Losses Carry-Forwards Protected From KRA’s 5 Year Limit

Case Study: Patel v Commissioner for Legal Services & Board Co-ordination Services (Tax Appeal E628 of 2025) [2025] KETAT 420 (KLR) (28 November 2025) (Judgment)

The Background

Vijay Kumar Shamji Patel (“Patel”) operated a rental business and had carried forward substantial tax losses from the 2014 year of income, which he utilized to offset rental income in subsequent years (2019-2022). The Kenya Revenue Authority (“KRA”) initiated multiple verification exercises and ultimately disallowed these carried-forward losses, leading to an additional assessment of Kshs. 67,932,696.00.

Patel appealed to the Tax Appeal Tribunal

Among the the grounds of appeal was :

KRA erred in law and in fact in disallowing Patel’s tax losses brought forward from the financial year 2014 contrary to the provisions of section 31(4)(b) of the Tax Procedures Act.

KRA’S Position:

The KRA sought to apply this new 5-year limit cap to extinguish Patel’s old losses.

Tribunal’s Decision:

The Tribunal held this was unlawful retrospectivity. Patel’s right to the loss was a “vested right” or “tax attribute” accrued under the old law. A new law cannot extinguish such a right unless it contains an express transitional clause stating it applies retrospectively. The Finance Act 2025 had no such clause. Therefore, the new 5-year limit rule could only apply to losses arising in the future.