Landmark Ruling Allows KRA to Treat Some Bank Balances as Income & Tax It 

The Tax Appeal Tribunal has delivered a landmark ruling clarifying when the Kenya Revenue Authority (KRA) can classify deposits made into a taxpayer’s bank account as taxable income.

In a judgment delivered on August 22, 2025, the Tribunal addressed a dispute between Kirin Pipes Limited, a pipe manufacturing company, and the Commissioner of Intelligence Strategic Operations, Investigations, and Enforcement, a unit within KRA. 

The case revolved around whether every bank deposit can be presumed to be income subject to taxation.

The Dispute

KRA had conducted investigations into Kirin Pipes’ tax affairs for the period 2019 to 2022, leading to additional tax assessments totaling over Ksh57 million. Specifically, KRA demanded Ksh34.3 million in income tax and Ksh22.6 million in VA. 

The taxman’s position was that deposits reflected in the company’s bank statements constituted undeclared sales revenue. KRA argued that the taxpayer had failed to provide adequate documentation proving otherwise.

Kirin Pipes, however, disputed the assessment, insisting that not all deposits into its accounts represented income.

 The company argued that a significant portion of the deposits comprised capital injections by shareholders, loans from financiers, inter-account transfers, and advance customer payments that were later invoiced and taxed.

Kirin Pipes’ Argument

Through its submissions, Kirin Pipes maintained that KRA had erred by equating all bank credits with taxable income. The company highlighted that it had received:

• Ksh29.4 million in shareholder capital injections through Zhonghao Overseas Construction Engineering Co. Ltd (China).
  
• Ksh31.7 million in loans advanced by Nanchang Municipal Engineering Development Group Co. Ltd.
  
• Advance customer payments totaling over Ksh65 million for sales that were later invoiced and declared.
  
  

The company argued that capital injections and loans do not fall within the legal definition of taxable income.

On advance payments, Kirin Pipes insisted that the amounts were subsequently declared in its returns and taxing them again amounted to double taxation.

The company also faulted KRA for disregarding evidence provided, including bank statements, loan agreements, audited accounts, and SWIFT transfer confirmations.

KRA’s Position

KRA, on the other hand, argued that the taxpayer failed to substantiate its claims. According to the revenue agency, the documents presented were either incomplete, unverifiable, or lacked supporting details.

KRA further argued that without concrete proof, it was justified to treat the deposits as taxable income.

The Tribunal’s Ruling

It emphasized taxpayers carry the burden of proof under Section 56 of the Tax Procedures Act to demonstrate that such deposits do not constitute taxable income.

The Tribunal also observed that the evidence provided by Kirin Pipes had gaps, particularly in linking certain deposits to shareholder injections and loans. In such instances, KRA was entitled to raise assessments.

Why the Ruling Matters

This decision is significant as it sets a clear precedent on how KRA can treat bank deposits when conducting tax audits. Businesses often receive funds from various sources that do not necessarily constitute taxable income, such as shareholder capital or loans.

With businesses increasingly facing scrutiny of their bank accounts, the judgment reinforces the importance of maintaining clear financial records and documentation to avoid unnecessary disputes.