KRA to appeal minimum tax ruling as industry celebrates

The Kenya Revenue Authority (KRA) has said it will appeal the decision by Justice George Odunga to declare minimum tax unconstitutional, even as industry celebrated the decision.

Sitting in Machakos, Justice Odunga declared the minimum tax provisions unconstitutional and the minimum tax guidelines void.

The Judge also issued an order restraining KRA from further implementing or enforcing the provisions of Section 12D of the Income Tax Act.

A statement from the Kenya Association of Manufacturers (KAM) welcomed the move saying it provides much-needed relief to businesses that continue to strain under the weight of over-taxation and unpredictability in the country today.

“It not only ensures that many businesses remain open and productive but provides space for businesses to bounce back and generate the much-needed revenue to support our country”, the statement further noted..

Minimum tax

The Finance Act 2020 introduced minimum tax payable at the rate of 1 percent of gross turnover, which came into effect on 1st January 2021.

Being a Turnover based tax means that the Minimum Tax is not based on the affluence of a business, usually measured by the bottom-line.

As a result, the businesses that would have been affected by the Minimum Tax are, Low margin businesses such as those dealing with Fast Moving Consumer Goods, capital intensive businesses with tax incentives, new businesses and loss-making companies.

The case was filed by Kitengela Bar Owners Association who enjoined Institute of Certified Public Accountants of Kenya (ICPAK), Kenya Flower Council, Retail Trade Association and Isinya East Sub-County Bar Owners Association.

 

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