Tax Alert: Limitation on Carry Forward of Tax Losses under the Finance Act 2025
The Finance Act 2025 amended Section 15(4) of the Income Tax Act, introducing a five (5) year limit on the period within which tax losses may be carried forward as allowable deductions. This amendment, which took effect on 1st July 2025, replaced the previous position where tax losses could be carried forward indefinitely to offset future tax liabilities.
However, the Finance Act 2025 did not contain transitional clauses leading to uncertainty regarding the treatment of losses accumulated in 2020 and earlier years. The KRA has since issued a clarification that tax losses incurred in 2020 and prior years can no longer be carried forward.
This clarification means that taxpayers with un-utilised losses from 2020 and prior years may no longer be able to offset them against future taxable profits and could therefore find themselves in a tax payable position earlier than expected.
We strongly encourage affected taxpayers to review their tax positions and plan accordingly. Please contact us should you require further guidance on how this change may impact your business
For personalized guidance on Kenya tax compliance, VAT refunds, KRA audits, or corporate tax planning, contact us at enquiries@mgkconsult.co.ke or visit www.mgkconsult.co.ke to book a consultation.