No eTIMS, No Tax Deduction: How KRA's 2026 Rules Affect Your Small Business

Running a small business or a "side hustle" in Kenya is harder than ever. Following the Finance Act implementations leading into 2026, the Kenya Revenue Authority (KRA) has tightened the noose on tax evasion, bringing the informal sector squarely into the tax net.

If you run a boutique, an online consultancy, an agribusiness, or a service agency, ignorance of these new rules will cost you heavily. Here is the most crucial tax update every SME owner needs to understand today.

The eTIMS Requirement is Absolute

The days of buying office supplies, paying for transport, or sourcing raw materials and logging them as expenses using a handwritten receipt are officially over.

KRA has mandated that all business expenses must be supported by an eTIMS-compliant invoice. If you incur a business expense (like buying laptops for your staff or raw materials for your farm) and the seller does not provide an invoice generated through the electronic Tax Invoice Management System (eTIMS), KRA will disallow that expense when you file your corporate income tax.

Why Does This Matter?

Corporate tax in Kenya is calculated on your profit (Revenue minus Expenses). If KRA rejects your expenses because they lack eTIMS receipts, your official profit will look much higher than it actually is, and you will be forced to pay 30% corporate tax on money you didn't actually make.

The Shift for Micro and Small Businesses

For the millions of businesses in the informal sector, KRA is attempting to simplify compliance while enforcing visibility. If your business makes less than KES 8 million a year, you fall under the Turnover Tax (ToT) regime.

While ToT aims to simplify filing (removing the need for complex quarterly installments), you still cannot escape the digital tracking. KRA is actively working to integrate these tax payments directly through mobile money platforms like M-Pesa to monitor cash flows.

Cash Payments are Risky

Under the current compliance environment, paying for business services in cash without a traceable, digitized invoice is a massive liability. If KRA audits your business, unsupported cash outflows will be flagged, resulting in severe penalties and accrued interest.

Need Help Navigating Business Laws?

Whether you are confused about how to register your company on the eCitizen portal or need to draft a vendor agreement that mandates the provision of eTIMS invoices, Sheria AI is built to help Kenyan entrepreneurs stay compliant and avoid KRA penalties.