Tax tribunal sets aside KRA’s KSh713m bill on I&M Bank over a misread bad-debt entry

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I&M Bank has won its appeal against a Kenya Revenue Authority (KRA) demand of KSh713.09 million, after the Tax Appeals Tribunal found that the taxman had treated an accounting reversal in the bank’s 2019 books as a bad debt that could not be traced.

In a judgment dated October 9, a four-member panel chaired by Robert Mutuma set aside KRA’s objection decision of September 19, 2025, and ordered each side to bear its own costs. The ruling, in Appeal E1325 of 2025, is now on Kenya Law.

How the bill shrank from KSh2.3bn

The dispute began with a KRA compliance review of the lender’s tax return for 2019, which I&M filed on June 17, 2020. On June 16, 2025, KRA issued an iTax assessment order for additional corporate income tax of KSh1.32 billion and interest of KSh960.87 million, a total of KSh2.28 billion.

A letter that followed on July 1 set out six grounds, including bad debts written off and unsupported capital spending, and added a penalty, which took the figure to KSh2.34 billion. After the bank objected, KRA dropped most of the grounds in its September objection decision.

Two items survived. The first was a KSh1.67 million brokerage cost tied to tax-exempt infrastructure bond income; the bank paid the resulting KSh965,742, including penalty and interest, on October 29, 2025. The second was KSh1.31 billion that KRA said had been written off as bad debts but could not be traced. That item alone produced principal tax of KSh393.97 million, a penalty of KSh19.70 million and interest of KSh299.42 million, or KSh713.09 million in all.

The time-bar argument failed

I&M first argued that the whole assessment was out of time. KRA has five years to amend a self-assessment, a window that in this case closed on June 17, 2025. The bank said the July 1 letter, which first gave reasons, was the real assessment and came 14 days late.

The tribunal disagreed. It found that the iTax order of June 16 contained every detail the Tax Procedures Act requires and was issued a day before the deadline. “That the Order was issued a day before the period ran out goes to timing rather than to validity, since Parliament fixed a window of five years and the Respondent acted within it,” the judgment says.

A write-back, not a write-off

On the substance, the tribunal sided with the bank. Both parties agreed that I&M wrote off KSh2.92 billion of loans in 2019, made up of KSh906.27 million charged straight to the profit and loss account and KSh2.01 billion taken against its loan-loss provision. KRA read the bank’s audited accounts as showing write-offs from the provision of only KSh698.30 million, and treated the gap of KSh1.31 billion as untraced.

The panel found that KSh698.30 million was a net figure. It said the KSh2.01 billion of write-offs had been offset by a KSh1.31 billion write-back to the provision, an entry the bank traced to its adoption of the IFRS 9 accounting standard from January 1, 2018. The 2018 entry reduced the value of the loan book, and the 2019 entry reversed it. Neither passed through the profit and loss account, so no tax deduction was ever claimed.

“The Tribunal finds that the sum is traced in the very document from which the Respondent drew its own figure,” the judgment says. It said the bank had supplied its accounts and returns before the objection decision. “What was wanting was not the production of documents but a reading of what had been produced.”

The panel noted that KRA itself had allowed a separate ground on movements in the same provision, on the basis that disallowing it would amount to double taxation. “The reasoning which allowed the one ground cannot in consistency be withheld from the other,” it said, concluding that “no coin is due upon an accounting entry which yielded no deduction and produced no income.”

Earlier on Sunday we reported a separate tribunal judgment ordering KRA to redo a KSh212.6 million PAYE bill on Murang’a County. Banks’ wider tax contribution was the subject of a recent Kenya Bankers Association study.