Until this year, eTIMS enforcement leaned on disallowed expenses and general penalties. The Finance Act 2026 changes that: from 1 July 2026, failing to comply with electronic tax invoicing or electronic filing attracts a specific penalty — the higher of 5% of the tax due or KES 100,000 for a company (KES 10,000 for an individual).
What attracts the penalty
The penalty targets failures around KRA's electronic systems: not issuing electronic tax invoices through eTIMS, and not filing returns or documents electronically as required. Note the floor — for a company, even a small slip carries a minimum of KES 100,000. A restaurant that forgets to transmit a week of invoices and a distributor with a broken integration face the same starting point.
The "satisfactory explanation" door
The penalty is applied where the taxpayer cannot give a satisfactory explanation for the failure. That makes your paper trail the whole game. If invoices failed to transmit because of a power cut, an internet outage or an eTIMS glitch, record it the same day: screenshots, error messages, reference numbers, dates and times.
The Act allows KRA to waive penalties and interest of up to KES 2 million where the cause was a malfunction of an electronic tax system. That relief is only reachable if you documented the outage when it happened — not six months later at an audit.
Why hiding is no longer an option
The same Act lets the Commissioner issue prepopulated returns built from data KRA already holds. Every eTIMS invoice your customers and suppliers transmit paints a picture of your business. If your declared sales do not reconcile with what the system has seen, the mismatch itself is the audit trigger — the penalty is just the invoice that follows.
Staying clear of it: a working checklist
- Transmission, not generation. Confirm invoices are reaching KRA — an invoice sitting in an offline queue does not exist as far as eTIMS is concerned.
- Reconcile monthly. eTIMS sales vs your VAT return vs your books. Any gap you find first is a gap KRA cannot surprise you with.
- Train every person who invoices. One untrained relief cashier can create a month of gaps.
- Log every outage. A shared folder of dated screenshots is the cheapest insurance you will ever buy.
- Fix integrations properly. If your POS or accounting system feeds eTIMS, test it after every update.
If you have not yet onboarded onto eTIMS at all, start with our earlier guide — eTIMS in 2026: what every Kenyan business must know — because the deduction rules there still apply on top of this new penalty.
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