No eTIMS, No Project: How KRA's New Tax Rules Are Threatening Kenya's Construction Sites

Kenya’s construction sector is navigating a period of intense operational strain as the Kenya Revenue Authority (KRA) enforces the Electronic Tax Invoice Management System (eTIMS) for income tax returns. The shift to real-time, automated tax validation means that every shilling spent on materials, transport, or wages must now be backed by digital documentation. For many contractors, this requirement has turned routine business costs into significant tax liabilities.

The crisis stems from the KRA’s move to cross-check declared expenses against digital records in seconds. Starting with the 2025 financial year filings, the system automatically flags and disallows any expense that lacks a matching eTIMS-transmitted invoice. This includes traditional cash purchases of sand from riverbeds, stones from small-scale quarries, and timber from roadside yards. Because these informal suppliers often operate without smartphones or internet access, they cannot provide the electronic receipts required to make the purchase tax-deductible.

Former KICC Chairperson Irungu Nyakera has publicly challenged this enforcement strategy, describing it as an aggressive campaign that risks paralyzing the private sector. Nyakera has pointed to instances where unexplained bank deposits were flagged and accounts frozen with a minimal window for clarification. He noted that such measures are particularly damaging to the construction industry, where the informal economy provides the bulk of raw materials and daily labour.

The financial implications for builders are immediate. A contractor who spends KSh 3 million on materials from unregistered vendors will now find that entire amount added back to their taxable income. This creates a situation where companies owe hundreds of thousands in additional tax despite having already spent the funds on project execution. Consequently, developers have started sidelining contractors who cannot prove full digital compliance, while some suppliers are raising prices to cover their own increased administrative costs.

Casual labour presents an even greater hurdle. The industry relies heavily on fundis, masons, and carpenters who are typically paid in cash. The KRA is now comparing declared wage bills against mobile money transactions and bank inflows. Any mismatch between a company’s payroll claims and the digital footprint of those payments can trigger an investigation. In several cases, account freezes have led to sites being abandoned mid-construction because workers remained unpaid and suppliers refused to deliver without cleared funds.

Industry analysts suggest that the era of delaying paperwork is over. To survive, contractors are being forced to verify the registration status of every vendor through KRA portals before making a payment. Some are adopting the eTIMS Lite tool designed for small-scale businesses, while others are shifting to traceable payment methods like bank transfers or M-Pesa to maintain a digital trail.

Failure to adapt is no longer just a matter of fines. With the tax man moving toward a system where manual overrides are nearly impossible, non-compliant firms face the very real prospect of being locked out of the industry as their working capital is swallowed by backdated tax demands and penalties.