Kenya's expense disallowance regime rests on one legal provision: Section 16(1)(c) of the Income Tax Act, which since January 1, 2024 bars the deduction of any business expense that isn't backed by a TIMS- or eTIMS-generated invoice. It sits alongside Section 23A of the Tax Procedures Act, the provision that actually empowers KRA to run the electronic invoicing system in the first place, effective from September 2023.
Who does this apply to? Everyone trading in Kenya — companies, partnerships, sole proprietors, professionals, and rental income earners — regardless of whether you're VAT-registered. That last point catches a lot of businesses off guard: even non-VAT entities must issue eTIMS invoices for their sales, because their corporate customers need those invoices to claim the expense on their own side. A handful of payment types are exempted by public notice — emoluments, imports, investment allowances, interest, and airline ticketing among them — but for ordinary trading expenses, the rule is essentially universal.
How enforcement actually works in 2026: from January 1, KRA's Income and Expense Validation Engine checks every submitted return against eTIMS/TIMS data, withholding tax records, and Customs import data at the point of filing. Where an expense doesn't reconcile, it's administratively disallowed, your taxable profit rises accordingly, and you're exposed to the standard penalty regime — typically a 25% under-declaration penalty plus monthly interest on the resulting tax shortfall.
eTIMS compliance has also been folded into the Tax Compliance Certificate process, so a business that isn't actively onboarded and transmitting risks having its TCC application rejected outright — which locks it out of government tenders and many private-sector contracts that require a valid TCC as a condition of doing business.
The practical compliance checklist: confirm every supplier you regularly pay is onboarded to eTIMS (not just registered — actively transmitting); reconcile your accounting system's expense ledger against your eTIMS transaction log monthly rather than at year-end; and where a genuine cost can't be matched to an eTIMS invoice, resolve it with the supplier immediately rather than hoping a manual-expense workaround will still be available next filing season. We run this exact reconciliation for clients on a monthly basis so nothing surfaces as a surprise at filing time.
