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KRA says minimum tax already paid by businesses will be retained as credit

NAIROBI, Kenya, Apr 20 – Kenya Revenue Authority says minimum tax already paid by businesses will be retained as credit following High Court’s order halting its implementation.

In a statement, the Authority said it shall abide by the High Court’s decision to stop the implementation of the tax until all the petitions before the court is determined.

On Monday, the High Court sitting in Machakos issued conservatory orders temporarily suspending KRA’s implementation of the minimum tax pending the hearing and determination of the petition.

The Petition had been filed by Isinya Bar Owners Association and Kenya Association of Manufacturers.

“Since the matter is still pending in Court, we shall not discuss the merits of the Petitions as it would be akin to litigating outside the Court,” KRA said in a statement.

In their argument, the petitioners stated the implementation of the tax would result in the annihilation of their business alongside the majority of small and medium enterprises (SMEs) which are already struggling to generate any income under adverse economic conditions.

In his ruling, Justice George Idunga said, “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.”

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.”

The minimum tax, which came into force on January 1st, 2021, is calculated at the rate of 1 percent of gross turnover.

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It was introduced by the National Treasury through the Finance Act, which was assented by President Uhuru Kenyatta on June 30th last year.

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