Investors in capital-intensive sectors such as energy, infrastructure and manufacturing face intense financial pressure after the Finance Act 2025 capped the period for carrying over tax losses at five years, analysts said.
A net operating loss or tax loss carryforward is a tax provision that allows firms to carry forward losses from prior years to offset future profits, and, therefore, lower future income taxes.
The way a tax loss carryforward (TLCF) works is that a schedule is generated to track all cumulative losses, which are then applied in future years to reduce profits until the balance in the TLCF is zero.
Previously, taxable losses in Kenya could be carried forward in perpetuity—handing businesses some financial breathing space. The provision ensures businesses can recover from financial setbacks without paying excess tax in profitable years.
However, the Finance Act 2025 which was signed by President William Ruto on June 26, has restricted the carrying forward of tax losses to five years.
Analysts said the change will negatively impact investors who will be under pressure to exhaust their tax losses from investment allowances.
“This amendment will significantly impact taxpayers in capital-intensive sectors like energy, projects, manufacturing, as it is unlikely that such taxpayers would exhaust tax losses arising from claiming investment allowances within a five-year period” analysts at law firm, Bowmans said in a note.
“The amendment could also impact the commercial viability of capital-intensive projects that are in the pipeline” they added.
Kenya has a huge pipeline of capital-intensive energy, manufacturing, and infrastructure projects which commonly carry forward tax losses due to substantial upfront capital expenditures and the time it takes to generate taxable income.
These projects are known for high initial costs for assets like machinery, equipment, and construction, which commonly lead to significant losses in the early years.
Experts observe that since depreciation and interest expenses are often deductible, and profits may not be realised until later stages, these projects may not generate taxable income immediately, necessitating the carrying forward of losses to future periods when profits are earned.
Nicholas Kahiro, Associate Tax and Legal Services at consultancy firm PWC, Kenya observes that sectors like manufacturing, infrastructure, and green energy typically require 8–10 years to break even, hence the cap in tax loss carryover window would impact them.
“A five-year cap means many of these businesses may never fully utilise their early-stage tax losses, reducing their return on investment. The move will have an impact on Kenya’s strategy to attract PPPs (public-private partnerships) for infrastructure development. Investors in such long-term projects rely on extended tax loss carry forwards to manage risk and improve project viability” he said in a note.
Mr Kahiro said the changes capping the tax loss carryover are also likely to blunt Kenya’s competitiveness compared to regional peers like Uganda and Tanzania, where the provisions are either longer or indefinite.
Analysts said investors further face pressure owing to changes introduced in the Finance Act 2025 which deleted a provision that allowed taxpayers to deduct any capital loss realised against any future capital gains.
“This amendment is quite punitive as it will result in taxpayers being required to pay capital gains tax on the sale of property that results in a gain even though such a taxpayer may have sold prior property for a significant capital loss,” Bowmans said in a note.
