Kenyan businesses face a rude awakening as the taxman unveils a ruthless digital surveillance system that automatically disallows expenses not backed by eTIMS invoices.

The era of "creative accounting" is over. Starting January 2026, the Kenya Revenue Authority (KRA) will deploy a real-time validation system that spies on every transaction to catch tax cheats. This new digital dragnet marks the most aggressive shift in tax enforcement in Kenya’s history, fundamentally changing the relationship between the taxpayer and the state.

In a radical compliance shift, the taxman will now automatically cross-check income tax returns against data from the Electronic Tax Invoice Management System (eTIMS). The implication is brutal in its simplicity: any expense claim filed by a business that does not have a corresponding, valid digital invoice in the KRA system will be instantly rejected. The days of padding accounts with vague receipts are dead.

The Algorithm is the Auditor

Global audit firm KPMG has issued a red alert to businesses, warning that the new system leaves no room for error. "The validation is automated. If the system doesn't see the eTIMS signature, the expense is disallowed, the tax liability goes up, and the penalties kick in immediately," a KPMG tax alert cautioned. This moves enforcement from a post-filing audit process to a real-time gatekeeper mechanism.

• No Hiding Place: The system also integrates with customs import data and withholding tax records, creating a 360-degree view of a company's financial flows.
• Supply Chain Shock: Businesses will now be forced to stop trading with non-compliant suppliers, as purchases from them will no longer be tax-deductible.

Adapt or Perish

For the Kenyan entrepreneur, the message is stark: digitize or die. The KRA’s move is expected to flush out the informal economy, forcing small traders to register for eTIMS if they want to do business with larger firms. While the KRA argues this levels the playing field, business lobbies fear the cost of compliance could crush small enterprises.

"Big Brother is not just watching," one trader lamented. "Big Brother is now doing the accounts." As 2026 unfolds, the taxman’s digital noose is tightening, and there is nowhere left to hide.