The Kenya Revenue Authority (KRA) has won a major legal boost in its campaign against tax evasion, after the Tax Appeals Tribunal ruled that unexplained bank deposits can be treated as taxable income.
In its decision, the tribunal held that money paid into bank accounts is presumed to be income unless the account holder can back up claims to the contrary with proper documentation. The ruling strengthens the hand of the taxman at a time when the government, under William Ruto, is tightening enforcement rather than introducing new or higher taxes, following the deadly anti-tax protests of 2024.
The case arose from a dispute between KRA and Naivasha hotel operator Virginia Wangari. The authority sought Sh6.5 million in tax on cash and M-Pesa deposits that lacked supporting records. A review of her accounts showed credits totalling about Sh52.6 million between 2018 and 2022. After excluding amounts supported as non-income, KRA treated Sh50.9 million as taxable income.
The initial assessment of Sh18 million, covering income tax and VAT, was later revised. At the objection stage, KRA adjusted the figures and applied an 18.49 percent industry profit margin for the hospitality sector, cutting the demand to Sh6.5 million. Wangari challenged the assessment, arguing that KRA wrongly assumed all deposits were income, ignored her explanations, applied an arbitrary margin and subjected her to double taxation.
The tribunal dismissed those claims, ruling that tax assessments enjoy a presumption of correctness unless overturned with credible documentary evidence. It held that the burden of proof lies firmly with the taxpayer, reinforcing KRA’s use of banking analysis where individuals declare nil or minimal income despite large cash flows. Unverified or unaccounted deposits, the tribunal said, can rightly be treated as taxable.
Crucially, the panel ruled that KRA does not have to prove that money flowing into an account is income. Instead, account holders must demonstrate, using bank reconciliations, contracts, ledgers or source documents, that the funds were loans, capital injections or collections made on behalf of others. Vague explanations, it added, are not enough.
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The ruling also endorses KRA’s right to make “best judgment” assessments using indirect methods such as bank analysis when taxpayers fail to keep proper records. In support, the tribunal cited earlier decisions that reached the same conclusion.
The judgment lands amid tension between KRA and the banking sector. Lenders have resisted plans to integrate their systems with the tax authority’s, citing fears over access to sensitive customer data. KRA is seeking wider data access under amendments to the law passed in December through the Tax Procedures (Amendment) Act, 2024, which allow it to compel system integration for the submission of detailed transactional data.
Banks argue that without stronger legal safeguards, the changes could expose them to lawsuits and penalties from data protection regulators. A broader Treasury plan to access personal financial and asset data without court warrants was shelved after the withdrawal of the Finance Bill 2024.
Even so, KRA continues to expand its enforcement net, drawing on bank records, import data, vehicle registrations, utility bills and aviation records to identify individuals whose lifestyles and assets do not match their declared tax positions. The message from the tribunal is blunt: unexplained money is fair game for tax, unless proven otherwise.
