It's not so much that Kobo doesn't allow it, but that there isn't much point. Firstly, if the book has DRM, that has to be removed before anything can be done with the book. Then, there isn't any way to put the book back on the device except as a sideloaded kepub. That means it loses some of the behaviour that purchased kepubs have. And, for most books, you can download the epub version from the Kobo shop and use it.
Some things have changed, so I might need to reconsider this. Sideloading kepubs does work, and more books in the shop seem to be missing the epub option. If that continues, it might be reason enough to make a change.
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