The Kenya Revenue Authority (KRA) has refuted viral social media claims alleging that a tribunal had ruled in its favour to tax all bank account deposits if holders could not prove their source of income.

KRA clarified that the decision only affects deposits without proper documentation to show they are loans or capital injections. In such cases, the deposits are treated as taxable income under Section 3 of the Income Tax Act.

The clarification referenced a case involving a pipe manufacturing company, which had appealed against KRA’s move to treat every deposit made into its accounts between 2019 and 2022 as taxable income.

“Kirin Pipes Ltd vs KRA has stirred debate. Here is the ruling position: Deposits without proper documentation proving they are loans or capital injections will be treated as income under Section 3 of the Income Tax Act,” stated KRA on Tuesday, September 9.

In a ruling delivered on September 2 in Tribunal Appeal E1116 of 2024, the tribunal found that the appellant failed to prove its claim that some deposits were capital injections or loans rather than taxable income.

The decision, which dismissed the company’s appeal, sparked public debate. KRA has since clarified that the ruling does not grant it unrestricted powers to tax every deposit made into individual or business accounts.

Under Section 3 of the Income Tax Act, all income earned in or derived from Kenya is taxable, covering areas such as business profits, salaries, rent, dividends, interest, pensions, and other financial gains unless specifically exempted.

This means that deposits without supporting documentation — such as loan agreements or shareholder capital records — are treated as taxable income. The law empowers KRA to classify such unexplained funds as earnings and subject them to tax.

However, deposits that are properly documented, including loan proceeds, shareholder contributions, or transfers backed by verifiable records, are exempt from being taxed as income. Tax liability only arises when the source of funds cannot be adequately explained.

Tax experts and KRA have urged taxpayers to maintain clear and updated records of their financial transactions, emphasising that proper documentation is the best safeguard against unnecessary disputes with the Authority.

The company had initially filed the appeal because KRA wrongly assumed every deposit made into its bank accounts between 2019 and 2022 qualified as taxable income.