KRA loses fight for tax deduction on bad bank loans
The Tax Appeals Tribunal in Kenya has ruled in favor of Consolidated Bank of Kenya, allowing it to claim tax deductions for bad loans. The tribunal determined that loan losses are a standard business cost rather than capital expenditure.
Why it matters
This ruling sets a significant legal precedent for the Kenyan banking industry regarding how bad debt is treated for tax purposes.
The Kenya Revenue Authority (KRA) has lost its bid to deny Consolidated Bank of Kenya a Sh264.9 million bad debt tax deduction tied to unpaid loans by borrowers, marking a significant victory for the industry.
The Tax Appeals Tribunal ruled that the money a bank loses after customers fail to repay loans is a normal cost of running a lending business and can be deducted before tax is calculated.
The tribunal set aside KRA's objection decision of September 18, 2025, finding that the tax authority wrongly treated the written-off loan principal as capital expenditure instead of stock-in-trade. It allowed the bank's appeal.
The dispute originated from a KRA compliance audit covering Consolidated Bank's tax affairs between 2019 and 2023. The audit initially resulted in tax assessments of Sh3.67 billion across withholding tax, corporate income tax, value-added tax, pay-as-you-earn, excise duty and other tax heads.
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