Business

Court Suspends The Collection Of Minimum Tax

Published

4 years ago

April 19, 2021

Businesses can now breath a sigh of relief after the High Court sitting in Machakos issued conservatory orders restraining the Kenya Revenue Authority (KRA) from collecting the Minimum Tax pending the hearing and determination of the petition filed by Kitengela Bar Owners Association.

The Minimum Tax which is calculated at the rate of 1% of gross turnover was introduced by the National Treasury through the Finance Act which was assented to by the President on 30th June 2020.

Treasury earlier stated that by introducing Section 12D under the Income Tax Act, firms operating in Kenya would be required to pay a Minimum Tax whether they were making profits or not as they are enjoying the use of services and infrastructure funded by other taxpayers.

However, the petitioners argued that the Minimum Tax which was introduced by the National Assembly is unconstitutional as it does not fall within the category of taxes imposable by the National Government under Article 2019 of the Constitution.

“According to the Petitioners, by its very definition and as is undeniable, the said Minimum tax does not amount to Value-added tax, custom duties nor excise tax, yet the 1st Respondent purports to include it in the category of income tax. However, by dint of section 3 (which is the charging provision) Petition E005 of 2021 Page 5 as read with Section 15(1) of the ITA, Income tax is only chargeable on gains or profit and not as gross turnover as implied by Minimum Tax,” Justice George Vincent Odunga stated in his ruling delivered virtually at Machakos High Court.

He went on, “As such, this novel tax cannot be deemed in any manner of form to amount to income tax. It was therefore contended that the action of the 1st Respondent to introduce the said novel tax is not only ultra vires but also contra the Constitution of Kenya 2010.”

Also Read KRA intercepts suspected 6,000 litres ethanol worth Kshs 2.2M

The private sector has decried the implementation of the tax at a time COVID-19 has dented cashflow small businesses while threatening the collapse of many others.

Minimum Tax came into force on 1st January 2021.

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