Validation of Income and Expenses in the 2025 Income Tax Returns

Overview

KRA has announced enforcement of Tax Procedures (Electronic Tax Invoice) Regulations, 2024:

1. All business income and expenses are now required to be eTims supported for recognition. This means that each expense must bear an eTims invoice.

2. Sales receipts or invoices not issued on eTims platform will be disallowed for income tax computation and return filing purposes.

3. Validation will commence on iTax platform from 2025 accounting period returns.

Detailed Analysis

a) Impacted Taxpayers

This enforcement will apply to all businesses whether or not they are VAT registered, subject to exceptions provided under Section 23A of the Tax Procedures Act and Tax Procedures (Electronic Tax Invoice) Regulations, 2024. These exemptions include:

1. Where a supply is received from a small business or a farmer with a turnover less than Kes 5m, the purchaser to issue tax invoice to ascertain tax liability.

2. Electronic tax invoice may exclude emoluments, imports, investment allowances, interest, air passenger ticketing, payment for expenses subject to withholding tax.

3. A person who, by issue of a Gazette by the Commissioner is exempted from the requirements above.

b) Implication on business

1. Buyers from established businesses may stop buying from small traders who are not registered on eTims.

2. Taxpayers base is likely to grow from small and medium enterprises who will be forced to formalize their business.

3. Businesses will have to modernize their payments and accounting systems.

4. Many small holders may be pushed out of business if they do not adjust to these new tax requirements.

5. Compliance costs will increase in the short-term and therefore exacerbate the cost of doing business.

c) Validation of Expenses

KRA will validate your expenses based on the following sources:

• TIMS/eTIMS Invoices

• Withholding Tax (WHT) Records

• Customs import data

Next steps

Small and medium sized business are strongly encouraged to voluntarily comply with the eTIMS procedures in order to avoid losing their businesses to more compliant competitors. Additionally, Investment will be required in acquisition of modern information technology that is eTims compliant.

You should also reconcile your internal accounting records with KRA’s digital data to resolve any mismatches.

Disclaimer: This update is meant to highlight the recent changes in the statutory and regulatory environment in the Country. It should not be considered as a substitute for professional advice. We advise that you seek professional advice on areas that may be of importance to you.

Prime Welsch Consulting LLP is based in Nairobi, Westlands, Madonna House, 3rd Floor Suite 317 and offers professional services to businesses and organisations including Tax Compliance & Advisory, Transfer Pricing, Cross Border Transaction structuring/re-structuring, Accounting, Company Secretarial, Governance, Human Resource support. A full description of our services is featured on our website www.primewelsch.com.

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