Businesses laud minimum tax ruling as KRA vows to appeal

The decision by the High Court to declare the minimum tax provisions unconstitutional and the minimum tax guidelines void has been supported by private sector stakeholders who argue that the tax could have been detrimental to their survival after COVID-19 disruptions.

However while private sector commends the court’s decision, the Kenya Revenue Authority (KRA) has said it will appeal the ruling delivered by Justice George Odunga on Monday.

“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. 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,” said Paul Matuku, KRA Commissioner for Legal Services & Board Coordination.

The court declared that Section 12D of the Income Tax Act is unconstitutional for violating Article 201(b)(i) of the Constitution which requires burden of taxation to be shared fairly.

According to the Kenya Association of Manufacturers (KAM) Chairman Mucai Kunyiha, the ruling now ensures that businesses which have been affected by the COVID-19 pandemic will remain open and bounce in order to generate the much-needed revenue to support our country.

“This historic decision by the courts today provides much needed relief to businesses that continue to strain under the weight of over-taxation and unpredictability in the country today,” said Kunyiha.

The court also barred the KRA from further implementing or enforcing the provisions of Section 12D of the Income Tax Act.

The minimum tax which is payable at the rate of 1% of gross turnover, came into force on January 1, 2020 under the Finance Act 2020.

Kunyiha added, “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. Therefore, 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.”

KAM further says broadening the tax base to shore up revenue should be done without burdening businesses which are still reeling from effects of the coronavirus pandemic.

The petition was filed by Kitengela Bar Association with 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 & Khanna Advocates and Okwatch and Company Advocates being enjoined in the case.

  

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