eTIMS Penalties in Kenya: Current Law and Tax Effects (2026)
Short answer: Under the current Tax Procedures Act, a taxpayer who fails to comply with an electronic tax system first receives a notice requesting reasons. If those reasons do not satisfy the Commissioner, section 86 states a penalty of two times the tax due. Separately, Income Tax Act section 16 can deny a deduction where the transaction invoice was not generated through an electronic tax invoice management system, subject to statutory exclusions and exemptions.
The Current General Electronic-System Penalty
Section 86 of the current Tax Procedures Act covers failure to issue an electronic tax invoice, submit an electronic return, or pay tax electronically where a tax law requires it. The process begins with a written notice asking for the reasons for non-compliance.
If the reasons do not satisfy the Commissioner, the stated penalty is two times the tax due. The amount therefore depends on the tax due in the relevant case; it is not accurately described as a universal fixed KES 1 million eTIMS fine.
Income-Tax Deduction Effect
Income Tax Act section 16 states that a deduction is not allowed for expenditure or loss where the transaction invoice was not generated from an electronic tax invoice management system, except where the transaction is exempted under the Tax Procedures Act.
That rule concerns whether an expense is deductible when taxable income is calculated. It should not be rewritten as a flat 30% charge: the actual tax effect depends on the taxpayer, the expense, the applicable rate and whether an exclusion or exemption applies.
Important Exclusions and Exemptions
- ✓The 2024 Electronic Tax Invoice Regulations list excluded transactions, including emoluments, imports, airline passenger ticketing, interest and certain financial-institution fees.
- ✓The regulations also cover specified non-resident services, final-withholding-tax expenses and other exclusions provided under section 23A.
- ✓The Commissioner may grant or revoke exemptions in the circumstances set out in the regulations.
- ✓A buyer-initiated invoice may apply to qualifying small-supplier transactions under current KRA guidance.
Practical note: Check the current consolidated legislation and KRA guidance for the exact transaction. A headline cannot determine whether an exclusion applies.
Why You May Still See KES 1 Million or Three Years Online
Older KRA material about the VAT (Electronic Tax Invoice) Regulations cited the VAT Act offence provision: a fine not exceeding KES 1 million, imprisonment not exceeding three years, or both. That material addressed the older VAT electronic-invoice regime.
It should not be presented as the current universal consequence for every eTIMS failure by every business. The current general electronic-system rule should be quoted from the current Tax Procedures Act, with the facts of the case reviewed separately.
What to Do After an eTIMS Compliance Notice
- ✓Read the notice, legal provision, period and response deadline carefully.
- ✓Preserve invoices, KRA responses, outage records, payment evidence and correction attempts.
- ✓Reconcile accepted, pending, failed and duplicated submissions before creating replacement invoices.
- ✓Explain the facts accurately and obtain qualified tax advice where the amount or legal interpretation is material.
- ✓Correct the underlying invoicing or return process instead of relying only on a written response.
Official KRA Sources
Frequently Asked Questions
What is the current general penalty for failing to use an electronic tax system?
Section 86 of the current Tax Procedures Act provides for a notice requesting reasons and, where the reasons do not satisfy the Commissioner, a penalty of two times the tax due.
Is every eTIMS failure automatically fined KES 1 million?
No. That is not how the current general rule in Tax Procedures Act section 86 is written. Older VAT electronic-invoice material is often quoted without its original scope.
Are expenses without an eTIMS invoice always deductible?
Income Tax Act section 16 generally denies the deduction where the invoice was not generated through an electronic tax invoice system, but statutory exclusions and exemptions must be checked.
Does a failed transmission always mean non-compliance?
Not by itself. Preserve the error and retry evidence, reconcile whether KRA accepted the invoice, and follow the applicable correction or support process.
Last reviewed: July 2026. This guide summarizes current public KRA information and is not tax or legal advice. Confirm unusual cases with KRA or a qualified tax professional.