Summary
This alert brings to your attention a Tax Appeals Tribunal (the Tribunal) decision delivered on 23 February 2026 in the case of Premier Credit Limited v Commissioner of Domestic Taxes (KRA) (Tax Appeal E1149 of 2024).
The primary issue before the Tribunal was whether Premier Credit Limited, the Appellant, as a microfinance institution, was entitled to claim a tax deduction for the principal amounts of loans that had become irrecoverable and were subsequently written off as bad debts.
In determining this issue, the Tribunal placed considerable reliance on paragraph 4 of Legal Notice No. 37 of 2011, the Guidelines on Allowability of Bad Debts, and held that the principal element of a loan, being the original sum advanced to a borrower, is capital in nature and therefore not deductible in computing taxable income. The Tribunal further held that only the interest, fees, and penalties components of a loan are revenue in nature and may, subject to satisfying the conditions prescribed under the Guidelines, qualify for deduction as bad debts.
We analyse this decision and its implications below.
Background
The Appellant is a limited liability company incorporated in Kenya and licensed as a credit-only microfinance institution, providing financial solutions to corporate entities, government bodies, and individual entrepreneurs.
The dispute before the Tribunal arose from a review of the Appellant’s tax affairs for the 2018 year of income. Following the review, the Kenya Revenue Authority (the Respondent) issued additional assessments for Corporate Income Tax (CIT) amounting to KES 138,438,725, inclusive of penalties and interest.
The Appellant objected to the assessments and, upon receipt of the Respondent’s objection decision, lodged an appeal before the Tribunal. During the proceedings, the parties engaged in the Alternative Dispute Resolution (ADR) process.
The ADR process resulted in a partial settlement, under which the principal CIT liability was reduced from KES 69,584,194 to KES 35,641,262.10. The balance of the disputed principal tax, amounting to KES 30,132,515.10 relating to bad debts, specifically Premier Loans and Premier Private Lending, remained unresolved and was consequently referred to the Tribunal for determination.
Tribunal finds Principal Loan Amounts Constitute Capital and are not deductible as Bad Debts
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