The Kenya Revenue Authority (KRA) has announced a significant policy shift that will digitally scrutinize all income and expenses declared by taxpayers, effective from the 2025 income year. In a public notice issued on Friday, November 7, 2025, the tax authority confirmed that starting January 1, 2026, all income tax returns for both individuals and non-individuals will undergo a mandatory validation process against government-held electronic data. This measure is poised to fundamentally alter the tax compliance landscape in Kenya, aiming to enhance revenue collection and seal existing loopholes that facilitate tax evasion.

A New Era of Tax Scrutiny

Under the new framework, the KRA will cross-reference information submitted through the iTax platform with data from three primary digital sources. These include invoices from the Tax Invoice Management System (TIMS) and its successor, the electronic TIMS (eTIMS), records of withholding tax, and import data from its customs systems. The directive stipulates that all declared expenses must be substantiated by a valid electronic tax invoice, with the buyer's Personal Identification Number (PIN) correctly transmitted, unless specified otherwise under the Tax Procedures Act.

This transition represents a major step in the KRA's broader strategy to leverage technology for improved tax administration. The move is aligned with the government's push for greater digitization and follows recent announcements about the planned rollout of a machine-learning model to handle tax assessments and collection. President William Ruto's economic advisor, David Ndii, had previously indicated in late October 2025 that the government intends to transition to an AI-driven, algorithm-based system within the next two years to boost efficiency and reduce corruption.

Implications for Kenyan Taxpayers

For Kenyan businesses and individual taxpayers, this change necessitates meticulous record-keeping and ensures that all transactions are captured through the eTIMS platform. The KRA has encouraged taxpayers to proactively request their current TIMS/eTIMS schedules from their designated account managers to reconcile their records ahead of the 2026 deadline. This will be crucial for a smooth transition and to avoid potential compliance issues when filing the 2025 annual returns.

The validation requirement is expected to have a significant impact on the informal sector, a key area of focus for the KRA's tax base expansion program. By mandating electronic invoices for all declared expenses, the authority aims to bring more economic activities into the formal tax net. This initiative is part of a larger government effort to meet ambitious revenue targets, with the National Treasury projecting the collection of KSh 3.02 trillion in the 2025-2026 financial year.

The move also complements other recent tax reforms, including the automation of the filing process for salaried workers, which is also set to begin in January 2026. This automation will eliminate the need for P9 forms, allowing employees to file returns simply by entering their national ID number.

Wider Economic Context and Stakeholder Engagement

This policy shift occurs as the Kenyan government navigates pressure to increase domestic revenue to finance its budget and manage public debt. The government has stated its intention to focus on improving tax collection efficiency and closing loopholes rather than introducing new taxes in the 2025/2026 budget, following public backlash against previous tax hikes. The KRA's increasing reliance on technology is a core component of this strategy.

In parallel, the KRA is also targeting multinational corporations with new regulations. The authority has invited public feedback on draft rules for an Advance Pricing Agreement framework and a Minimum Top-Up Tax, which are also scheduled to take effect on January 1, 2026. These regulations aim to align Kenya with global efforts to ensure large multinational firms pay a fair share of taxes and to combat profit shifting.

Recognizing the potential challenges of this transition, the KRA has invited feedback from taxpayers and stakeholders to facilitate a smooth implementation of the new validation process. This engagement will be critical in addressing concerns and ensuring that the system is both effective and fair for all parties involved. The success of this digital overhaul will be pivotal in the government's quest for enhanced revenue mobilization and economic stability.