The Kenya Revenue Authority (KRA) is planning to move to the Court of Appeal to overturn the High Court’s ruling that barred the taxman from collecting minimum tax from businesses.
Justice George Odunga on Monday, September 20, 2021, at the Machakos High Court, made the ruling after finding section 12D of the Income Tax Act unconstitutional.
The court noted that minimum tax was unconstitutional for subjecting taxpayers to double taxation and was punitive in nature.
However, the authority with the findings of the court and will prefer an appeal to the Court of Appeal to challenge this finding.
Reduce tax burden
In a press statement posted on their official website hours after the court ruling, KRA said the appeal will ensure that it continues to review and improve on tax policies for them to reduce the tax burden.
“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 the taxman.
— Kenya Revenue Authority (@KRACorporate) September 20, 2021
In 2020, the Kenya’s National Assembly amended the Income Tax Act to give KRA powers to collect minimum tax at the rate of one percent of the gross from companies making revenues of at least Sh50 million, starting January 2021.
However, business stakeholders faulted the government for introducing a new tax regime at a time when firms and the economy, in general, are struggling due to disruptions caused by Covid-19 pandemic.
The Kenya Association of Manufacturers (KAM), the Retail Trade Association of Kenya (Retrak) and the Kenya Flower Council are some of the lobby groups that had challenged the tax.
They argued that most companies were reeling from effects of Covid-19 and that the introduction of the new tax might lead to the closure of more loss-making companies.
Relief to businesses
Just after the High Court made the ruling stopping the minimum tax plans, the lobbies issued a statement welcoming the court’s decision.
They noted that the ruling provided much-needed relief to businesses that continue to strain under the weight of over-taxation and unpredictability in Kenya.
They further noted that the decision ensures that many businesses remain open and productive, and also provides space for businesses to bounce back and generate the much-needed revenue to support the country.
In April this year, the High Court temporarily barred KRA from collecting the tax after three officials of the Kitengela Bar Owners Association challenged it arguing that enforcement of the tax is unconstitutional and would harm their businesses.
The petition was filed against the National Assembly, KRA and Attorney-General Paul Kihara Kariuki.
The minimum tax was applicable to businesses, regardless of whether they make a profit or not.
Those exempted were individuals and companies paying employment tax and PAYE, rental income tax, turnover tax for small-sized firms, as well as capital gains and proceeds from mining or oil exploration taxes.
“The tax payable under this section shall be paid in instalments which shall be due on the twentieth day of each period ending on the fourth, sixth, ninth and twelfth month of the year of income,” section 12D(2) of the Income Tax Act states.