NAIROBI, Kenya, Apr 19- Small and medium businesses can now breathe a sigh of relief after the High Court in Machakos temporarily barred the Kenya Revenue Authority (KRA) from levying the minimum tax of 1 percent announced last year.
In his ruling, Judge George Odunga ruled that issues raised by the petitioners who include business owners had weighty constitutional issues which require to be investigated further by the Court.
Odunga further stated that he was satisfied that the issues raised disclosed substantial questions of constitutional law as to what is at stake in the balancing of the need to secure the government’s revenue sources on one hand and the protection of the Bill of Rights.
For these reasons, Odunga gave conservatory orders to stop 1 percent tax collection by KRA until the matter is heard in its full merits before being finally determined by the Court.
“In the result I grant conservatory orders restraining the 2nd Respondent whether acting jointly or severally by itself, its servants, agents, representatives or howsoever otherwise from the implementation, further implementation, administration, application and/or enforcement of Section 12D of the Income Tax Act, Chapter 470 of the Laws of Kenya as amended by the Tax Laws (Amendment) (No.2) Act, 2020 by collecting and/or demanding payment of the Minimum Tax pending the hearing and determination of this Petition 154. It is so ordered,” Odunga ruled.
In June 2020, President Uhuru Kenyatta assented to the Finance Act, 2020 which amended the Income Tax Act (ITA) by introducing a new Section 12D providing for the introduction of Minimum Tax at the rate of 1 percent of the gross turnover effective 1 January 2021 (Impugned Amendment).
Consequently, KRA published “Guidelines on Minimum Tax” Central to the guidelines of Gross Turnover.
Business owners and consumer associations went to court to stop the collection of the tax and argued that they were threatened with the real and imminent enforcement of what they termed as an unconstitutional, unlawful and devastating minimum Tax introduced under section 12D of the Income Tax Act Cap 470 of the Laws of the amended Finance Act 2020.
They said that the minimum tax does not amount to Value-Added Tax, custom duties or excise tax, yet KRA purported to include it in the category of income tax.