KRA is under scrutiny over the new validation of income and expenses in both individual and non-individual tax returns, which began on January 1, 2026, as Klynveld Peat Marwick Goerdeler (KPMG) warns that KRA is tightening the eTIMS net and automatically rejecting unsupported expenses.
On February 3, KPMG issued a tax alert highlighting major changes in how the Kenya Revenue Authority (KRA) will manage income tax returns in 2026.
“Taxpayers who align early will not only reduce exposure but also gain greater certainty and audit preparedness. We are happy to assist with assessments, system reviews, and readiness reports,” KPMG report read in part.
Shift to Transaction-Level Scrutiny
KRA is moving from summary-based reporting to continuous, transaction-level scrutiny. The authority will algorithmically reconcile income tax returns against electronic datasets, including eTIMS, withholding tax, and customs data.
This means that all reported income and expenses will be cross-checked against digital records to ensure accuracy.
“The government’s priority marks a structural shift from periodic, paper-based assessments to automated reconciliation of real-time transactional data,” it noted.
Business expenses that are not supported by compliant eTIMS invoices will be automatically disallowed, even if the costs were genuine.
Taxpayers must ensure that all transactions are backed by electronic invoices transmitted with the buyer’s PIN. Income declared outside eTIMS data may be treated as undeclared, which could trigger upward adjustments to tax liabilities.
KRA Compliance Requirements and Operational Considerations
Compliance with the eTIMS system is mandatory for all companies, partnerships, sole proprietors, professionals, and rental income earners conducting business in Kenya.
Certain categories, such as employee emoluments (PAYE), interest from financial institutions, and airline ticketing, are exempt from the eTIMS invoicing requirement, although clear documentation remains essential.
Also Read: KRA Announces Date Nil Tax Filings Will be Restored After Suspension
KPMG advises businesses to prepare for operational challenges such as timing mismatches between accounting periods and invoice issuance. Non-compliance from informal suppliers or small vendors could also create issues.
“Discrepancies arise when eTIMS generates one side of the transaction, but delays arise on the seller’s end. For instance, delays in validating expense data may affect financial reporting timelines,” it stressed.
To mitigate risks, taxpayers should conduct regular reconciliations between accounting ledgers and eTIMS data, strengthen supplier onboarding, and embed eTIMS compliance into procurement workflows.
New Changes in Income Tax Returns from January 2026
The Kenya Revenue Authority (KRA) earlier announced that it will begin validating income and expenses declared in both individual and non-individual income tax returns starting January 1, 2026.
Also Read: KRA Announces Changes to Regional Electronic Cargo Tracking System
According to the notice issued by the authority, validation will be done against three data sources:
- TIMS/eTIMS invoices,
- Withholding Income Tax gross amounts, and
- Import records from Customs systems.
The authority stated that this validation will take place upon submission of the 2025 year of income/accounting period return via the iTax platform.
The notice further indicated that all declared income and expenses must be supported by a valid electronic tax invoice, correctly transmitted with the buyer’s PIN, where applicable. This is subject to exceptions provided under Section 23A of the Tax Procedures Act, Cap 469B, and the Tax Procedures (Electronic Tax Invoice) Regulations, 2024.
Taxpayers have been encouraged to request TIMS/eTIMS schedules of their current annual income and expenses from their designated account managers.
KRA also invited feedback and insights from taxpayers and stakeholders to facilitate a smooth and effective implementation of the validation process.
Follow our WhatsApp Channel and X Account for real-time news updates.
