The dawn of 2026 has brought a seismic shift to Kenya’s tax landscape. What began as a tool for VAT compliance has now evolved into the “Big Brother” of revenue collection. Starting January 1, 2026, the Kenya Revenue Authority (KRA) officially activated its rigorous data-driven enforcement phase, fundamentally changing how income tax returns are filed and audited.
For businesses and high-net-worth individuals, the days of manual “summary-based” reporting are over. We are now in the era of real-time transaction-level scrutiny.
Under the new regime, the iTax system no longer simply “receives” your 2025 year of income returns; it validates them. Every figure you declare is instantly cross-referenced against three primary digital streams:
- eTIMS/TIMS Records: Every sale and purchase must have a corresponding electronic invoice.
- Withholding Tax (WHT): The system matches your declared income against WHT certificates issued by your clients.
- Customs Data: Import expenses are verified directly against KRA’s Integrated Customs Management System (iCMS).
Perhaps the most significant change stems from the Finance Act, 2023. Any business expense be it rent, professional fees, or office supplies that is not supported by a valid eTIMS invoice is now automatically disallowed.
The Impact: If you spend KES 1,000,000 on supplies from a non-compliant vendor, the KRA will reject that deduction. Your taxable profit effectively increases by KES 1,000,000, leading to a higher tax bill and potential interest.
In a bold move to ensure system integrity, the KRA temporarily suspended Nil Return filings in early 2026. This suspension, which lasted until March 31, 2026, allowed the taxman to review third-party data. If the KRA’s systems show you received a payment or made a transaction, the “Nil” option remains locked until the discrepancy is resolved. This has already flagged nearly 400,000 entities for potential audit.
Small and Medium Enterprises are feeling the heat. The “Jua Kali” economy, often preferred for its flexibility, is becoming a liability for formal businesses.
- Supplier Risk: Large firms are now offboarding vendors who cannot provide eTIMS invoices.
- PIN Deactivation: Discrepancies in withholding taxes are triggering automated warnings, which can lead to the deactivation of KRA PINs and, in extreme cases, asset freezes.
While the net is wide, Section 23A of the Tax Procedures Act still provides a few narrow exemptions from eTIMS requirements:
- Emoluments: Salaries and wages subject to PAYE.
- Financial Fees: Specific fees charged by banks.
- Travel: Airline passenger ticketing.
- Investment Allowances: Non-cash accounting adjustments.
Our Recommendation: Proactive Reconciliation
To survive this “unforgiving” digital environment, businesses must shift from annual filing to monthly reconciliation. You must ensure your internal ledgers match the KRA’s eTIMS schedules before you hit the submit button on iTax.
The transition is complex, and the cost of non-compliance has never been higher. As the KRA continues to embed AI and machine learning into its administration, “waiting to see” is no longer a viable strategy.
