How to Ensure Your Business Complies with KRA's New 2026 Tax Return Rules

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Published 12/01/2026 - 4 min read

How to Ensure Your Business Complies with KRA's New 2026 Tax Return Rules

Since January 1, 2026, the Kenya Revenue Authority (KRA) has implemented mandatory digital validation of all income and expenses declared in income tax returns. This applies to 2025 year of income (or accounting period) returns filed via iTax for both individuals and non-individuals (companies, partnerships, etc.).

Under this new framework — announced in KRA's Public Notice of November 7, 2025 — KRA automatically cross-checks your declarations against:

• TIMS/eTIMS electronic tax invoices
• Withholding income tax records (gross amounts deducted)
• Customs import data

Key rule: Declared income and expenses must be supported by valid eTIMS invoices (with buyer's PIN where required). Unsupported entries may be disallowed, increasing your taxable income, tax liability, penalties, and interest.

Non-compliance is costly — especially for SMEs relying on informal suppliers — but full preparation ensures smooth filing and protects your bottom line.

Why Compliance Matters Now (January 2026 Onward)

With returns for 2025 now under validation:

• Mismatched data triggers automatic disallowances.
• Undocumented expenses (e.g., cash payments to non-eTIMS suppliers) get added back as profit.
• This hits sectors like retail, agriculture, transport, and services hardest.

Proactive steps today prevent audits, disputes, and cash flow issues.

Step-by-Step Guide to Full Compliance

Follow these actionable steps recommended by KRA and tax advisors:

1. Request and Reconcile Your eTIMS/TIMS Schedules
   Contact your designated KRA account/relationship manager immediately to get your annual (or current) TIMS/eTIMS summaries of income and expenses.
   Compare these against your internal books and accounting records. Fix any gaps before filing.
   KRA encourages early reconciliation — do this quarterly for ongoing accuracy.

2. Ensure All Your Suppliers Are eTIMS-Compliant
   Verify every supplier has a valid KRA PIN and issues proper eTIMS invoices.
   Update contracts with clauses requiring eTIMS compliance (e.g., "Payment only upon valid eTIMS invoice").
   For informal suppliers (e.g., Jua Kali vendors), switch to compliant ones or guide them to onboard (KRA offers free/self-onboarding options like eTIMS Lite for small businesses).

3. Fully Onboard and Use eTIMS for Your Business
   If not already done (mandatory since September 2023 for most), self-onboard via iTax:

   • Log into iTax > Access eTIMS menu.
   • Use approved solutions (integrated software, eTIMS Lite for non-VAT).
   • Generate and transmit all sales invoices electronically.
     This ensures your income side matches KRA records automatically.

4. Adopt Integrated Accounting & Invoicing Tools
   Use eTIMS-compatible software (e.g., QuickBooks, local ERPs, or KRA-approved platforms) for real-time tracking.
   This automates reconciliation, reduces errors, and generates reports for quick audits.

5. Check for Legal Exemptions & Exceptions
   Review Section 23A of the Tax Procedures Act and the Tax Procedures (Electronic Tax Invoice) Regulations, 2024.
   Some transactions (e.g., certain small/exempt categories) may not require eTIMS — document them clearly to justify during validation.

6. Strengthen Internal Record-Keeping & Bookkeeping
   Maintain accurate, up-to-date records matching eTIMS data.
   Scan/verify QR codes on received invoices to confirm validity via KRA's checker tool.
   Keep digital archives for at least 5–7 years.

7. Prepare for Filing & Handle Potential Issues
   When filing 2025 returns: Double-check declarations against reconciled schedules.
   If mismatches occur, you may need to amend or provide explanations.
   Contact KRA early for support (via callcentre@kra.go.ke or 020 4999 999).

8. Seek Professional Tax Advice
   Engage a certified accountant or tax consultant for a compliance review — especially if you have complex supplies, imports, or related-party transactions.

Additional Tips for SMEs

• Update payment policies: No payment without eTIMS proof.
• Train staff on eTIMS basics.
• Monitor kra.go.ke for updates (e.g., new FAQs or tools).
• Use KRA support: Email timsupport@kra.go.ke or visit an iTax Service Centre.

Final Thoughts

KRA's 2026 validation rules represent a permanent shift to digital, transparent taxation in Kenya. While challenging for businesses with informal links, early action — starting with reconciliation and supplier onboarding — minimizes risks and can improve your overall financial management.

Compliance isn't just about avoiding penalties; it's about building a stronger, audit-ready business.

Questions on your specific setup? Drop a comment or consult a tax professional today!

Sources: KRA Official Public Notice (November 7, 2025), kra.go.ke announcements, Tax Procedures Act, and verified reports from BDO, PKF, and Business Daily (as of January 2026).