The 2026 KRA eTIMS Survival Guide: How to Navigate the Automated Tax Era

You are standing at the threshold of the most significant transformation in the history of Kenyan taxation. For years, you might have navigated the iTax portal with a degree of flexibility, manually entering your business expenses and relying on traditional record-keeping to justify your declarations. However, as the clock ticks toward January 1, 2026, that era is coming to an abrupt end. You are about to enter the age of “Auto-Validation,” a regime where the Kenya Revenue Authority (KRA) effectively becomes a real-time partner in your business transactions.

This guide is designed for you—the entrepreneur, the freelancer, and the SME owner—to ensure that when the “Tax Cliff” arrives, you aren’t just surviving, but thriving. As you build your venture, remember that staying ahead of the curve is just as important as your morning routine. For instance, learning to wake up early to prepare your business for success is a discipline that translates directly into the meticulous record-keeping required for this new tax era.

1. Why January 1, 2026, Is Your “Tax Cliff”

You need to understand that January 1, 2026, isn’t just another date on the calendar; it is the moment the KRA’s technological capabilities catch up with the legislative mandates of the Finance Act 2023. This is the shift to a full data-driven tax verification model.

The End of Manual Declarations

In the past, you could list your expenses manually in your annual return. You might have paid KES 50,000 for office repairs and another KES 100,000 for inventory from a local supplier. As long as you had some form of receipt, you felt safe. Starting January 2026, when you file your returns for the 2025 year of income, the iTax system will no longer take your word for it.

The system will automatically cross-reference every shilling you claim as a deduction against three primary digital sources:

• TIMS/eTIMS Invoices: Electronic tax invoices for all goods and services you purchased.
• Withholding Tax Records: Gross amounts already deducted and reported at the source.
• Customs Import Records: Data pulled directly from the Integrated Customs Management System (iCMS) for any goods you brought into the country.

The Financial Consequence of Non-Compliance

If you cannot produce a digital trail, you will face what tax experts call the “add-back” effect. Imagine you spent KES 200,000 on legitimate business supplies, but your supplier was not on eTIMS. Under the new rules, the KRA system will treat that KES 200,000 as profit. Because you cannot deduct it, you will be taxed on it. At a corporate tax rate of 30%, you would owe KES 60,000 in taxes for money you have already spent. This effectively turns your business costs into a taxable liability, which can cripple your cash flow if you aren’t prepared.

To avoid this, you must treat your tax compliance as essential to your business management strategy. Ensure that your financial data is as healthy as your personal lifestyle.

2. Choosing Your Weapon: The eTIMS Matrix

The KRA has provided six different solutions to ensure you can comply, regardless of your business size. You don’t need a high-end ERP system to stay in the good books; you just need to pick the right tool for your specific needs.

Table 1: Simplified eTIMS Solutions for Your Business

If You Are A…	Use This Solution	Why?	Device Compatibility
Freelancer / Consultant	eTIMS Online Portal	Tailored for service providers with no goods. No software installation needed.	Web Browser (PC/Phone)
Small Shop / Mama Mboga	eTIMS Lite (USSD *222#)	Designed for non-VAT taxpayers with low transaction volumes. Works without internet.	Any Mobile Phone
Growing SME (Goods)	eTIMS Client (Windows/Android)	Supports stock management, multiple branches, and cashier tills.	Windows Laptop/Tablet/PDA
SME (Non-VAT)	eTIMS Lite Mobile App	A user-friendly app for those earning below KES 5M who don’t want to use USSD.	Android & iOS
Tech-Savvy Startup	System-to-System (VSCU/OSCU)	Direct integration between your accounting software and KRA for bulk invoicing.	ERP/Accounting Software

To get started, you must first sign up on the eTIMS Taxpayer Portal at ETIMS. You will need your KRA PIN, access to the mobile number registered on iTax to receive a One-Time Password (OTP), and a copy of your National ID to upload during the service request.

3. The Technical Manual: How to Invoice via USSD *222#

If you are running a small lifestyle business or working as a sole proprietor, you likely don’t want the hassle of managing complex software. The KRA has simplified this for you through the *222# shortcode. This is your most powerful tool for on-the-go compliance.

Here is your step-by-step guide to generating an invoice via USSD:

1. Initiate the Session: Dial *222# on your registered mobile line.
2. Select KRA Services: Choose Option 5 (Tax/KRA Services).
3. Identity Verification: Enter your Year of Birth. This is a security measure to ensure you are the authorized PIN holder.
4. Registration: If it’s your first time, select Option 1 to register for eTIMS. You will receive a confirmation SMS once successful.
5. Create Your Invoice:
   • Enter the Buyer’s PIN (for B2B sales) or simply type “Cash” for B2C sales.
   • Enter the Item Name (e.g., “Consultancy” or “Tomatoes”).
   • Enter the Quantity and the Unit Price.
6. Confirm and Transmit: Review the summary (Total amount, tax, etc.) and select Option 1 to confirm.
7. Share the Receipt: You will receive an SMS containing the invoice number and a link to a PDF version of the invoice. You can forward this link to your customer immediately.

This tool is a game-changer for those pursuing financial freedom through a lifestyle business. It allows you to remain compliant while traveling. You can also work remotely without a laptop.

4. The Landlord Problem: Securing Your Rent Deductions

One of the biggest “gotchas” you will face in 2026 relates to your office or business premises. Under the new regime, your rent is only a deductible expense if your landlord issues you an eTIMS-compliant receipt.

The MRI Mandate

Landlords earning between KES 288,000 and KES 15 million annually fall under the Monthly Rental Income (MRI) tax regime, currently taxed at a final rate of 7.5% on gross rent. While landlords do not deduct expenses from this gross amount, the KRA still requires them to onboard eTIMS to facilitate their tenants’ ability to claim rent as a business cost.

Your Action Plan

You must audit your landlord’s compliance status today. If your landlord refuses to provide an eTIMS invoice, that rent becomes a non-deductible expense for you. However, you aren’t completely helpless. The KRA offers a “Buyer-Initiated Invoicing” (Reverse Invoicing) solution on the eCitizen platform. This allows you to generate the invoice on your landlord’s behalf, provided they have a KRA PIN and provide consent via USSD *222# or the eCitizen portal.

5. Finance Act 2025: Strategic Wins for Your Business

While the eTIMS transition feels heavy, the Finance Act 2025 has introduced several changes that actually work in your favor, particularly regarding travel and construction.

The KES 10,000 Per Diem “Gift”

One of the most practical updates is the increase of the tax-free per diem limit. For years, the limit was stuck at a measly KES 2,000, which barely covered a meal in some towns.

• The Change: You can now pay yourself or your employees up to KES 10,000 per day as a subsistence allowance for work travel.
• The Compliance Bonus: These per diems do not require eTIMS-compliant invoices to be deductible for the employer, as long as they relate to official duties away from the usual workstation. Any amount above KES 10,000, however, is treated as a taxable benefit and subject to PAYE.

Mortgage Interest for Construction

If you are building your own home, you can now deduct interest of up to KES 360,000 per year against your taxable income. Previously, this deduction was largely limited to those purchasing or improving already existing property. This expansion is a significant win for those looking to build personal wealth alongside their business.

The 5-Year Loss Limit

You should be aware that the Finance Act 2025 has introduced a five-year cap on the carrying forward of tax losses. Previously, you could carry losses forward indefinitely. This change means you need to be more strategic about your business growth and when you choose to recognize certain capital expenditures.

6. The “Buyer PIN” Rule: The Silent Compliance Killer

You can have a folder full of eTIMS receipts and still have your expenses rejected if you fail one simple rule: the Buyer PIN Rule.

For an expense to be automatically validated in your iTax return, the electronic invoice MUST have your KRA PIN on it. If your staff goes to a fuel station and brings back a generic receipt that says “Customer,” that KES 5,000 in fuel is officially invisible to the KRA system. You cannot deduct it.

Your Internal Policy:

• Instruct all team members that for any purchase—fuel, meals, stationery, or spare parts—they must insist the vendor “pushes” the invoice to your business KRA PIN.
• Equip your accounts team with a QR code scanner. Every eTIMS invoice has a QR code that, when scanned, takes you to an official KRA verification page. If the details on the page don’t match the paper in your hand, you are holding a fake invoice.

7. What You Don’t Need to Invoice via eTIMS

It is equally important to know what is exempt from this digital requirement so you don’t waste administrative time. Under Section 23A of the Tax Procedures Act, the following do not require an eTIMS invoice for validation:

Expense Category	How KRA Validates It
Employee Salaries	Already captured via monthly PAYE (P10) returns.
Imported Goods	Verified via Customs entries and iCMS records.
Bank Interest & Fees	Verified via bank statements and WHT records for interest.
Airline Ticketing	Specifically exempted under the 2024 Regulations.
Depreciation	Validated via your audited financial statements and asset schedules.
Final WHT Payments	Payments where the withholding tax is final (e.g., certain dividends).

8. Your Financial Safety Net: The Automated Payment Plan (APP)

If you find that the new validation process uncovers historical tax debts or if your business hits a rough patch, the KRA has introduced a digital olive branch: the Automated Payment Plan (APP).

This is a system-driven solution available within the iTax portal that allows you to settle outstanding tax liabilities—including the principal tax, penalties, and interest—through structured installments.

To qualify for the APP, you must:

1. Have a valid KRA PIN and an updated iTax profile.
2. Have a “confirmed” tax liability that is not under active court dispute.
3. Propose an installment schedule that clears the debt within six months.

The beauty of the APP is that it is automated; you don’t need to visit Times Tower to negotiate. However, you must be disciplined. Missing just one installment will cause the system to terminate the plan, revoke your Tax Compliance Certificate (TCC), and trigger immediate recovery measures like agency notices or account freezes.

9. Final Checklist for Your 2026 Readiness

To ensure you don’t fall off the “Tax Cliff,” you should start these four habits today:

1. Monthly Reconciliation: Download your “eTIMS Purchase Report” from iTax every 30 days. Compare it to your internal bank statements. If a supplier says they gave you an invoice but it doesn’t show up in the portal, fix it immediately. You cannot fix 2025 errors in June 2026.
2. Supplier Audit: Review your 2025 supplier list. Identify who has migrated to eTIMS and who hasn’t. If your primary suppliers are still issuing manual receipts, you need to either help them formalize or move to a compliant vendor.
3. Digital Archiving: Scan and save every eTIMS invoice to a cloud folder (Google Drive or OneDrive). Systematically name them (e.g., 2025-10-12_SupplierName_Amount.pdf). KRA requires you to maintain these records for five years.
4. PIN Vetting: Before onboarding any new supplier, run their PIN through the KRA PIN Checker on iTax. Confirm they are registered for the correct obligations (VAT or Income Tax) before you send them a single cent.

Compliance isn’t just about avoiding penalties. It’s about building a profitable and sustainable business. This approach gives you the freedom to live your life on your terms. By mastering the technical nuances of eTIMS now, you are securing your financial future in the new Kenyan economy.

You have the tools, you have the guide, and you have the time. The transition starts with your next invoice. Let’s make it a compliant one.

Frequently asked questions (FAQs