KenGen has asked the High Court to overturn a Sh2.35 billion compensating tax assessment from the Kenya Revenue Authority (KRA), after the Tax Appeals Tribunal ruled against the power producer earlier this year. The company disclosed in its report dated September 4, 2026 that the appeal is pending hearing and determination.

Contents

How the KenGen and KRA tax dispute began
What the Tax Appeals Tribunal decided
Why the 2016 dividend still matters
What it means for dividend-paying companies
KenGen’s dividend and results
Sources

The dispute turns on one question: did KenGen pay dividends out of profits that had already been taxed? The Tribunal said KenGen had not proved it did.

KenGen power generation facility in Kenya — KenGen is contesting a Sh2.35 billion compensating tax assessment at the High Court. Photo: KenGen

How the KenGen and KRA tax dispute began

KRA reviewed KenGen’s tax affairs for the period 2019 to 2024 and issued an assessment on December 4, 2024. It demanded Sh2.95 billion, made up of Sh2.36 billion in compensating tax and Sh586.2 million in withholding tax.

The withholding tax portion was dropped after alternative dispute resolution. Only the compensating tax assessment went to the Tribunal for determination.

What the Tax Appeals Tribunal decided

Capital FM reported on June 6 that the Tribunal upheld the Sh2.36 billion assessment. The case was decided under Section 7A of the Income Tax Act, which deals with compensating tax.

KRA’s case was that KenGen distributed Sh6.92 billion in dividends in years when it paid no tax on its core electricity generation income. It said capital allowance claims wiped out that income, and that tax paid on rental and interest income could not offset the liability.

KenGen argued that it was in a tax loss position, so it had no untaxed gains to distribute. It relied on computations showing business losses of Sh37.5 billion in 2018/2019, Sh34.16 billion in 2019/2020, Sh19.76 billion in 2020/2021 and Sh32.89 billion in 2021/2022.

The Tribunal rejected the idea that a loss position automatically shields a company. It found KenGen did not discharge its burden of proof under Section 56(1) of the Tax Procedures Act.

KenGen also cited retained earnings of between Sh86.6 billion and Sh113.2 billion. The Tribunal said it failed to provide a reconciliation showing which portions had already been taxed.

The judges also declined to credit more than Sh514 million of taxes paid in earlier years against the liability. They said KenGen had not established a direct link between those payments and the assessment.

Why the 2016 dividend still matters

Business Daily reports that KRA’s demand rests on the law that applied when KenGen paid a Sh5.7 billion dividend to the National Treasury on June 30, 2016. The Treasury holds 69.9 percent of the company, and other shareholders received no dividend that year.

Compensating tax was designed to discourage companies from paying dividends out of profits that benefited from tax incentives. In a 2016 interview, then managing director Albert Mugo said the dividend arrears payment created a liability of about Sh2.4 billion.

That earlier bill has a separate history. KenGen completed payment of the Sh2.43 billion principal by June 2024 and obtained a waiver of Sh530.81 million in penalties and interest under the KRA tax amnesty.

For the current Sh2.35 billion claim, KenGen says it has applied to the National Treasury for abandonment of the principal, interest and penalties.

What it means for dividend-paying companies

Business Daily noted that the Tribunal’s decision is likely to strengthen KRA’s hand against companies that pay dividends while reporting little or no corporation tax. The practical test is documentation: a company must be able to show which reserves funded a dividend and that those reserves were taxed.

For investors, the case is a reminder that a tax loss and healthy retained earnings do not settle the question on their own. Companies with large capital allowances may face closer questions about where their distributions come from.

KenGen’s dividend and results

The dispute comes as KenGen trims its payout. Shareholders approved a first and final dividend of Sh0.75 per share for the year ended June 30, 2026 at the 74th Annual General Meeting on October 29, down from Sh0.90 the previous year.

That cuts the total payout by 16.7 percent, from Sh5.94 billion to Sh4.94 billion. Payment is expected on or about January 21, 2027, to shareholders on the register on October 29, 2026.

Measure (year to June 2026)	Result
Revenue	Sh59.7 billion, up 6.4 percent from Sh56.1 billion
Net profit	Sh10.35 billion, from Sh10.48 billion
Capital spending	Sh15.5 billion, up 14.3 percent
Dividend per share	Sh0.75, from Sh0.90

KenGen says the lower dividend reflects higher investment in power infrastructure and reduced borrowings. A High Court hearing date has not been published in the reports reviewed.

This article is general information and not tax, legal or investment advice. Companies and shareholders should consult a qualified tax adviser on their own position.