Following investigations into Kirin Pipes Limited from 2019 to 2022, KRA issued assessments totalling Ksh 34.3 million in income tax and Ksh 22.7 million in Value Added Tax (VAT). The company contested these, arguing that KRA wrongly classified all bank deposits as taxable income.
Kirin Pipes claimed that Ksh 10 million in ordinary share capital, Ksh 29.4 million in additional shareholder injections, and a Ksh 31.6 million loan from Nanchang Municipal Engineering Development were non-taxable financing mechanisms. A further Ksh 24.6 million in shareholder support, they argued, covered operational costs during the company’s formative years.
The Tribunal, however, dismissed Kirin Pipes’ objections, citing insufficient evidence. It noted that the company’s uncertified bank statements failed to clearly identify capital injections, and deposits could not be linked to shareholders listed in official CR12 records. No board resolutions, minutes, or shareholder agreements were provided to corroborate claims of capital contributions. Additionally, the loan agreement’s open-ended terms, interest-free and repayable at will, raised doubts about its authenticity, as there was no evidence of repayments between 2019 and 2024. Consequently, deposits worth Ksh 54 million were deemed taxable income, affirming KRA’s assessment.
This ruling delivers a stark warning to Kenyan businesses: without verifiable documentation, all bank deposits may be presumed taxable. Loans require clear agreements and repayment schedules, while shareholder injections must be supported by official records. The decision has sparked alarm among small and medium-sized enterprises (SMEs) and corporates, many of which rely on informal funding in their early stages.
Tax experts caution that companies lacking rigorous financial documentation risk facing hefty assessments akin to Kirin Pipes’. As the business community grapples with this precedent, the Tribunal’s message is clear: in tax matters, a robust paper trail outweighs intent.
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