Justice George Odunga of the High Court has declared the minimum tax provisions unconstitutional and the minimum tax guidelines void. The judge has issued an order restraining KRA from further implementing or enforcing the provisions of Section 12D of the Income Tax Act.
The decision by the High Court provides much needed relief to businesses that continue to strain under the weight of over-taxation and unpredictability in the country today. The ruling also 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 Finance Act 2020 introduced minimum tax payable at the rate of 1% 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. This means that 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.
Before the onset of the COVID-19 and its ravaging economic effects, businesses were already facing recurrent regulatory and policy challenges that impeded their productivity causing the sector to shrink significantly.
The Kenya Association of Manufacturers (KAM) through its Chairman Mr. Mucai Kunyiha has welcomed the Court’s decision with the enjoined Associations who tirelessly worked to realize this outcome. These were the Institute of Certified Public Accountants of Kenya (ICPAK), Kenya Flower Council, Retail Trade Association and Isinya East Sub-County Bar Owners Association, and the legal team Anjarwalla and Khanna Advocates and Okwatch and Company Advocates.