NAIROBI, Kenya Sep 20 – The row over the implementation of the minimum tax will now play out at the Court of Appeal after the Kenya Revenue Authority (KRA) vowed to challenge the ruling of the High Court to thwart the legal provision on minimum tax.
In a statement issued by KRA’s Commissioner for Legal Services and Board Coordination Paul Matuku, the revenue authority termed the ruling as unsatisfactory.
“The Kenya Revenue Authority respectfully disagrees with the findings of the Court and will prefer an appeal to the Court of Appeal to challenge this finding,” the tax agency said in a statement.
In the ruling rendered on Monday, Justice George Odunga was declared that the minimum tax provision is unconstitutional and the minimum tax guidelines are void.
The taxman however poked holes in the ruling arguing it is within the agency’s mandate to occasionally review tax policies as it deems fit to ensure everyone pays a fair share of taxes.
“This is to ensure that KRA continues to review and improve on tax policies in order to reduce the tax burden while ensuring that every citizen contributes their fair share of tax,” Matuku noted.
The High Court invalidated the newly enacted provision of the Income Tax Act requiring the payment of minimum tax at the rate of 1 per cent of gross turnover which came into effect on January 1 in the ruling issued by Justice Odunga sitting in Machakos.
The provision, seen as a plan by government to narrow a fiscal deficit estimated at about 7.5 per cent of the Gross Domestic Product, made it mandatory for payment of tax even when a business makes loses, sparking condemnation from owners of small and medium enterprises.
In a decision delivered on Monday, Justice George Odunga said Section 12D introduced by the Finance Act through the Tax Laws (Amendment) (No. 2) Act, 2020 “violates Article 201(b) (i) of the Constitution and as such null and void.”
Officials of Kitengela Bar Owners Association, Kenya Association of Manufacturers, Retail Trade Association of Kenya and the Kenya Flower Council challenged the provision in Petition No. E005 of 2021 filed in Machakos.
Article 201 of the Constitution provides that “(b) the public finance system shall promote an equitable society, and in particular — (i) the burden of taxation shall be shared fairly.”
Under Section 12D, the minimum tax charged at the rate of 1 per cent of gross sales is applicable on persons whose gross turnover is more than Sh1 million but less than Sh50 million in a given year.
The court prohibited KRA or its agents from further implementation, administration and enforcement of the annulled provision by collecting minimum tax.
The Kitengela Bar Owners Association had told the court that the sustenance of Section 12D assented to by President Uhuru Kenyatta in June 2020 would lead to the “absolute annihilation of the association’s businesses along with a majority of Small and medium enterprises struggling to earn an income in the already abysmal economy.”
The historic decision by the court was celebrated by small and medium businesses with the petitioners saying it provided the much needed relief for the segment of the economy which continues to strain under the weight of over-taxation and unpredictability in the country’s taxation regime.
Parliament amended the Income Tax Act to introduce the minimum tax at the rate of one per cent of the gross turnover, in a law enacted in June 2020. In the past, income tax was levied on businesses based on the profits made.
The minimum tax was based on gross turnover and not gains or profits, and all persons, even those in a loss-making position were required to pay.
