Blow to KRA as high court declares Minimum Tax unconstitutional

Justice George Odunga strikes out Minimum Tax wage [Image: @just.georgeodunga/Twitter]
Kenya—The Finance Act, 2020 introduced minimum tax through a new section 12D to the income tax Act (CAP 470) of the laws of Kenya (ITA) with effect from January 1, 2021.

The new section dictated that where a person’s installment Tax payable is lower than the minimum tax, minimum tax shall be payable.  Paragraph 11 of the Third Schedule to the ITA sets the rate of minimum tax at 15 of gross turnover.

The above change elicited numerous questions including what income would be subject to tax, how the tax would be computed especially for companies with no December year-ends, and treatment of post-year adjustments among others.

Kenyans opposed to the move sought justice to the judiciary and yesterday justice Odunga declared the Minimum Tax Wage unconstitutional.

In the Monday ruling, High Court judge Justice George Odunga deemed the tax discriminatory to loss-making business entities as he faulted the use of the levy as a means to net tax cheats misrepresenting their trading performance.

“The minimum tax has the potential of not only subjecting the people to double taxation but also unfairly targeting people whose businesses for whatever reason are in loss-making positions to pay taxes from their capital rather than profits.” He said.

“Those who are able to pay taxes from their profits will not have their capital affected while those generally in loss-making position will be sacrificed at the altar.

Treasury cabinet secretary Ukur Yatani proposed the minimum tax in 2020, charged at the rate of one percent of total annual sales, to be paid by businesses whose tax obligation is below one percent of their gross sales.

This ruling came as a relief for businesses that were wary of paying the one percent on tall sales from the beginning of 2021 even as they slowly recover from the Covid-19 economic fallout.

It is a blow, however, for president Uhuru Kenyatta’s administration, which was looking to collect at least Sh21 billion annually from the tax.

The Kenya Revenue Authority, however, faulted the decision and vowed to seek a review in the appellate court.