The Kenya Revenue Authority (KRA) has dismissed viral claims that circulated on social media over the weekend, suggesting that a tribunal had issued a ruling allowing it to tax all deposits in bank accounts if holders failed to prove their income sources.
Instead, KRA clarified that the decision only applies to deposits that lack sufficient documentation showing they are loans or capital injections. In such cases, the deposits will be deemed as taxable income under Section 3 of the Income Tax Act.
In a clarification post, KRA pointed to the case where a pipe manufacturing company had moved to lodge an appeal claiming that KRA had made an error by assuming that every deposit made into its bank accounts in the period between 2019-2022 amounted to income capable of being charged tax.
''Deposits without proper documentation proving they are loans or capital injections will be treated as income under Section 3 of the Income Tax Act,'' KRA stated in a short statement shared on Tuesday.
In a ruling of Tribunal Appeal E1116 of 2024 issued on September 2, the tribunal determined that the appellant could not support the assertion that some of its deposits were mere capital injections and loans, not taxable income.
The tribunal's determination, which dismissed the company's appeal, had sparked public debate. The Authority explained that the ruling does not give it blanket powers to tax every deposit made into personal or business accounts.
Section 3 establishes the charge to income tax in Kenya, providing that all income accrued in or derived from Kenya is taxable. It broadly defines income to include business profits, employment earnings, rent, dividends, interest, pensions and other gains or benefits, unless specifically exempted.
In effect, this means that any unexplained deposits, when not backed by proper documentation such as loan agreements or shareholder capital records, fall within the definition of taxable income. The law gives KRA the authority to treat such funds as earnings and subject them to tax.
Meanwhile, the Authority indicated that properly documented funds, such as loan proceeds, shareholder capital, or transfers supported by verifiable records, are not subject to taxation as income.
Taxation only arises where the source of deposits cannot be satisfactorily explained.
According to tax experts and the authorities, taxpayers should keep accurate and updated records of their financial transactions, noting that proper documentation is the best safeguard against unnecessary disputes or assessments.
The company had filed the appeal, claiming that KRA had made an error by assuming that every deposit made into its bank accounts in the period between 2019-2022 amounted to income capable of being charged tax.
