Recent rulings provide important guidance on loan losses, VAT compliance, tax enforcement procedures and taxpayer rights.
This article is based on insights provided by Alex Mathini, Andrew Oduor and Samuel Githanda (Partners), David King’ori (Senior Tax Advisor), and Polycarp Okumu (Associate), Bowmans Kenya, on recent tax decisions issued by Kenyan courts and the Tax Appeals Tribunal.
Kenya Tax Case Updates. Kenya’s tax landscape continues to evolve as courts and tax tribunals deliver important rulings that could significantly influence how businesses, financial institutions, NGOs and taxpayers manage their tax affairs.
Recent decisions from the High Court and the Tax Appeals Tribunal have addressed several key areas of tax administration, including the deductibility of bad debts, the limits of tax enforcement powers, capital gains tax disputes and VAT registration requirements.
The developments provide greater clarity on taxpayer rights while also highlighting areas where businesses may face increased scrutiny from the Kenya Revenue Authority (KRA).
Key Themes Emerging from Recent Tax Decisions
According to Bowmans Kenya, recent tax decisions have focused on several important issues, including:
- Whether loan defaults qualify as deductible bad debts;
- The circumstances under which KRA may issue agency notices to recover taxes;
- The legal effect of judicial decisions in tax disputes; and
- Whether KRA can retrospectively impose VAT obligations on taxpayers who were not properly registered.
These rulings are expected to influence future tax assessments, compliance strategies and dispute resolution processes across Kenya.
Court Confirms Loan Principal Can Qualify as Deductible Bad Debt
Branch International Limited, a digital micro-lender, was issued with KRA assessments for the 2018 year of income disallowing approximately KES 881 million in deductions, covering fraud-related losses, related-party expenses, legal and marketing costs, and bad debts.
Upon appeal, the Tribunal dismissed the assessment relating to legal, marketing, and bad debt deductions but upheld the assessment on fraud-related and related-party expenses.
Both the KRA and Branch International appealed to the High Court. The High Court upheld the decision of the Tribunal and made two key determinations regarding bad debts. First, it held that loans constitute ‘stock-in-trade’. In this regard, non-recovery of these loans (including the principal amount) qualifies as a revenue loss incurred in the production of income, which is deductible under Section 15 of the Income Tax Act, provided only one of the deductibility criteria set out in Income Tax Act Guidelines on
Allowability of Bad Debts is satisfied, namely:
• loss of the legal right to recover the debt through a court order; absence of realisable security;
• insolvency or bankruptcy of the debtor;
• recovery costs exceeding the debt; or
• abandonment of collection efforts for another reasonable cause.
Second, the Court clarified that for a loan to be deductible, the loanee only needs to demonstrate that
reasonable steps had been taken to recover the loan.
The High Court decision aligns with the reasoning in TAT E1253/2024: Fourth Generation Capital Limited vs Commissioner for Domestic Taxes, where the Tribunal held that principal loan amount treated as inventory or stock-in-trade in the lending business, may be deductible if the conditions under Legal Notice No. 37 of 2011 are met.
However, where the principal loan amount is accounted for as a financial asset, it is regarded as capital in nature and therefore not deductible as a bad debt, as was held in TAT No. E1149 of 2024: Premier Credit Limited vs Commissioner of Domestic Taxes.
SEE ALSO: Landmark Appeal Decision Provides Clarity for Shipping and Logistics Industry
JR Application No. E022 of 2026: Katahira & Engineers International Limited v Kenya Revenue Authority
Following a successful appeal before the Tribunal, which set aside KRA’s VAT assessments, Katahira & Engineers International Limited (Katahira) was subsequently subjected to fresh enforcement action by the KRA.
In December 2025, KRA issued agency notices to Katahira’s bankers, NCBA Bank and Stanbic Bank, demanding approximately KES 139 million from its accounts. Katahira then filed a judicial review application before the High Court to challenge and halt the enforcement action.
The High Court found KRA’s conduct to be procedurally unlawful. It held that under Section 42 of the Tax Procedures Act, agency enforcement is a measure of last resort, and is only available where tax is unpaid or there is reasonable cause to believe it will not be paid.
KRA is required to first issue a written demand to the taxpayer, provide an opportunity to settle or dispute the liability, and only proceed with enforcement upon failure to do so. In this case, KRA did not follow these steps and failed to demonstrate that Katahira had been assessed, notified, or given an opportunity to respond to any alleged fresh liability.
TAT E419/2025: Sameer Africa PLC v Kenya Revenue Authority
Sameer Africa PLC (Sameer), an investment property company, was assessed capital gains tax (CGT)on a land transfer that was formally registered in 2022.
However, the underlying transaction had been commercially completed in 2013, being the point at which the sale agreement was executed and full purchase price paid. This occurred prior to the introduction of CGT on 1 January 2015. Sameer subsequently paid the additional CGT assessed by the KRA.
Sameer submitted an application for a refund for the CGT paid, relying on the Tribunal’s decision in Paula Kendi Weru v Commissioner of Legal Services & Board Coordination (TAT No. E270 of 2024), delivered in December 2024.
In that decision, the Tribunal held that the CGT tax point is the earlier of the date of application for transfer at the Land Registration Department under the State Department for Lands and Physical Planning (Ministry of Lands, Public Works, Housing and Urban Development) or receipt of the full purchase price. Rather than the date of registration. Sameer argued that, based on the Paula Kendi case, the tax point for its transaction was May 2013, which predated the introduction of CGT under the Finance Act, 2014.
The Tribunal dismissed the appeal and made two key findings. First, it held that judicial decisions are a source of law, which should operate prospectively.
On this basis, the Paula Kendi decision could not be relied upon to challenge a tax assessment that had already been finalised. Second, the Tribunal held that the benefit of the Paula Kendi decision was limited to the parties in that case and could not be extended to third parties that were not party to the suit.
Whilst we agree that judicial decisions are a source of law, their main purpose, particularly in tax matters, is to interpret the law. Judicial decisions interpret a provision from its effective date, thus, they inevitably have a ‘retrospective effect’.
However, a court may expressly order a prospective or retrospective application depending on the nature of the dispute, particularly in such applications.
TAT E568/2025: Relief, Reconstruction and Development Organization v Kenya Revenue Authority
Relief, Reconstruction and Development Organization (RRDO), an NGO delivering humanitarian aid under the Kenya Devolution and Resilience Development Integrated Programme (KDRDIP), was compulsorily registered for VAT by the KRA following discrepancies between its declared VAT sales and withholding VAT certificates. Subsequently, KRA issued VAT assessments totalling approximately KES 36 million.
The Tribunal held that the KRA’s compulsory registration of RRDO was unlawful, as it failed to demonstrate that RRDO had met the statutory threshold for compulsory registration under Section 34 of the VAT Act. It found that discrepancies in withholding VAT certificates, on their own, do not establish that the registration threshold has been met.
KRA notices
Effective May 2026, the KRA discontinued manual declarations for zero-rated supplies on the iTax platform, requiring exporters to comply with new automated filing protocols.
According to the KRA notice, the Integrated Customs Management System (iCMS) is to be directly linked to iTax, ensuring that all export data captured through iCMS is automatically pre-filled in VAT returns, thereby eliminating manual adjustments.
This ensures that only properly linked and validated transactions are recognised in VAT returns. Any mismatch will result in the omission of a transaction from the VAT return, potentially preventing the exporter from claiming VAT refunds.
KRA public notice: Fringe benefit tax and deemed interest rate for April, May and June 2026
The Commissioner for Micro and Small Taxpayers issued a public notice on 10 April 2026 setting out the applicable rates for fringe benefit tax. The market interest rate for fringe benefit tax under Section 12B of the Income Tax Act is 8% for April, May, and June 2026. The prescribed rate for deemed interest rate under Section 16(2)(a) of the Income Tax Act is similarly 8% for the same period.
Attribution Notice
This article is based on insights provided by Alex Mathini, Andrew Oduor and Samuel Githanda (Partners), David King’ori (Senior Tax Advisor), and Polycarp Okumu (Associate), Bowmans Kenya. The views expressed are for informational purposes and do not necessarily represent the views of Africa Tax Review.
Kenya Tax Case Updates: Courts Clarify Bad Debt Deductions, VAT Registration and Tax Enforcement Powers
