Summary

The Kenya Revenue Authority (KRA) issued a public notice on 10 November 2025, announcing that, effective 1 January 2026, it will begin validating income and expenses declared in both individual and non-individual income tax returns. The enhanced validation process will align return disclosures with data captured through the Electronic Tax Invoice Management System (eTIMS), withholding tax (WHT) certificates and customs import records. This initiative aims to enhance accuracy, reduce discrepancies and strengthen overall tax compliance.

Background

Finance Act 2023 amended the Income Tax Act to provide that expenditures or losses for income tax purposes are not deductible if the invoices of the transactions are not generated from an electronic tax invoice management system (unless the transactions have been exempted in accordance with the Tax Procedures Act, 2015 (TPA)). In line with this provision, the KRA is enhancing the income tax return template(s) to incorporate validation of income and expenses. This enhancement is expected to take effect from 1 January 2026, and the KRA will begin validating income and expenses declared in both individual and non-individual income tax returns against the following data sources:

• TIMS/eTIMS
• Withholding Income Tax certificates
• Import records from custom entries

The validation will take place when 2025 tax returns are submitted on the iTax platform. Taxpayers are encouraged to request TIMS/eTIMS schedules of their current annual income and expenses from their designated account managers.

Exceptions

In the notice, the KRA indicated that the exceptions under section 23A of the TPA and the Tax Procedures (Electronic Tax Invoice) Regulations, 2024 are exempted from the validation requirement.

The exceptions under section 23 of the TPA include: payments of emoluments, payments for imports, payments of interest, transactions for accounting for investment allowances, airline passenger ticketing and payments subject to withholding tax that is a final tax.

Implications

The introduction of automated validation will have several practical implications. Due to stricter expense deductibility rules, only expenses supported by properly transmitted eTIMS invoices will be deductible for corporate income tax purposes, increasing the possibility of disallowed expenses if suppliers are non-compliant. In addition, import-related costs will need to be reconciled with customs declarations to avoid mismatches during return filing. Furthermore, taxpayers may need to review supplier onboarding processes to ensure all vendors issue eTIMS-compliant invoices.

Implementation of the validation mechanism may present practical challenges, including (1) delayed or inaccurate invoice transmission by suppliers, leading to unmatched expenses; (2) errors in WHT certificates, which may affect turnover validation; and (3) high-volume transaction reconciliation, particularly for businesses with complex operations or multiple branches.

Affected taxpayers may want to consider taking the following actions:

• Conduct prefiling reconciliations across income, expenses, eTIMS reports, WHT certificates and customs data
• Request eTIMS income and expense schedules from the account managers (pending introduction of an eTIMS report module) and regularize any inconsistencies before 31 December 2025
• Review supplier compliance, ensuring all vendors issue and transmit eTIMS-compliant invoices with correct buyer Personal Identification Number (PIN) details
• Update internal controls and accounting systems to capture invoice and transaction data accurately as transmitted to eTIMS
• Incorporate eTIMS compliance clauses into supplier contracts and procurement processes