The new financial year is upon us. July 1 also marks another step in how the Kenya Revenue Authority (KRA) is collecting and checking tax information.
For years, KRA has been investing in digital systems such as eTIMS, iTax and electronic rental income services to make tax administration easier and improve compliance. As these systems become more integrated, it is becoming much harder for businesses to understate income, claim unsupported expenses or miss tax obligations without attracting attention.
For business owners, this means one thing: keeping proper records is no longer optional.
First, don’t miss the tax deadline
Before we proceed, have you filed your tax returns yet?
Tomorrow, June 30, is the deadline for filing 2025 Income Tax Returns. So, whether you are employed, self-employed, run a business, earn rental income or are required to file a Nil Return, your returns should be submitted through the iTax system before the deadline.
Failure to file on time can attract penalties, and KRA has indicated that it may issue default assessments using information already available in its systems.
Why businesses should pay attention
One of the biggest changes over the past two years has been the rollout of the Electronic Tax Invoice Management System (eTIMS).
Businesses are now expected to issue electronic tax invoices, allowing KRA to verify sales and expenses more easily. This is part of a wider effort to improve tax compliance while reducing reliance on manual audits. If your records do not match the information available through KRA’s systems, you could be asked to explain the difference.
Many business owners focus on declaring their income but pay less attention to documenting their expenses and that can be costly. Under current tax rules, many business expenses must be supported by valid electronic tax invoices before they can be claimed as allowable deductions.
Imagine you spent KSh800,000 buying stock, packaging materials and other supplies during the year. If only KSh300,000 of those purchases are backed by valid eTIMS invoices, you could struggle to claim the remaining expenses for tax purposes. That means your taxable income could be higher than you expected, leading to a bigger tax bill. This is important especially for businesses that buy goods from informal suppliers who may not yet issue electronic tax invoices.
Are you paying the right tax?
Many SMEs are also paying the wrong type of tax simply because they are unsure where they fall.
Here are some of the key taxes every business owner should understand:
Turnover Tax (TOT)
Businesses with annual gross turnover of more than KSh1 million but not exceeding KSh25 million generally fall under Turnover Tax, charged at 1.5% of gross sales.
Value Added Tax (VAT)
Businesses making taxable supplies with annual turnover above KSh5 million are generally required to register for VAT and file monthly VAT returns.
Significant Economic Presence Tax (SEPT)
If you earn income from certain digital services provided in Kenya, you should understand whether SEPT applies to your business.
Residential Rental Income Tax
Landlords earning residential rental income within the prescribed threshold are required to declare and pay Monthly Rental Income Tax through KRA’s electronic system.
Three things to do today
If you run a business, there are three simple steps you can take.
- First, file your tax returns before tomorrow’s deadline if you have not already done so.
- Second, review your records. Make sure your sales, purchases and expenses are properly documented and supported where required.
- Third, check your suppliers. If they are unable to issue electronic tax invoices where required, understand how that may affect your ability to claim business expenses.
The bottom line
The fact that KRA’s tax systems are becoming more digital and more connected should not mean that businesses should panic, it simply means it is now extremely important to keep but accurate records.
As the new financial year begins, take some time to review your tax records because this could save you far more time and money moving forward.