Lessons from African Banking Corporation Limited v Commissioner of Domestic Taxes (Tax Appeal E1324 of 2025) [2026] KETAT 162 (KLR)
Introduction
Your accounting team typed four letters -C, S, R- into your books. Two years later, those four letters became KRA’s exhibit one. Meanwhile, KRA looked at the same bank’s government bond income, divided it by total income, got 1.14%, and applied that ratio against Kshs. 3.3 billion in operating costs, with no specific expense identified. The Tribunal had something to say about both. This is a split verdict: one win, one loss, and the difference between them is entirely in the paperwork.
The Tax Appeals Tribunal set aside KRA’s disallowance of Kshs. 37,703,741.00 in interest and operating expenses attributed to exempt infrastructure bond income, while upholding KRA’s disallowance of Kshs. 1,339,841.00 in CSR expenses claimed as advertising and marketing costs.
What Happened
KRA audited African Banking Corporation for the 2019 tax year and raised a Corporation Tax demand of Kshs. 8,658,236.00 on two grounds:
- Kshs. 1,339,841.00 in expenses the bank’s own ledger labeled “CSR” sponsoring the Mater Heart Run, Catholic dioceses, SACCOs, schools and children’s homes which KRA disallowed as donations rather than marketing; and
- Kshs. 37,703,741.00 disallowed by applying a 1.14% income ratio across all the bank’s interest and operating expenses, on the theory that some portion must relate to exempt infrastructure bond income.
The bank objected, KRA confirmed the assessment, and the bank appealed.
What the Tribunal Decided and Why
1. The Clock Starts When You File Your Returns Not When the Year Ends
The bank argued the assessment was time-barred: five years from the end of 2019 would be 31st December 2024, and the assessment came on 27th June 2025. The Tribunal disagreed. Section 31(4)(b)(i) of the Tax Procedures Act is unambiguous and the five-year window runs from “the date the self-assessment return was submitted”. The bank filed its 2019 return on 30th June 2020 making the deadline 30th June 2025. The assessment landed three days before that. KRA won this point.
2. If Your Books Say CSR, Your Mouth Cannot Simply Say Marketing
The Tribunal accepted as a matter of principle that sponsorships can constitute marketing. But the bank’s own ledger said “CSR,” and to override that label the bank needed contemporaneous documents such as a sponsorship agreement, an invoice, evidence of branding deliverables received. None were produced. The Respondent’s own witness conceded on cross-examination that corporate sponsorship is a recognised form of advertising, but that concession only establishes the category; it does not prove each particular transaction. The Tribunal upheld KRA’s disallowance. KRA won this point too.
3. A Ratio Invented Without Evidence Is Not an Assessment, It Is a Guess
This is where the bank won and the lesson is significant for every business holding government bonds. The bank produced purchase notes, audited accounts, funding schedules and CBK custody statements showing the bonds were acquired in 2009, 2011 and 2018 from non-interest bearing sources, and that the income from them is passive, requiring no advertising, no staff costs, and no borrowing.
KRA’s own witness admitted that no specific expense attributable to the bond income could be identified. Faced with that, KRA’s 1.14% ratio (itself miscalculated) was applied to all operating costs including salaries and administrative overheads. The Tribunal called it speculative and without factual foundation, and set aside the disallowance of Kshs. 37,703,741.00 in its entirety.
Key Take-Homes for Stakeholders
To Banks and businesses holding infrastructure bonds or government securities
Document your bond funding sources at the point of acquisition and maintain a schedule of non-interest bearing fund sources. That paper trail is what shifted the burden of proof here and what caused KRA’s case to collapse. When KRA next applies an income ratio to your entire cost pool without identifying a single actual expense, this decision is your answer.
To businesses with CSR or sponsorship budgets
The label in your books is primary evidence. To call an expense marketing rather than CSR, you need contemporaneous documentation: a signed sponsorship agreement, an invoice, and proof of what branding or visibility you actually received. Collect these at the time of payment not at the time of audit.
To Finance teams, management accountants and all Taxpayers
Two rules from this case: first, the five-year KRA amendment window runs from your filing date, not the income year end and late filers extend their own exposure. Second, the name you give an expense in your accounting system is the starting point for any audit. “CSR” opens the wrong door; if the transaction is a commercial sponsorship, record it that way from day one.
To Advocates and tax agents
This case is a reminder that partial victories teach more than clean wins. The bank won on Kshs. 37.7 million and lost on Kshs. 1.3 million. The legal principles were available in both. Evidence or its absence made the difference. Where KRA deploys a best-judgement assessment using an income ratio with no nexus to actual expenditure, challenge the methodology from the outset: the Tribunal has now made clear that a speculative figure, however mathematically dressed, is not a tax assessment.
Disclaimer: This post is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in this article should be assumed without seeking specific legal advice on the subject matter. If you have any query regarding the same, please do not hesitate to contact our Tax Law and Consulting Department; TaxLaw@wamaeallen.com .
About the author
Caxstone specializes in civil, employment and labour disputes, constitutional law, family law and succession, and environment and land matters. He has amassed a wealth of knowledge and experience in litigation which is evident in the successes obtained for clients. He is an active member of the Employment and Labour Relations Court Bar-Bench committee.
His main areas of practice include: Employment and Labour Law, Human Rights Law, Banking and Finance Law Conveyancing and Alternative Dispute Resolution Commercial Law
Academic Qualifications
ATP (Postgraduate Diploma), Kenya School of Law, 2019
LLB (Hons), Moi University, School of Law, 2018
Professional Qualifications
Member, Law Society of Kenya
Denis Mutugi specializes in Commercial Litigation and Alternative Dispute Resolution.
Denis graduated with a Bachelor of Laws, LLB (Hons) from The University of Nairobi in 2021 and was admitted to the Roll of Advocates of the High Court of Kenya in the year 2023.
Denis has amassed a considerable wealth of experience in conducting legal research on various complex legal matters touching on Commercial, Insurance, Employment and Insolvency law and bankruptcy.
