The Tax Appeals Tribunal has upheld a KSh 21.6 million assessment against Kirin Pipes Limited, ruling that the company failed to prove that millions in bank deposits were anything other than taxable income.
- •The dispute centered on the Kenya Revenue Authority’s (KRA) use of banking analysis to classify deposits from 2019 to 2022 as revenue.
- •The review revealed significant variances, leading to an additional assessment of KSh 34.3 million in income tax and KSh 22.7 million in value-added tax, later reduced to KSh 21.6 million after objection.
- •Kirin Pipes argued that inflows included shareholder capital injections through a Chinese affiliate, a KSh 31.7 million loan from Nanchang Municipal Engineering Development, and KSh 65 million in advance payments from Zhonghao Overseas Construction Engineering Kenya.
The company maintained that classifying the disputed deposits as sales would unjustly result in double taxation, since the amounts had already been declared and taxed in subsequent returns filed with the authority.
KRA countered that the firm’s evidence was inadequate and pointed to uncertified bank statements, missing corporate records, and a loan agreement with no repayment history or commercial terms, arguing that the burden of proof lay with the taxpayer.
The authority also said that the advance payments claim was supported only by internal schedules and not by invoices or evidence of tax already remitted.
The Tribunal agreed, holding that Kirin Pipes failed to produce verifiable documents to substantiate its claims. It found that the company failed to link the deposits to shareholders through board resolutions or updated company records, failed to prove the loan was genuine, and failed to demonstrate that pre-payments were later matched with declared sales.
“It is the firm view of the Tribunal the burden of proving that the Respondent’s assessment was erroneous or inaccurate lies on the Appellant (Kirin Pipes). Indeed, without supporting documents, the Appellant’s contentions remained mere averments,” the tribunal ruled.
The ruling could set a precedent in heavy tax assessments for companies unable to fully document the origin of bank deposits, which unless proven by clear records, risk being treated as taxable income .
Many businesses still rely on informal agreements and little paperwork in finalizing shareholder funding, intercompany loans, and customer pre-payments.