The Kenya Revenue Authority (KRA) has dismissed widespread social media claims suggesting it now has the mandate to tax all bank deposits whose sources cannot be explained. In a clarification issued on Tuesday, the Authority emphasized that the recent ruling by the Tax Appeals Tribunal does not grant it blanket powers to tax every deposit made into personal or business accounts.
According to KRA, the decision only applies to funds deposited without sufficient documentation to prove that they are loans or capital injections. In such cases, the deposits fall within the definition of taxable income under Section 3 of the Income Tax Act. “Deposits without proper documentation proving they are loans or capital injections will be treated as income under Section 3 of the Income Tax Act,” the Authority stated.
The clarification follows a case involving a pipe manufacturing company that challenged KRA’s assessment of deposits made into its accounts between 2019 and 2022. The company had argued that the funds were not taxable income but instead capital contributions and loan proceeds. However, the Tribunal found that the firm could not provide adequate evidence to support its claim, and consequently dismissed the appeal in a ruling delivered on September 2, 2024.
The decision triggered heated debate online, with many Kenyans interpreting it to mean that KRA could tax all deposits indiscriminately. The Authority, however, underscored that only unexplained funds fall within the taxable bracket, while properly documented transactions such as loans, shareholder capital, or transfers backed by verifiable records remain exempt.
KRA reiterated that Section 3 of the Income Tax Act establishes the charge to income tax in Kenya, covering earnings such as business profits, employment income, rent, dividends, interest, pensions, and other gains unless specifically exempted. In effect, unexplained deposits that cannot be supported by proper documentation are deemed taxable, but legitimate financial transactions with clear records are not subject to taxation.
The clarification aims to put to rest growing fears and speculation, with KRA stressing that taxation arises only when the source of deposits cannot be satisfactorily explained.
