15/10/2026
I&M Bank, a Five-Year Deadline, and a KSh 713 Million Dispute
There was a time when a single accounting entry could sit quietly inside a bank’s books and never meet the tax file that held the same number under a different name. The audited accounts told one story. The tax computation told another. For years the two records often travelled in parallel.
That separation has narrowed.
In 2019 I&M Bank reclassified Kshs 1,313,248,000 within its loan book and the provision held against it. The movement was a balance-sheet adjustment linked to the adoption of IFRS 9. It did not pass through the profit and loss account. It produced neither income nor a deduction. On the face of the accounts it was a write-back of provision, not a write-off of bad debts.
KRA read the same figure differently. After reviewing the bank’s records, the authority treated the Kshs 1.313 billion as untraced bad debts written off. That single item generated tax, penalty and interest of approximately Kshs 713 million.
The procedural history was tight. I&M filed its 2019 return on 17 June 2020. Under the law KRA had five years from that date to issue an amended assessment. The deadline was 17 June 2025. On 16 June 2025—one day before the limit—KRA issued an assessment through iTax demanding roughly Kshs 1.316 billion in principal tax and Kshs 961 million in interest, a total near Kshs 2.277 billion. The following day an Excel sheet of “Preliminary Findings” arrived with different numbers. On 1 July 2025 a formal letter titled “Notice of Assessment for the Period 2019” explained six adjustments and raised the total to about Kshs 2.343 billion. The bank was told to treat the letter as the assessment. It objected on 23 July 2025.
In its Objection Decision of 19 September 2025, KRA dropped most of the adjustments. It retained two. One was a minor brokerage cost of roughly Kshs 1.67 million linked to exempt infrastructure bond income; after recalculation the bank paid Kshs 965,742 including penalty and interest. The second, and the only material item left, was the Kshs 1.313 billion. That figure alone carried the Kshs 713 million tax bill.
The bank appealed to the Tax Appeals Tribunal on 3 November 2025. It argued that the iTax assessment of 16 June 2025 lacked sufficient reasons, that the Excel sheet was only a draft, and that the 1 July letter—issued after the five-year deadline and outside iTax—was time-barred and void. On the substance, it maintained that the Kshs 1.313 billion was a write-back of provision, not a bad-debt deduction.
KRA maintained that the 16 June iTax assessment was valid and within time, and that the later documents merely explained an assessment already made. It also argued that the bank had failed to prove the amount was allowable.
The Tribunal framed two questions. First, was the assessment valid and on time? Second, was KRA correct to disallow the Kshs 1.313 billion?
On the first question the Tribunal sided with KRA. The iTax assessment of 16 June 2025 contained the required particulars—tax, penalty, interest, period, due date and the right to object—and was issued within the five-year window, even if only by a single day. The Excel sheet was not an assessment. The 1 July letter supplied reasons for an assessment already made; its lateness did not invalidate the earlier notice. The bank’s procedural objections therefore failed.
On the second question the Tribunal sided with the bank. The audited statements showed that the bank had written off Kshs 2.918 billion in 2019. Of that sum, Kshs 906 million had been charged directly to profit and loss and was correctly added back in the tax computation. The remaining Kshs 2.012 billion was taken against the existing provision. KRA had treated a net movement of Kshs 698 million as the write-off and concluded that the balance of Kshs 1.313 billion could not be traced. The Tribunal found that the Kshs 698 million was itself a net figure: the result of writing off Kshs 2.012 billion from the provision and simultaneously writing back Kshs 1.313 billion into it. The disputed amount was therefore a write-back arising from the IFRS 9 transition. It was a reclassification between the loan book and the allowance held against it. It never entered the profit and loss account, generated no deduction, and produced no taxable income. KRA had mistaken a net accounting movement for a gross write-off and sought to tax a figure that had never been claimed as a deduction.
On 9 October 2026 the Tribunal delivered its judgment. The appeal was allowed. The Objection Decision of 19 September 2025 was set aside. Each party was ordered to bear its own costs.
The dates protected the assessment: the notice of 16 June 2025 was within time, and the later explanatory letter, though late, was not the assessment itself. On the money, however, the bank prevailed. The Kshs 1.313 billion was a write-back, not a bad debt. The case turned on the difference between the form of an accounting entry and its substance for tax purposes. When those two records finally met, the entry that looked like a write-off proved to be something else entirely.
