Executive Summary: A New Validation Era
In a public notice dated 7th November 2025, the Kenya Revenue Authority (KRA) announced that, effective 1st January 2026, it will automatically validate all income and expenses declared in tax returns against independent electronic data sources.
This process will compare your information with:
- eTIMS/TIMS invoices
- Withholding tax gross amounts
- Customs import records
This new approach is intended to streamline compliance by ensuring deductible expenses are supported through ETIMS-generated electronic invoices as opposed to manual receipts.
2. What Expenses Will Be Allowed as Tax-Deductible?
The Income Tax Act can seem complicated, but understanding the rules about what expenses you can deduct will help you get the most tax benefits. These rules show which expenses you can claim, so you can keep more of your earnings. Let’s look at these regulations to find ways you can save.
This update does not introduce a new policy. It simply clarifies the laws that are already in place. Here are some critical points to keep in mind:
- Tax Procedures Act (TPA), Section 23A: This essential section requires businesses to issue electronic tax invoices through the eTIMS system, ensuring transparency and compliance.
- Tax Procedures (Electronic Tax Invoice) Regulations, 2024: These rules explain the requirements, exemptions, and penalties for the eTIMS system, helping you understand what is needed.
- Income Tax Act (Deductibility Rules): Under this act, a taxpayer may only deduct expenses incurred “wholly and exclusively” for earning income, provided they have valid documentation.
- If you do not have a valid electronic tax invoice, those expenses will not be allowed, and your taxable profit may increase. Understanding these rules will help you get the most tax benefits.
Exempted Transactions: You do not need an eTIMS invoice for the following:
- Emoluments (Salaries/Wages)
- Imports (covered by customs data)
- Airline tickets
- Investment allowances, including internal accounting adjustments
- Interest and financial institution fees
- Payments are subject to final withholding tax.
- Services from non-residents without a Kenyan permanent establishment (PE).
3. Which Deadlines and Compliance Dates Should Taxpayers Note?
| Obligation | Effective Date / Period | Key Action |
| Mandatory e-Invoicing | 1 September 2023 (Ongoing) | Issue all tax invoices via eTIMS. |
| Non-Deductible Expenses | 1 January 2024 (Ongoing) | Expenses without an eTIMS invoice are not deductible for Income Tax. |
| Validation Start | For the 2025 Year of Income Returns | KRA’s iTax system will auto-validate returns upon filing. |
| Enforcement of Validation | Commencing 1st January 2026 | KRA begins active validation of filed 2025 returns. |
4. How Should Businesses Handle Common Real-Life Scenarios?
If your supplier, such as a small business or small-scale farmer earning less than KES 5 million a year, cannot issue an eTIMS invoice, the law allows you to do the following:
- Buyer-Initiated Invoice: The buyer can generate a compliant invoice on behalf of the supplier through eCitizen (KRA services).
- The supplier must have a KRA PIN to approve the invoice. It is now essential to start this process with your suppliers.
Businesses should make sure to do the following:
- Internal Reconciliation: Accounting systems must capture and reconcile data from both sales and purchase eTIMS invoices.
- PIN Capture: Each purchase invoice must correctly display the buyer’s KRA PIN for the expense claim to be valid.
- Staff Training: Procurement and finance teams need to know how to request, check, and manage invoices correctly.
- Withholding Income Tax Verification on Gross Amount:Subject to verification, certain qualifying payments are required to have withholding tax (WHT) deducted, as specified in Section 35 of the Income Tax Act (Cap 470) and Section 23A of the Tax Procedures Act (TPA, 2015). The payments subject to WHT include:
- Contractual and Service Payments
- Professional and Consultancy Fees
- Management and Training Fees
- Commissions and Agency Fees
- Rent and Lease Payments
- Interest Payments
- Rent or Lease of Equipment
5. What Happens If a Taxpayer Fails to Comply?
If you do not comply, you could face severe financial and business risks:
- Disallowed Expenses: Unsupported expenses are disallowed and added back to taxable income.
- Increased Tax Liability: This results in a higher principal tax due, along with accrued interest.
- Substantial Penalties: Under Section 86 of the TPA, non-compliance, such as failing to issue eTIMS invoices or tampering with the system, can result in a penalty equal to twice the amount of tax due, unless a taxpayer provides a satisfactory explanation.
6. Recommended Next Steps for Taxpayers
- Reconcile and Identify Gaps: Check all your 2025 transactions. Find any income not in eTIMS and any expenses without valid eTIMS invoices.
- Engage Your Supply Chain: Reach out to suppliers who are not eTIMS-compliant. Ask them to comply or be ready to use the buyer-initiated invoice process. You may also want to buy from compliant suppliers.
- Verify Invoice Details: Make sure your KRA PIN is clearly shown on all purchase invoices before you accept them.
- Secure Digital Records: Keep a well-organized digital record of all eTIMS invoices and related transactions so you can easily find them if KRA asks.
- Seek Professional Advice: If you face complex issues, deal with informal sector transactions, or have already heard from KRA, talk to a qualified tax advisor or advocate.
Should you need any clarification/assistance in regard to the above, you can reach out through our contact pages
I look forward to seeing how these developments will improve service levels and customer satisfaction in the freight industry!