June 2026 is a pivotal month for Kenyan business compliance. The Kenya Revenue Authority has ramped up enforcement of the Electronic Tax Invoice Management System (eTIMS), the National Social Security Fund continues its phased implementation of the revised 2013 Act contribution rates, and the Business Registration Service has tightened renewal penalties for companies that missed their annual return deadlines. Add to that the post-Budget 2026/27 transition on VAT rates and excise duties, and business owners have a full compliance agenda to work through before the end of the month.

This update covers each of these areas in practical detail, with the specific deadlines, penalty figures, and action steps your business needs. If any of these obligations are unclear or you have fallen behind, the time to act is now.

eTIMS Enforcement: KRA Is No Longer Issuing Warnings

The Kenya Revenue Authority’s grace period for eTIMS onboarding effectively ended in March 2026. Since April 2026, KRA field officers have been conducting unannounced visits to VAT-registered traders across Nairobi, Mombasa, Nakuru, and Kisumu to verify that businesses are issuing tax invoices exclusively through the approved eTIMS channels. Businesses found issuing manual invoices or operating disconnected point-of-sale systems now face immediate penalties.

Current Penalty Structure for Non-Compliant Traders

Under Section 84 of the Tax Procedures Act, 2015, failure to maintain proper records — which now explicitly includes eTIMS-generated invoices — attracts a penalty of KSh 200,000 or twice the tax due, whichever is higher. For repeat offenders, KRA has demonstrated willingness to apply the higher threshold, meaning businesses with large invoice volumes could face penalties running into the millions of shillings. Criminal prosecution under Section 97 of the TPA is also possible for deliberate non-compliance.

Beyond formal penalties, businesses that cannot produce eTIMS records during a KRA audit face automatic disallowance of input VAT claims for the periods in question. This means you could lose the right to offset VAT you have already paid on purchases, dramatically increasing your effective tax cost. Many businesses do not appreciate this downstream risk when they delay eTIMS adoption.

Which Businesses Must Be on eTIMS Right Now

All VAT-registered taxpayers are required to be on eTIMS without exception. In addition, KRA issued a Public Notice in February 2026 extending the requirement to non-VAT-registered businesses with annual turnover above KSh 500,000, with an onboarding deadline of 30 June 2026. This catches a significant number of small traders and service providers who may have assumed eTIMS was only for VAT registrants. If your business falls in this bracket and you have not yet onboarded, you have until the end of this month.

VAT Rate Changes Post-Budget 2026/27: What Applies From When

The Finance Bill 2026, introduced alongside the Budget Statement on 11 June 2026, proposes several VAT schedule amendments that will come into effect upon enactment of the Finance Act 2026, expected in late July or August 2026. However, businesses should begin preparing their systems now so transitions are seamless on the effective date.

The key VAT changes include the re-classification of several previously exempt supplies to zero-rated status, which will allow businesses in the agricultural inputs, medical equipment, and electric mobility sectors to reclaim input VAT previously stranded. The standard rate of 16% remains unchanged. Businesses in affected sectors should update their chart of accounts, accounting software, and invoicing templates before the Finance Act is signed into law, not after.

  • Agricultural inputs zero-rating: Fertilisers, certified seeds, and certain animal feeds previously exempt are proposed for zero-rating, allowing input VAT recovery for agri-business operators that was not previously possible.
  • Medical equipment reclassification: Specific diagnostic and surgical equipment previously subject to the standard 16% rate is proposed for zero-rating, reducing the cost base for private hospitals and clinics.
  • Electric vehicle charging equipment: EV charging stations and associated infrastructure are proposed for zero-rating to support Kenya’s green economy agenda, effective from Finance Act commencement.
  • Digital content creators: Supplies of digital content by non-resident providers remain subject to VAT at 16%, with KRA’s simplified digital service tax registration portal now mandatory for all qualifying non-resident platforms.
  • Petroleum products excise duty adjustment: Excise duty on petroleum products is proposed for a 5% uplift effective 1 October 2026, giving businesses in logistics and manufacturing a window to review fuel cost pass-through provisions in contracts.

Revised NSSF Contributions: The Court Ruling and What It Means

The protracted legal dispute over NSSF contributions under the NSSF Act 2013 reached a significant milestone in early 2026 when the Court of Appeal upheld the constitutionality of the revised contribution rates. For employers and employees, this means the higher Tier I and Tier II contributions prescribed under the 2013 Act are now enforceable, and KRA has begun integrating NSSF contribution reconciliation into its PAYE compliance checks on the iTax portal.

Understanding the Tier Structure

Under the NSSF Act 2013, contributions are split into two tiers. Tier I contributions apply on earnings up to the lower earnings limit (LEL), currently set at KSh 6,000 per month, at a rate of 6% each from employer and employee, giving a combined monthly contribution of KSh 720 per employee at the LEL. Tier II contributions apply on earnings between the LEL and the upper earnings limit (UEL), currently KSh 18,000, also at 6% each, yielding a maximum combined Tier II contribution of KSh 1,440 per month per employee at the UEL.

For an employee earning KSh 50,000 per month, the total combined NSSF contribution is therefore KSh 2,160 per month (employer KSh 1,080 + employee KSh 1,080), compared to the previous flat KSh 400 combined under the old 1965 Act structure. Payroll software that has not been updated to reflect these rates is producing incorrect payslips and under-remitting to NSSF — an exposure that will surface during the enhanced KRA-NSSF data-matching exercise now underway.

Deadline for Retrospective Arrears

NSSF has signalled that employers who have been under-remitting since the Court of Appeal ruling in early 2026 will be required to settle arrears by 31 August 2026. While formal circulars are still pending, employers should begin computing the difference between old and new contribution rates for each employee and provisioning the liability in their accounts now. Penalties for late NSSF remittance are 5% per month on the outstanding balance under Section 49 of the NSSF Act 2013.

Annual Returns and Business Name Renewals: June Deadline

Companies incorporated under the Companies Act 2015 are required to file Annual Returns with the Business Registration Service (BRS) within 42 days of their anniversary of incorporation. The BRS has been sending SMS and email reminders, but a significant backlog of companies with returns due between January and June 2026 remain unfiled as of mid-June. The penalty for late filing is KSh 5,000 for the first month of default and KSh 2,500 for each subsequent month, per the Companies Act 2015 Third Schedule.

Business names registered under the Business Registration Act require annual renewal by payment of the prescribed fee. From 1 July 2026, BRS has confirmed it will begin striking off business names that have not been renewed for two consecutive years. If your business name is struck off, you lose the legal right to trade under that name, and competitors can register it. The BRS eCitizen portal allows both company annual returns and business name renewals to be completed online in under 20 minutes.

Corporate Tax Installment Payments: December Year-End Companies

For companies with a 31 December financial year-end — the most common year-end for Kenyan companies — the fourth installment of corporation tax for the 2025 tax year was due on 20 June 2026. If you missed this deadline, interest on the outstanding balance accrues at 1% per month from the due date under Section 72 of the Income Tax Act. Additionally, if total installments paid are less than the tax payable, the shortfall attracts a 20% penalty under Section 72B.

Companies whose 2025 annual accounts are not yet finalised should work with their accountants urgently to prepare management accounts sufficient to estimate the 2025 tax liability and make a protective payment before the balance of tax due date of 30 June 2026 for December year-end companies. Paying an estimated balance now eliminates the 20% penalty exposure even if the final figure changes when the return is filed in June 2026.

Employment Income and Housing Levy: Common Mistakes Businesses Make

The Affordable Housing Levy, introduced under the Affordable Housing Act 2024 at 1.5% of gross salary (employer) and 1.5% (employee), has generated significant compliance confusion, particularly around which payments are subject to the levy. Based on KRA enquiries and client queries received at Avatechtax, the following mistakes are occurring with high frequency:

  • Applying the levy to non-employment income: The Housing Levy applies to employment income as defined in the Income Tax Act. Directors’ fees, consultancy payments, and freelance contractor fees are not subject to the levy, but several payroll systems are incorrectly including them in the levy base.
  • Double-counting gross pay: Some employers are applying the 1.5% levy to gross pay before deducting PAYE-exempt allowances such as the KSh 2,000 transport allowance. The levy applies to total gross remuneration without allowance exclusions — the opposite of PAYE calculation logic — causing many payroll operators to miscalculate.
  • Late remittance penalties: The levy must be remitted to KRA by the 9th of the following month, the same deadline as PAYE. Businesses that are combining it with PAYE remittances but crediting the wrong tax head in iTax are generating phantom arrears on the Housing Levy account.
  • Missing the employer matching obligation: The employer’s 1.5% contribution is a separate cost to the business and is not deductible from the employee’s salary. Several SMEs have been deducting both the employee and employer portions from employee pay, which is unlawful.
  • Failure to register on the Housing Levy portal: Employers must register separately for Housing Levy on the KRA iTax portal under the “Housing Levy” obligation head. Simply paying PAYE does not cover the levy; a separate registration and return filing is required.

Transfer Pricing Documentation: The June 30 Deadline for MNEs

Multinational enterprises (MNEs) with Kenya operations that had financial years ending 31 December 2025 are required to have their transfer pricing documentation in place by 30 June 2026. The Income Tax (Transfer Pricing) Rules 2006, as amended, require that the Master File, Local File, and (where applicable) Country-by-Country Report are prepared contemporaneously with the filing of the tax return. The CbCR must be filed with KRA by 31 December 2026 for the 2025 year, but the Local File and Master File must be ready by the return filing deadline — which is 30 June 2026 for December year-ends.

KRA’s Transfer Pricing Unit has significantly increased its capacity over the past 18 months and is now issuing formal information notices requesting TP documentation as a standard part of desk audits for taxpayers with related-party transactions above KSh 100 million. Failure to produce documentation on request attracts a penalty of KSh 1 million plus 10% of any adjustment made, under the Tax Procedures Act. If your group has not yet engaged a transfer pricing adviser for the 2025 documentation cycle, you are already behind schedule.

What Your Business Should Do Now

  1. Verify your eTIMS status on the KRA iTax portal by logging in, navigating to the eTIMS menu, and confirming that your device or VSCU is active and transmitting invoice data in real time — do this before 30 June 2026 if you are a non-VAT-registered trader with turnover above KSh 500,000.
  2. Update your payroll software to reflect the new NSSF Tier I and Tier II contribution rates, compute retrospective arrears back to the Court of Appeal ruling date, and begin setting aside provisions for the 31 August 2026 settlement deadline.
  3. Check your company’s annual return status on the BRS eCitizen portal at ecitizen.go.ke, file any outstanding returns for 2025 or 2026, and renew any business names that are due — to avoid the July 2026 striking-off exercise.
  4. Reconcile your Housing Levy account on iTax to confirm that both the employer and employee portions have been credited to the correct obligation head, and that no phantom arrears have accumulated from misposted payments.
  5. Make a protective corporate tax payment for any balance of 2025 tax remaining unpaid by 30 June 2026, even if based on a management accounts estimate, to cut off the 20% penalty exposure under Section 72B of the Income Tax Act.
  6. Brief your finance team on the proposed Finance Bill 2026 VAT changes so that system updates, invoice template revisions, and contract reviews are underway before the Finance Act 2026 comes into force — likely in August 2026.
  7. Ensure transfer pricing documentation is finalised by 30 June 2026 if your business has related-party transactions, covering both the Master File and Local File for the 2025 financial year, in preparation for potential KRA requests.

Staying ahead of compliance obligations protects your business from penalties that compound quickly and from audits that consume management time. The Avatechtax team is available for a free initial consultation to help you assess your current compliance position and prioritise the actions that matter most this month.

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