The Kenya Revenue Authority (KRA) and Safaricom are in preliminary talks for M-Pesa to generate electronic tax invoices on behalf of small merchants paid through tills and paybills. The proposal is best understood against the Finance Act 2026, which makes the electronic Tax Invoice Management System (eTIMS) central to enforcement.
Fiscal context. The FY’2026/27 budget targets a narrower fiscal deficit of 5.5% of GDP, from 6.4%, with total revenue and grants rising by 6.8% to Kshs 3.7 tn. Borrowing remains high at Kshs 1,146.3 bn, and revenue collection reached only 91.1% of the prorated target as at end-May 2026. With rate increases politically costly, the Act leans on compliance to seal revenue leakages.
The eTIMS provisions. The Bill extends the VAT Act’s tax invoice obligation from registered persons to every person (clause 30). A replacement section 86 of the Tax Procedures Act penalises failure to issue an electronic invoice at the higher of twice the tax due and Kshs 100,000, or Kshs 10,000 for individuals (clause 53). The Commissioner may issue assessments from information in the electronic tax system (clause 45) and prepopulate returns (clause 51), while liabilities of up to Kshs 2 mn caused by system errors may be waived (clause 54).
The gap. Expenses unsupported by an eTIMS invoice are not deductible, so large buyers have dropped micro-suppliers that cannot invoice. Businesses with annual sales below Kshs 5 mn fall outside the bulk of corporate tax and VAT registration, yet still carry the invoicing obligation.
Why M-Pesa. Safaricom’s merchants increased by 72.2% to 3.1 mn in FY’2026, comprising 2.1 mn on Pochi la Biashara and 1.0 mn on Lipa na M-Pesa. Merchant revenue rose by 35.7% to Kshs 13.3 bn, implying revenue per merchant fell to about Kshs 4,300 from Kshs 5,400, a broad but thin base. Invoicing at the payment rail captures transactions at source, with end-of-day transmission to KRA, a model already working with supermarkets.
We expect M-Pesa reverse invoicing to widen KRA’s visibility of sub-Kshs 5 mn traders and support supplier inclusion, with compliance gains contributing to the FY’2026/27 revenue target. However, delivery will depend on system integration and on section 86 penalties not falling on traders who cannot invoice. (Start your investment journey today with the cytonn MMF, call+2540709101200 or email sales@cytonn.com)
