The introduction of income and expense validation through eTIMS marks a turning point in how tax compliance works in Kenya. For many years, businesses have prepared their accounts internally, filed tax returns based on those records, and only dealt with questions from KRA later through audits or reviews. That approach is now changing.
From 2026, KRA will no longer rely mainly on what a business declares in its income tax return. Instead, the system will compare what is declared with what already exists in KRA’s digital records. The return will only be accepted smoothly if those two sets of information agree.
This means preparation is no longer something done at the end of the year. It is something that must happen every day as transactions take place.
Understanding What KRA Will Be Validating
When a business files its income tax return, KRA’s system will automatically check whether the income and expenses declared can be supported by electronic data. The most important source of that data is eTIMS, which captures electronic tax invoices issued and received by the business. Other sources include withholding tax submissions by customers, import and customs data, and VAT returns where applicable.
The key point is that KRA will not be looking for explanations first. It will be looking for matching data. If income is declared but there is no corresponding electronic trail, the system will treat the declaration as incomplete or incorrect. If expenses are claimed but there is no supporting electronic invoice in KRA’s system, those expenses may simply be ignored for tax purposes.
This is why preparation must focus on aligning internal records with what KRA sees electronically.
Ensuring eTIMS Is Properly Embedded in Daily Operations
Many businesses registered for eTIMS because it was required, but registration alone is not enough. What matters is how eTIMS is used in daily operations.
Every sale should be invoiced through eTIMS at the time it occurs. Delayed invoicing, manual invoices issued outside the system, or selective use of eTIMS will create gaps that later become tax problems. Even small inconsistencies can add up over a full year.
It is also important that invoice details are accurate. Customer PINs must be captured correctly, values must reflect the true transaction, and cancellations or corrections must follow the proper system process. eTIMS data becomes the primary reference point for income, so errors made there cannot be easily corrected at the return filing stage.
Managing Suppliers and Expense Documentation Carefully
The biggest adjustment for most businesses will be on the expense side. Under the new validation rules, claiming an expense without a valid electronic tax invoice becomes very risky.
A genuine expense that lacks an eTIMS invoice may be treated as if it never happened for tax purposes. This means taxable profit increases even though the business actually spent the money.
Businesses need to actively manage supplier relationships with this in mind. Suppliers should be registered on eTIMS and should consistently issue electronic invoices. The invoices should clearly show the buyer’s PIN so that KRA can match the expense to the correct taxpayer.
This is especially challenging for businesses that rely on informal suppliers, small service providers, or cash based transactions. However, the tax risk of continuing without proper documentation is now much higher than before. Businesses may need to rethink procurement practices or help suppliers transition to compliant invoicing.
Separating Business and Personal Transactions
Mixing personal and business transactions has always been discouraged, but under eTIMS validation it becomes a serious compliance issue.
If a personal expense is recorded as a business cost but the invoice is not issued to the business PIN, the system will not recognise it as a deductible expense. Similarly, if business income is received informally or through personal accounts without proper invoicing, it may still be captured through third party data but not reflected correctly in the business records.
Clear separation is essential. Business transactions should flow through business accounts, be supported by proper invoices, and be recorded consistently. This protects the business from disallowed expenses and unexpected adjustments.
Reconciling Records Throughout the Year
Waiting until the end of the year to reconcile accounts is no longer sufficient. Under the new system, problems discovered at filing time are often too late to fix.
Businesses should regularly compare their internal records with eTIMS data. This includes checking that sales recorded internally match eTIMS invoices issued, that expenses recorded in the accounts have corresponding electronic invoices, and that withholding tax certificates match the income recorded.
Regular reconciliation allows errors to be corrected while suppliers and customers can still cooperate. It also reduces stress and uncertainty when it is time to file returns.
Understanding Exemptions Without Making Assumptions
Some transactions are exempt from eTIMS requirements, but these exemptions are specific and limited. The mistake many businesses make is assuming that an expense is exempt without confirming whether it truly qualifies.
Where exemptions apply, the supporting documentation must still be clear and well organised. The burden of proof remains with the taxpayer. If an expense is claimed as exempt but cannot be clearly justified, it may still be disallowed during validation or later review.
Careful classification and documentation are therefore essential.
Improving Internal Controls and Awareness
Tax compliance under eTIMS is not just the responsibility of the accountant. Staff involved in sales, procurement, and payments play a direct role in whether transactions are compliant.
Employees should understand why electronic invoicing matters and what information must be captured correctly. Simple mistakes at operational level can have significant tax consequences months later.
Strong internal controls, clear procedures, and basic staff awareness reduce the risk of non compliance and improve overall financial discipline.
What Happens When Businesses Do Not Prepare
Businesses that ignore these changes may only realise the impact when filing returns. At that point, expenses may be disallowed automatically, taxable profits may increase, and tax bills may rise sharply without any change in actual business performance.
Increased scrutiny and follow up from KRA may also follow, adding time pressure and uncertainty. In many cases, the cost of non preparation will be higher than the cost of compliance.
The Direction of Tax Compliance in Kenya
The move to income and expense validation reflects a broader shift in Kenya’s tax system. KRA is relying more on data, automation, and real time reporting. The focus is moving away from explanations after the fact towards verification at the point of filing.
For businesses, this means that good compliance is no longer about fixing numbers at year end. It is about consistent habits, accurate documentation, and alignment with digital systems throughout the year.
Final Perspective
Preparing for eTIMS income and expense validation is not about mastering complex tax law. It is about changing how transactions are recorded and documented every day.
Businesses that adapt early will experience smoother filings and fewer surprises. Those that delay will find themselves reacting to outcomes they can no longer control.
The transition may feel demanding, but it is now part of doing business in Kenya.
