The Kenya Revenue Authority (KRA) has cautioned taxpayers that submitting nil returns does not protect them from tax scrutiny if unexplained money flows into their bank or mobile money accounts.
According to the tax authority, deposits whose sources cannot be verified may be treated as taxable income—even when a taxpayer declares no earnings for the year.
This approach is supported under the Income Tax Act, which allows KRA to presume unexplained funds as income unless proven otherwise.
Tax expert Wachira Joseph noted that decisions by the Tax Appeals Tribunal reinforce KRA’s right to tax unexplained deposits.
He explained that once funds enter a taxpayer’s account and the source is unclear, the authority may classify the entire amount as income.
Filing nil returns does not automatically prevent a tax assessment if the authority later identifies financial activity.
“KRA can decide that all unexplained deposits constitute income and apply tax, penalties, and interest,” Wachira said.
To avoid such liabilities, taxpayers are advised to keep proper documentation such as loan agreements, contracts, or proof that funds were held on behalf of others.
Who Can File Nil Returns?
KRA allows taxpayers to file nil returns when they have no taxable income in a given financial year, provided they hold an active KRA PIN. This often applies to:
Students and unemployed individuals
People without business, employment, or rental income
Dormant businesses with no turnover during the reporting period
Even when there is no financial activity, all PIN holders must submit returns annually to remain compliant.
Temporary Suspension and Upcoming Filing Window
KRA recently announced a temporary suspension of nil return filing until May 1, 2026, as it conducts data validation across its systems. During this period, the authority cross-checks taxpayer records with banks, Safaricom, and the eTIMS (Electronic Tax Invoice Management System).
The filing window for the 2025 income year will run from May 1 to June 30, 2026. Taxpayers who fail to submit returns within this period face a minimum penalty of KSh2,000.
Risks of Undocumented Deposits
KRA warns that declaring nil returns while receiving income may trigger audits or investigations.
Discrepancies between declared earnings and banking or mobile money data may lead to tax assessments, penalties, and interest.
Experts advise both individuals and businesses to maintain proper financial records to avoid disputes with the tax authority.
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