M-Pesa & KRA Tax Integration for Small Businesses in Kenya: The Complete 2025–2026 Setup Guide

If you run a small business in Kenya and accept payments via M-Pesa, the tax landscape has changed dramatically — and it is changing again right now.

The Kenya Revenue Authority (KRA) is in the process of linking its tax systems directly to M-Pesa Paybill numbers and Till numbers, meaning that every payment your customer makes via M-Pesa could automatically trigger a tax event. A new invoice gets generated, a Payment Registration Number (PRN) is issued, and your tax obligation is recorded — all in real time, before you even touch the money.

This is not a distant future plan. It is actively being rolled out through KRA's electronic Tax Invoice Management System (eTIMS), and as of 2025, eTIMS is mandatory for every business in Kenya — whether or not you are VAT-registered.

If you have not yet set up eTIMS and linked it to your M-Pesa payment channel, this guide will walk you through exactly what you need to do, step by step.

What Is the M-Pesa–KRA Tax Integration and Why Does It Matter?

KRA is rebuilding the way it collects tax — moving away from the traditional model of end-of-period declarations toward real-time, transaction-based compliance. At the centre of this transformation is eTIMS, tightly integrated with digital payment platforms such as M-Pesa.

Here is what this means in practice: when a customer pays your business via Lipa na M-Pesa (Paybill or Buy Goods Till), the system will automatically generate a tax invoice, issue a Payment Registration Number, and attach a VAT or turnover tax obligation — all before the money settles in your account.

KRA's Commissioner for Micro and Small Taxpayers, George Obell, has confirmed that these reforms are expected to push general tax compliance up by 16 percent. Sales data captured through eTIMS will feed directly into taxpayer accounts, meaning much of your tax return will already be pre-filled by the system.

Important clarification: KRA has publicly confirmed it is not targeting personal M-Pesa transactions such as sending money to family or friends. Only commercial transactions through business payment channels — Paybills and Till numbers — fall within the scope of this integration.

Who Must Comply? (The Answer May Surprise You)

Many small business owners assume eTIMS is only for large companies or VAT-registered businesses. That is no longer true.

Since 1st January 2024, eTIMS has been mandatory for all persons engaged in business in Kenya, including:

  • Sole proprietors and micro-enterprises
  • Traders using M-Pesa Paybill or Till numbers
  • Freelancers, consultants, and professionals
  • Partnerships and limited companies
  • Informal sector businesses with annual turnover below Ksh 5 million (using eTIMS Lite)
  • Anyone earning income other than formal employment

    • Effective October 2025, KRA further reinforced this by making eTIMS compliance a mandatory condition for obtaining a Tax Compliance Certificate (TCC). No eTIMS compliance, no TCC — and no TCC means you cannot bid for tenders, open certain bank accounts, or demonstrate good tax standing.

    The penalties for non-compliance are steep: up to Ksh 1 million or 10% of the tax involved, whichever is higher. Additionally, any business expense you incur that is not backed by an eTIMS-compliant invoice will be non-deductible when filing your returns.

    Understanding eTIMS: What It Is and How It Works

    eTIMS (Electronic Tax Invoice Management System) is KRA's digital invoicing platform. Every time your business makes a sale, the invoice must be generated through or reported to eTIMS, creating a direct, real-time link between your business transactions and KRA's records.

    KRA provides several eTIMS solutions to suit different business sizes and technical capacities:

    1. eTIMS Lite USSD Dial *222# on any phone — no internet, no smartphone required. Best for market traders, mama mbogas, and micro-enterprises.

    2. eTIMS Lite Web Access via eCitizen or the KRA portal on any browser. Simple interface ideal for low-volume businesses.

    3. eTIMS Mobile App (Non-VAT) Available on Google Play Store and Apple App Store as "eTIMS Non VAT." Best for small traders on Android or iOS.

    4. eTIMS Online (Web Portal) Accessed through the KRA portal. Best for businesses with moderate sales volume that file regularly online.

    5. eTIMS API Integration For businesses with accounting software (like QuickBooks, Tally, or custom POS systems). Connects your invoicing system directly to KRA's servers — best for growing businesses.

    Step-by-Step: How to Set Up eTIMS for Your Small Business

    Step 1: Ensure Your KRA PIN Is Active and Verified

    Before anything else:

  • Go to itax.kra.go.ke and log in using your KRA PIN and password
  • Confirm your mobile phone number is authenticated on iTax — KRA requires this for all registered taxpayers
  • Ensure your business details (name, address, type of business) are up to date
  • If your PIN is inactive or your phone number is not verified, update these before proceeding

    • Step 2: Choose Your eTIMS Solution

    Based on your business size and resources, select the solution that fits you best:

  • No smartphone / no internet → eTIMS Lite USSD (*222#)
  • Smartphone, low volume → eTIMS Lite Mobile App or eTIMS Lite Web
  • Moderate volume, web access → eTIMS Online Portal
  • Accounting software / POS system → eTIMS API Integration

    • If in doubt, start with eTIMS Lite — it is designed specifically for small and micro-businesses not registered for VAT and is the simplest to set up.

    Step 3: Register for eTIMS on the KRA Portal

  • Visit etims.kra.go.ke or go through eCitizen → KRA services
  • Click "Sign Up" and enter your KRA PIN
  • An OTP will be sent to your registered mobile number — enter it to proceed
  • Create a secure password for your eTIMS account
  • Complete the registration form with your business details:
  • Business name
  • Business type (sole proprietor, partnership, company)
  • Nature of operations / industry
  • Contact details

    • Step 4: Upload Your Business Documents

    The documents required depend on your business structure:

  • Sole Proprietorship: Copy of your valid Kenyan National ID
  • Partnership: Copy of the Partnership Deed
  • Limited Company: Certificate of Incorporation and CR12 form

    • Ensure all documents are clear, legible, and in PDF or JPEG format. Blurry or incomplete documents are the most common reason for application delays.

    Step 5: Submit and Wait for Approval

  • Review all your details carefully before submitting
  • Click "Submit" to send your application to KRA
  • KRA will review your application — this typically takes a few business days
  • You will receive an SMS and/or email notification once your account is approved

    • Step 6: Install and Configure Your Chosen eTIMS Solution

    Once approved:

  • For eTIMS Lite USSD: dial *222#, select "KRA Services" → "eTIMS" and you are ready
  • For eTIMS Lite Web / Online Portal: log in at etims.kra.go.ke with your credentials
  • For the Mobile App: download "eTIMS Non VAT" from the Play Store or App Store and log in with your eTIMS credentials
  • For API integration: work with a KRA-certified third-party vendor to connect your existing invoicing or POS software

    • Step 7: Link Your M-Pesa Paybill or Till Number

    This is the critical step that connects your M-Pesa payment channel to your eTIMS account:

  • Log in to your eTIMS portal
  • Navigate to "Payment Integration" or "Digital Payment Setup"
  • Enter your M-Pesa Paybill number or Buy Goods Till number
  • Verify ownership of the Paybill/Till by following the on-screen prompts (this may require confirming via Safaricom or your aggregator)
  • Once linked, every M-Pesa payment received through your Paybill/Till will automatically trigger invoice generation in eTIMS
    • If you do not yet have a Paybill or Till number, you can apply for one via Safaricom or through a registered M-Pesa agent. SkillForge Kenya can also assist you with this process — see our services below.

    Step 8: Generate Your First eTIMS Invoice

    To issue an invoice after a sale (via web portal):

  • Log in to your eTIMS or eCitizen–KRA account
  • Click "Sales" → "Invoice" → "Create Invoice"
  • Select the type of sale
  • Enter customer details (name and KRA PIN if available)
  • Add the product or service, quantity, and price
  • Click "Save and Send" — the invoice is instantly transmitted to KRA and a copy is delivered to your customer

    • To generate via USSD (*222#):

  • Select "KRA Services" → "eTIMS" → "Sales Invoice"
  • Enter customer name or PIN
  • Enter product/service name, quantity, and price
  • Confirm to generate the invoice

    • What Happens After Integration: How KRA Sees Your Business

    Once your M-Pesa is linked to eTIMS, here is what changes:

  • Every M-Pesa payment through your Paybill/Till automatically creates a tax record
  • Your tax returns will be partially pre-filled by the system using your eTIMS sales data
  • KRA can see inconsistencies between your M-Pesa receipts and your filed returns in real time
  • Delayed or missing invoices will be flagged immediately — not months later
  • Your annual tax filing becomes significantly simpler because most data is already captured

    • This is both a compliance tool and, ultimately, a time-saving one — once set up correctly.

    Common Mistakes Small Businesses Make (And How to Avoid Them)

  • Assuming eTIMS is only for VAT-registered businesses. It is not. Every business in Kenya must comply, regardless of turnover.
  • Using a personal M-Pesa line for business payments. Personal transactions are not targeted, but mixing personal and business transactions on the same line creates confusion. Use a dedicated business Paybill or Till.
  • Issuing paper receipts only. Paper receipts are no longer sufficient. Every sale must generate an eTIMS-compliant electronic invoice.
  • Delaying registration because the business is "small." KRA's Micro and Small Taxpayers unit has already registered over 511,000 taxpayers and is actively targeting 320,000 more. Small businesses are the priority.
  • Not keeping your KRA PIN phone number authenticated. If your registered number is not verified on iTax, you will not receive OTPs and will be locked out of eTIMS.
  • Trying to edit a submitted invoice. Once an eTIMS invoice is generated and transmitted, it cannot be edited. Issue a credit or debit note to correct any errors.

    • VAT Registration: Do You Now Need to Register?

    KRA is proposing to scrap the Ksh 5 million annual turnover threshold for VAT registration entirely — which would bring every business in Kenya, including small kiosks and freelancers, into the VAT net. Currently, only businesses with turnover above Ksh 5 million must register for VAT.

    Currently, if your annual turnover is below Ksh 5 million, you fall under the Turnover Tax (ToT) regime at a flat rate of 3% of gross sales, and you use eTIMS Lite. If your turnover exceeds Ksh 5 million, you must register for VAT (currently at 16%) and use the full eTIMS system.

    Monitor this space — the threshold change, if passed, would significantly affect informal sector businesses.

    Frequently Asked Questions (FAQ)

    Q: Is eTIMS free to use? Yes. eTIMS is a free software solution provided by KRA. There are no subscription or licensing fees for the basic solutions.

    Q: What if I sell to customers who do not have a KRA PIN? You can still issue an eTIMS invoice. For customers without a KRA PIN, you enter their name and use a generic identifier. The invoice is still transmitted to KRA.

    Q: Will KRA access my personal M-Pesa account? No. KRA has clearly stated it is not interested in peer-to-peer personal transfers. Only commercial transactions through Paybill and Till numbers are within scope.

    Q: What if I operate in a market with no internet access? Use eTIMS Lite USSD by dialing *222#. No internet or smartphone is required.

    Q: Can I appoint someone to set up eTIMS on my behalf? Yes. You can appoint an authorized representative. They will need a letter of introduction signed by you (or company directors), the eTIMS Acknowledgement & Commitment Form, copies of national IDs of directors/owners, and the company's CR12 (for companies). SkillForge Kenya provides this service on your behalf.

    Q: How long does KRA take to approve my eTIMS application? Typically a few business days. If approval takes longer than a week, visit your nearest KRA office or call the KRA Contact Centre.

    Need Help Setting Up eTIMS and M-Pesa Tax Integration?

    Navigating KRA systems is stressful — especially when penalties are involved and the rules keep changing. At SkillForge Kenya, we specialize in helping small businesses get compliant quickly and correctly, without the confusion.

    Our team can help you with:

  • Full eTIMS registration and onboarding on your behalf
  • M-Pesa Paybill or Till number application and setup
  • Linking your M-Pesa to your eTIMS account
  • iTax PIN verification and profile update
  • VAT registration and Turnover Tax setup
  • Monthly tax return filing and compliance management
  • Business registration and KRA PIN application for new businesses

    • Stop guessing — let us handle the compliance so you can focus on growing your business.

    👉 Visit SkillForge.co.ke to explore our tax compliance services 📞 Reach our team today for fast, reliable assistance.

    Final Thoughts

    The M-Pesa–KRA tax integration is not optional, and it is not going away. KRA is actively closing the gap between what businesses earn and what they declare — using real-time data from M-Pesa transactions, eTIMS invoices, and advanced analytics.

    The good news is that setting up eTIMS is genuinely simple — especially for small businesses using eTIMS Lite. The USSD option (*222#) requires no internet and no smartphone. Even the smallest trader at a roadside stall can comply.

    The businesses that will struggle are those that delay, assume they are too small to matter, or wait until KRA sends a compliance notice. Do not be in that group.

    Take 30 minutes today, register on etims.kra.go.ke or dial *222#, and get your business on the right side of Kenya's new tax reality. If you need a hand, SkillForge Kenya is here to help.

    Last updated: May 2026 | Source references: KRA (kra.go.ke), eTIMS Taxpayer Portal (etims.kra.go.ke), The Star Kenya, TechTrendsKE, Social Health Insurance Act 2023