KRA TARGETS BANK DEPOSITS

Tribunal Says KRA Can Treat Bank Deposits as Taxable Income Without Proper Proof

The Tax Appeals Tribunal has ruled that the Kenya Revenue Authority (KRA) may classify all deposits in a taxpayer’s bank account as income unless there is clear evidence showing otherwise.

Normally, corporate tax in Kenya is charged on profits after deducting valid business expenses such as salaries, rent, utilities, marketing, and allowable capital costs—supported by eTIMS invoices. Deposits themselves are not taxed directly, but their source must be explained.

In Appeal E1116 of 2024, determined on September 2, a pipe manufacturing company contested KRA’s assessment of deposits made between 2019 and 2022. The firm argued that shareholders had injected capital worth Ksh100 million in 2019, with an additional Ksh29.4 million later, plus a Ksh31.7 million loan and Ksh24.6 million in shareholder funding—all of which it claimed should not count as taxable income.

The tribunal, however, found the company had failed to link specific deposits to capital injections or shareholder contributions. It relied on uncertified bank statements and swift slips, without supporting documents such as board resolutions or detailed deposit analyses.

On the alleged Ksh31.7 million loan, the tribunal noted the terms were interest-free, repayable at any time, and unsupported by proof of repayment between 2019 and 2024. These conditions made it difficult to confirm it was a genuine loan.

The decision underscores the risk for businesses: without solid documentation, KRA can treat deposits as taxable income.