Introduction
This alert brings to your attention our analysis of the five-year tax loss carry-forward cap introduced by the Finance Act 2025, along with a Kenya Revenue Authority private ruling, issued to a taxpayer and subsequently made public.
Background
This new wording has two direct consequences:
- Tax losses may now be carried forward for a maximum of five years from the year in which they arise; and
- Any portion of a loss that remains unutilised after the five-year period will lapse and cannot be used to offset future taxable profits.
Before this amendment, Section 15(4) of the ITA permitted losses to be carried forward indefinitely. Taxpayers therefore, retained the right to apply accumulated losses against taxable income without any statutory time limit.
Unlike previous amendments to this provision, the 2025 change does not contain a transition clause. Such a transition clause would clarify how losses incurred under the previous regime would be treated once the new law takes effect.
The absence of a transition clause creates ambiguity on the treatment of tax losses accumulated prior to 1 July 2025. This tax alert sets out our interpretation of the amendment.
Decoding the five-year tax loss carry-forward limit under the Finance Act 2025
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