INTRODUCTION OF ELECTRONIC TAX REGISTERS IN KENYA

1. INTRODUCTION OF ELECTRONIC TAX REGISTERS IN KENYA SEMINAR AT SAFARI PARK HOTEL 1st December 2004 By SDC, VAT Mr. Philip Odeny

2. Introduction and Background • What is Electronic Cash Register - ECR ? • What is Electronic Tax Register – ETR ? • Other Fiscalised Electronic Devices - FED. • Why ETR and FED? • Who should use ETR and FED ? • Selection of ETR and FED. • Selection of Suppliers. • Role of Suppliers. • Role of Software Houses. • Implementation Plan.

3. What is Electronic Cash Register - ECR ? • Electronic Cash Register is a device used by traders to record sales and issue receipts. • It also stores information such as sales, stocks, and can also issue reports e.g. daily sales. • Electronic Cash Registers have been in use by taxpayers for long.

4. What is Electronic Tax Register – ETR ? • Electronic Tax Register (ETR) is a Cash Register but with Fiscal Memory. • Fiscal Memory is a special Read Only Memory built into the cash register to store tax information at the time of sale. • ETR can be used as stand alone or configured into a network. • ETR has special security features e.g. seal, memory, serial no., special technical specifications etc.

5. Other Fiscalised Electronic Devices - FED Fiscalised Printers: • This are high Speed Fiscal Printer connected in a computer network to store every sales transaction in its Fiscal Memory while it issues receipts to taxpayers. Electronic Signature Devices: • ESD is used in conjunction with the accounting system • For a document to be valid it must bear the electronic signature • ESD applies to computer based, printed tax documents issued to a third party • The text of the invoice passes through the ESD and is saved • ESD performs an algorithm over all signatures Issues a HASH e.g. SHA-1 algorithm to make every transaction virtually unchangeable. • Retail fiscal units in the realm of business to business transactions may use ESD for invoices, transport documents etc.

6. SAMPLE TYPES OF DEVICES

7. Electronic Tax Registers • There is a whole range of ECRs for fiscal and non fiscal purposes. The difference is presence of FISCAL MEMORY UNIT.

8. Other Devices Hi Speed Fiscal Printer: Has two RS232 ports for PC online operation and barcode POS Compact Modular System: Aimed at the software developer who wants to sell a customized POS solution or at the retail equipment dealer who wants a turn-key POS solution with advanced software. Embedded-PC model is built using the CPU and comes in a very small shape, contains the AC power supply and hard disk.

9. COMPUTER SYSTEMS AND ESD ELECTRONIC SIGNATURE DEVICE Request PC Signature “SIGNED” Invoices, Receipts Etc. PRINTER

10. Other Devices Telecom: Ethernet and Internet / email enabled cash registers are low cost, stand alone ETRs. Electronic Signature Device: ESD has many shapes and its functions have been previously discussed

11. Why ETR and FED? ETR: • Ordinary ECR is prone to falsification. • Has a Tax memory that carries information on tax. • Tax memory is a programmable read only memory (EPROM or PROM). • The tax memory capacity should store data for at least 5 years or 1800 day transactions. • Issue fiscal receipts which are easily identifiable for inspection purposes & daily fiscal summary report.

12. Who should use ETR and FED ? • KRA intends to enforce the use of ETR and FED on EVERY taxpayer. • Selection of the device to use depends on the needs of the business. • ETR will mainly be used by small scale retailers. • ESD and printers are to be used by computerised traders.

13. Selection of ETR and FED. • There exist various types of ETRs each with its functions. • This depends on the needs of a trader and each model/machine will be vetted according to the stipulations of the law.

14. Selection of Suppliers • This exercise involves advertisement through press • Submission of request to supply by the suppliers. • Inspection of requests and brochures by the technical committee with respect to criterion defined in the ETR Regulation. • Pre-qualification of suppliers who meet requirements. • Request of sample machines for inspection by technical committee. • Approval process by technical committee results in appointment of suppliers who meet ALL requirements set forth. • Among salient features the selection committee shall verify are financial standing, technical background, experience in similar undertaking and branch network of the supplier.

15. Role of Supplier • To work with KRA to ensure that the models they supply fulfill the requirements of the ACT. • Ensure continuity of the model by maintaining ceaseless backups. • Work with KRA to improve the system through innovation. • Work with KRA to identify offenders. • Detailed identification of the manufacturer or importer;

16. Software Houses • The software developer who wants to sell a customized POS solution in form of Drivers or at the retail equipment software shall be essentially “pointing” or “re-aligning” or “to talk” to the POS systems to save copies of all transaction into fiscal memory. • The software shall ensure re-use of some existing POS using ESD or added Fiscal Modules that shall be guided in operations using software drivers created or sourced by Software Houses. • Innovation of new technologies.

17. ADVANTAGES • More jobs for technicians • More jobs for the software houses • Better control and management of business by traders • Shorter audit periods by taxman • Less paper work

18. Implementation Plan • This is a long term project where more emphasis should be placed on correct implementation in addition to time limits. • KRA is to lead the whole process and has to keep taxpayers informed of the steps to follow. • Implementation plan is being worked and will be publicised.