Finance Act, 2026: What the eTIMS Changes Mean for Your Business
A closer look at the Finance Act, 2026 — and what it asks of businesses operating on eTIMS.
The Finance Act, 2026 was assented to on 23 June 2026, with most provisions having taken effect from 1 July 2026. For businesses already navigating eTIMS compliance, this year’s amendments bring a mix of relief and new obligations — and a few practical realities worth understanding before they show up in your next filing.
Here is what has changed, and what it means for how you operate.
1. KRA Can Now Prepopulate Your Tax Return
Perhaps the most significant shift: KRA now has the legal authority to generate prepopulated tax returns on your behalf, using data captured largely through eTIMS.
Here’s how the timeline works:
KRA must notify you of a prepopulated return by the end of January each year of income
You then have two months from that notification to review and amend the return if needed
What this means in practice: the accuracy of your eTIMS records now has a direct, automated line to your tax return. Invoices you issue (or fail to issue) through eTIMS are no longer just a compliance checkbox — they’re becoming the raw material KRA uses to calculate what you owe, before you’ve even filed.
One open question the Act doesn’t fully answer: how disputes or corrections during that two-month window will actually be processed. Businesses would do well to treat eTIMS data hygiene as a year-round discipline, not a pre-filing scramble.
2. The Penalty Regime Has Been Restructured — And It’s More Reasonable
This is genuinely good news for compliant businesses that occasionally stumble.
Under the old regime, non-compliance with the electronic tax system carried a flat penalty of twice the tax due — no notice required, no consideration of circumstances. It was a blunt instrument.
The Finance Act, 2026 changes this meaningfully:
KRA must now issue a written notice before penalizing
KRA must consider whether the failure arose from circumstances beyond your reasonable control, and whether you took reasonable steps to comply
If KRA is not satisfied with your explanation, the penalty is now the higher of: 5% of the tax due, KES 100,000 for corporates, or KES 10,000 for individuals
For a business with a large tax liability, this is a substantial reduction in exposure — previously as much as 200% of tax due, now capped at a much more proportionate figure. It also introduces something the old regime lacked entirely: due process. You now have the right to be heard before being penalized.
3. System Malfunctions Are Now a Standalone Ground for Waiver
Previously, if your eTIMS system malfunctioned, that alone wasn’t enough to get penalties waived — you had to show the malfunction caused a duplication of invoices or records.
That requirement is gone. A malfunction is now sufficient on its own. KRA can waive penalties or interest of up to KES 2 million arising from an electronic tax system error, without escalating the matter to the Cabinet Secretary.
This is a meaningful practical win. System errors — connectivity issues, integration failures, downtime — are a real and recurring feature of doing business on eTIMS. Businesses should keep clear records (error logs, screenshots, support tickets) whenever a malfunction occurs, since demonstrating the malfunction itself is now the bar, not proving downstream damage.
Other Amendments Worth Knowing
A few additional changes, while not eTIMS-specific, will affect how businesses plan and file:
Tax amnesty extended (again): The section 37E amnesty now covers principal taxes outstanding up to 31 December 2025 (up from 2023), with payment deadline extended to 31 December 2026. If you have legacy tax exposure, this is a window worth using.
Individual filing deadline moves earlier: From June to April of the following year, effective 1 January 2027. Build this into your planning now rather than later.
Withholding tax exposure increases: The Finance Act, 2025 protection — where a payer wasn’t liable for principal tax if the recipient had already accounted for it — has been removed. Withholding agents are now liable to deduct regardless, which raises real double-taxation risk. This is worth flagging to your finance team specifically.
Bad debt deductions clarified for financial institutions: Banks, microfinance institutions, and CBK-licensed entities can now deduct principal, accrued interest, and other amounts forming part of a written-off debt — not just the principal.
VAT exemption on collateral disposal: Advances, credit, and the disposal of repossessed assets or collateral tied to exempt financial services are now VAT-exempt, closing a long-standing area of double-taxation risk for banks and insurers.
Betting excise duty widens: The excise duty now applies to amounts deposited for betting, with an expanded definition of “amount deposited,” and the horse racing exemption has been deleted — horse racing bets now attract 5% excise duty.
PIN reinstatement after deregistration: A previously deregistered taxpayer who requalifies for registration must apply for reinstatement, and KRA will reissue the same PIN rather than a new one — preserving compliance history.
The Bigger Picture
Taken together, these amendments reflect a tax authority leaning more heavily on eTIMS as its primary data source, while — somewhat unusually — also building in more fairness and due process around enforcement. For businesses, the practical takeaway is this: the quality and consistency of your eTIMS invoicing now matters more than ever, because it’s increasingly the basis on which your tax position is calculated, not just verified.
Staying ahead of these changes means treating eTIMS compliance as an operational priority, not an afterthought at filing time.
DigiTax is a KRA-accredited eTIMS integrator supporting compliant e-invoicing and tax automation across Kenya, Zambia, Nigeria, and the UAE.