Why KRA looks at firms' bank deposits as taxable income first

Companies should avoid mixing operational funds, shareholder contributions, and loans in a way that makes it difficult to trace their origins. [File, Standard]

In Kenya, one of the most common disputes between businesses and the Kenya Revenue Authority (KRA) is whether money deposited into a company's bank account should automatically be treated as taxable income. A recent ruling by the Tax Appeals Tribunal in the case of Kirin Pipes Limited versus KRA Commissioner Intelligence Strategic Operations Investigations and Enforcement offers valuable lessons for every business owner. The decision makes it clear that unless businesses can prove otherwise, KRA is entitled to deem every deposit as income and charge tax accordingly.

The case revolved around a fundamental question: In what circumstances can KRA treat deposits as income? Kirin Pipes Limited found itself at the centre of this storm after KRA conducted an investigation into its tax affairs for the years 2019 to 2022. The result was a demand for additional taxes running into tens of millions, Sh34.3 million in income tax and Sh22.6 million in VAT.