Executive summary

On 28 November 2025, in Vijay Kumar Shamji Patel v. Kenya Revenue Authority (KRA), the Tax Appeals Tribunal (TAT) set aside the KRA's decision to disallow as time-barred certain tax losses the taxpayer had incurred in 2014. The TAT also confirmed that the Finance Act 2025 only applies prospectively to accounting periods commencing on or after 1 July 2025 and therefore could not be applied to disallow carried-forward losses dating back more than five years.

Detailed discussion:

Background

In 2020, the KRA performed several tax verification and audit exercises on the taxpayer's business activity, which is primarily a rental business. Later in 2024, the KRA performed another audit review and disallowed tax losses carried forward from 2014.

The taxpayer contended that the KRA had previously performed an audit for tax years 2014—2020 and did not raise any adverse findings related to the tax losses, creating a legitimate expectation that the tax losses were valid. Further, the taxpayer asserted that the documents the KRA sought could not be produced because the five-year statutory record retention period had already passed.

The KRA issued an Objection Decision disallowing taxpayer's carried-forward tax losses for 2014, which the taxpayer appealed.

Appellant's case

The taxpayer (Appellant) asserted that the KRA was time-barred by the five-year statutory period in the Tax Procedures Act (TPA) from amending the assessment from 2014. The Appellant also asserted that the KRA's demand for documentary evidence in support of the 2014 carried-forward tax losses was time-barred and amounted to an impermissible circumvention of the statutory five-year records retention requirement under the TPA.

KRA's case

The KRA asserted that, during its audit exercise, it established that the Appellant had been carrying forward tax losses originating from 2014 arising from expense claims (realized foreign exchange losses and other business-related expenses).

The KRA further asserted that Appellant had failed to provide supporting documentation to substantiate the 2014 claimed deductions and instead indicated that the information sought related to earlier years and was no longer available.

Consequently, the KRA had disallowed the claimed expenses in their entirety and rejected the tax losses from 2014, deeming the Appellant to have been in willful neglect of his tax obligations.

Issues for determination

The TAT considered the following issues for determination:

• Whether the assessments for 2014 were statutorily time-barred
• Whether the KRA's decision to disallow the carried-forward losses was justified

TAT's ruling

The TAT first held that assessments relying on reopening 2014 losses were time-barred. The TAT said that for the KRA to issue an assessment beyond the five-year statutory time limit, it had to demonstrate that the Appellant acted with gross or willful neglect, evasion or fraud and the KRA had failed to do so. The TAT noted that the KRA had conducted prior audits and verifications covering 2014—2020, which were concluded without adverse findings.

On the carried-forward losses, the Tribunal stated that the KRA had no new evidence implicating the Appellant of fraud or willful neglect. Therefore, the decision to disallow the losses was unlawful as it relied on retrospective application of law. The TAT stated that although the Finance Act 2025 imposes a five-year limit prospectively, "it should not operate to extinguish pre-existing loss entitlements accumulated under the former indefinite regime."

Implications

The TAT reaffirmed that the KRA is time-barred from raising an assessment after the five-year statutory period unless it proves that the taxpayer was involved in fraud, willful neglect or evasion.

Additionally, the decision offers clarity that, in the absence of a transitional clause, the tax losses amendment law enacted by the Finance Act 2025 only applies prospectively to accounting periods commencing on or after 1 July 2025.