In a major tax-enforcement milestone, Kenya’s Tax Appeals Tribunal has ruled in favour of the Kenya Revenue Authority (KRA) by allowing the authority to treat unexplained bank and mobile money deposits as taxable income unless taxpayers can prove otherwise. This decision strengthens the taxman’s effort to broaden the tax base and crack down on tax evasion.
Tribunal Ruling Strengthens KRA’s Anti-Evasion Powers
The Tax Appeals Tribunal stated that any money flowing into a bank account or mobile wallet is presumed to be income. Taxpayers must provide credible documentation — such as contracts, bank reconciliations or source records — to show that deposits are capital injections, loans, or other non-income funds. If they fail to do so, KRA can legally tax those deposits.
This landmark judgment builds on a legal principle already recognised in Kenyan tax law but now reinforced by judiciary backing.
Real-World Case: How the Ruling Played Out
In the case that prompted the decision, a business owner from Naivasha faced a significant tax assessment after KRA analysed her bank and M-Pesa records. The tax authority found more than Sh50 million in unexplained credits over several years and treated the net deposits as income subject to tax. The Tribunal upheld the assessment after rejecting arguments that the deposits were not income.
What This Means for Taxpayers and Businesses
This court backing has important implications:
- Burden of Proof Now With Taxpayers: Individuals and businesses must keep thorough records that clearly explain the source of all deposits. Unsupported claims risk being treated as taxable income.
- Record-Keeping Is More Important Than Ever: Documentation such as contracts, receipts, or loan agreements can be critical in proving deposits are not income.
- Wider Tax Base: The ruling supports KRA’s broader strategy of using data analytics and banking analysis to identify potential tax liabilities, especially where declared income doesn’t match cash flows.
Broader Context: The Government’s Tax Enforcement Drive
The decision comes as part of a broader push by the Kenyan government to strengthen tax compliance without introducing new or higher statutory taxes. Amid past protests over tax changes, authorities have focused on enforcement and closing compliance gaps rather than increasing tax rates.
