eTIMS And The New Cost of Doing Business in Kenya

For many years, taxation in Kenya was treated as a back-office exercise. Businesses focused on selling, delivering, and surviving, while tax matters were something to be “sorted by the accountant” at month-end or year-end. That mental separation between operations and taxation has now collapsed.

The introduction of eTIMS did not merely digitize invoicing; it fundamentally rewired how businesses are expected to operate in real time.

What many SMEs are still struggling to accept is that eTIMS is not an accounting system. It is a regulatory lens through which the Kenya Revenue Authority now observes the entire business ecosystem as it functions daily. Every supplier you engage, every payment method you use, and every operational shortcut you take now has tax consequences that are immediate and traceable.

The early messaging around eTIMS focused heavily on invoices, devices, and software. That framing unintentionally misled many business owners into believing compliance was a narrow technical problem. In practice, eTIMS has turned out to be a structural intervention into how money moves across the economy, especially within the SME sector.

In tax clinics, SME workshops, and advisory engagements across the country, a recurring phrase keeps emerging: “It is not possible to have all expenditure on eTIMS.” This statement is not born out of defiance. It is born out of a collision between long-standing informal business practices and a formal tax regime that no longer accommodates them.

For decades, Kenyan SMEs have survived through informal procurement, cash payments, personal relationships, and flexibility. These systems evolved because they were cheaper, faster, and often the only available option. eTIMS has now declared, without apology, that such systems are incompatible with the current tax framework.

Read Also: Paying Tax on Money You Never Made: The eTIMS Rule That Could Break Small Businesses in Kenya If Civic Education Is Not Done Now

The uncomfortable truth is that most non-compliance today is not deliberate tax evasion. It is structural non-alignment. Businesses are still operating models designed for a cash-heavy, informal economy while being assessed under a fully digitized, traceable, formal tax regime.

This is where the real risk lies. Under eTIMS, expenses are no longer judged primarily on whether they were incurred, but on whether they can survive verification. If an expense cannot be linked to a compliant supplier, a compliant payment trail, and a compliant invoice, it becomes vulnerable to disallowance.

That shift changes everything. A business can be profitable on paper and still end up with a punitive tax assessment simply because its cost structure cannot be validated within the eTIMS ecosystem. Many SMEs are discovering this reality too late, during audits, objections, and assessments.

At the center of this crisis is how SMEs pay for things. Cash payments, informal transfers, and undocumented services were once normal.

Today, they are liabilities. Not because the services were not rendered, but because the system no longer recognizes undocumented economic activity as legitimate for tax purposes.

The way forward is not fear or resistance. It is deliberate restructuring. SMEs must begin to understand that tax planning under eTIMS starts before money is spent, not after returns are filed. This is what the pre-validation era truly means.

Procurement is the first battlefield. The temptation to buy from cheaper informal suppliers remains strong, especially in a tough economy. However, the small savings made today can translate into massive losses when expenses are disallowed tomorrow. Under eTIMS, a cheaper plug can become the most expensive decision a business makes.

Supplier vetting is no longer optional. SMEs must actively confirm that their suppliers are eTIMS compliant, capable of issuing valid invoices, and aligned with formal tax reporting. This requires discipline and, in some cases, the courage to walk away from long-standing informal relationships.

Labour is the second pressure point. Casual workers, technicians, cleaners, plumbers, and repair personnel have historically been paid in cash without contracts or documentation. While this may feel practical, it creates a black hole in the expense ledger under eTIMS.

The solution is not to stop using such services, but to formalize engagement. This can be done through structured short-term contracts, working with registered service providers, or ensuring that individuals are tax-registered and able to issue compliant documentation. Informality may feel cheaper, but it is increasingly unaffordable.

Communication costs offer another clear example of how daily habits must change. Buying airtime and bundles casually through M-PESA leaves no compliant invoice trail. Registering for postpaid business lines converts a chaotic series of micro-payments into a single, verifiable monthly expense that survives audit scrutiny.

Transport and staff movement tell the same story. Paying for random rides on demand, especially in cash or informal arrangements, creates expenses that cannot be defended later. Corporate transport accounts that provide consolidated monthly invoices turn operational convenience into tax compliance.

Deliveries and logistics expose perhaps the sharpest divide between old habits and new requirements. The boda boda economy is efficient and deeply embedded in SME operations, yet many riders operate informally. Under eTIMS, this efficiency becomes a compliance risk unless riders or courier partners are registered and capable of issuing compliant invoices.

The emerging rule is simple but harsh: if a service provider wants your business, they must formalize. The burden of compliance has shifted along the supply chain. Your suppliers now have the power to either protect or destroy your tax position.

This is why eTIMS has transformed taxation into a supply-chain problem. A business may do everything right internally and still fail if its ecosystem remains informal. Accounts can no longer save a non-compliant business model.

For SMEs, this demands a mindset shift. Tax compliance is no longer something you outsource entirely to an accountant. It is an operational strategy that touches procurement, HR, logistics, communications, and payments.

Those who restructure early gain multiple advantages. They protect their deductions, reduce audit exposure, improve internal financial discipline, and gain credibility with financiers and regulators. In an environment where access to credit increasingly depends on clean books, this credibility has real economic value.

Those who resist restructuring often fall back on the argument that compliance is impossible. This argument may win sympathy in workshops, but it fails catastrophically during audits. Assessments do not negotiate with sentiment; they follow systems.

There is also a broader economic lesson emerging. eTIMS is pushing Kenya toward a more formalized economy, whether businesses like it or not. SMEs that adapt will survive and scale. Those that cling to informality will find themselves trapped in perpetual disputes, penalties, and cash-flow stress.

For taxpayers, the way forward is clarity, not panic. Understand that eTIMS has moved taxation from what you report later to what your business does in real time. Every operational decision is now a tax decision.

This reality calls for education, not intimidation. SMEs need structured training, clear guidance, and transitional support to realign their business models. Fear-driven compliance only produces avoidance and errors.

Policy makers, on their part, must recognize that compliance costs are real. Simplifying registration, reducing friction for small suppliers, and supporting formalization across the value chain will determine whether eTIMS strengthens or suffocates the SME sector.

For now, the message to taxpayers is unavoidable. Your suppliers matter. How you pay matters. Your business model matters more than your accountant. If your supply chain is not compliant, your accounts will not save you.

eTIMS has not killed SMEs. It has exposed the fragility of informal business models in a formal tax system. The choice ahead is not whether to comply, but whether to restructure deliberately or be forced to do so painfully.

The future belongs to businesses that accept this shift early, redesign their operations with intention, and treat tax compliance not as a punishment, but as part of sustainable growth in Kenya’s evolving economy.

Read Also: How eTims Compliance Will Turn Government Failure Into A Weapon Against Kenyans