energy and Petroleum Association (UNEPEA) said a mix of factors have led to non-compliance among many stations, citing ‘prohibitive’ costs that could drive rural dealers out of business and disrupt fuel supplies across the country.

KRA on November 25 this year directed petrol station owners to implement the eTIMS by December 31. This followed an earlier unsuccessful attempt where it had required the companies to comply by June 30. 

The tax collector noted that the “eTIMS Fuel Station System is a tailored solution for the fuel sector, enabling seamless, real-time invoicing for every transaction. It integrates with KRA through a forecourt controller and existing point-of-sale systems, ensuring accuracy and efficiency in tax reporting”. 

It added that “retailers who fail to comply by December 31, 2025, will face enforcement measures as provided for under the law”.

According to UNEPEA “98 per cent of the fuel stations have  not been able to comply” owing to a mix of factors. 

The lobby has now requested for further consultations with KRA and the Energy Petroleum Regulatory Authority (Epra) before it takes any enforcement actions. 

“The cost of acquiring and maintaining the system is significantly high for most dealers, partially small and medium-sized operators. This creates a financial burden that makes compliance difficult and unsustainable for many businesses,” said Irene Kimathi, chair UNEPEA in a December 29 letter to KRA.

It added that many outlets operate with minimal staff and that the new system would require constant monitoring and technical handling that would require outlets to hire more personnel. These include stations in rural areas, many of them operating one or two pumps and manned by one or two people. 

In Kenya, independent fuel retailers – mostly operating in rural areas – constitute about 68 per cent of all petrol stations in Kenya.

They are however toppled by multinationals when it comes to sales volume, with the three largest oil marketers commanding a 51 per cent market share while the next four mid-tier marketers have a combined share of about 20 per cent.

Other challenges UNEPEA highlighted included connectivity issues, with a number of fuel stations located in areas that have poor internet access. 

“Past implementations of technological systems have often resulted in increased costs and operational disruptions, with limited demonstrable benefits to our businesses as was the case with the migration from TIMS to eTIMS, which many members struggled to comply with due to the cost,” said Kimathi.

“This new system is now multiple times higher than the previous one in cost and is no longer a challenge but a barrier to running their businesses.” 

UNEPEA argues that the move creates unnecessary bureaucracy, noting that fuel prices are already fixed by Epra and include a built-in VAT component, leaving little room for tax evasion at the pump. It instead proposes collection at the point of import.

“Fuel prices are regulated by Epra and the VAT component is already built into the pump price. This means that dealers have no discretion in pricing. KRA can collect all the VAT at the point of import and spare our businesses the installation and administrative costs associated with the system which many businesses cannot afford and at the same time achieve 100 per cent collection,” said Kimathi. 

Dealers have had meetings with KRA since 2023 when the taxman proposed the new system and industry players highlighted the challenges that would come with implementing it. 

In one of the meetings, the lobby said that KRA agreed to run a pilot, with promise of further consultation and feedback on findings but added that KRA did not communicate further.

“Our main concern was the challenges our members were encountering between them and your officers on VAT collection and the difficulty of withholding VAT in our industry.

‘‘We presented a solution on how your office can ensure effective tax collection without disrupting business activities or driving out small players who are the backbone of the rural economy,” said Kimathi in the letter. 

“We strongly urge that no punitive measures be imposed on petroleum stations until a mutually agreeable, practical and sustainable solution is developed.”