Relief for Kenyan businesses as the tax due date is nullified by the Court

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Kenyan businesses can now heave a sigh of relief after court has finally granted an injunction on minimum tax case.

In January this year, eight business associations representing the business community in Kenya have come together to call for the abolishment of the 1 per cent minimum tax introduced by the government. 

The new bill which was to take effect on 1st  January this year was introduced through the Finance Bill, 2020 (the Bill). 

1 per cent tax rejected image from KPMG

The bill was tabled in the National Assembly for debate and approval on 6 May 2020. This was a departure from previous years where finance bills would be introduced to the National Assembly after the reading of the national budget in June. This change was necessitated by recent constitutional interpretations issued by the court which barred the government from collecting taxes before the relevant tax provisions are approved by the National Assembly, and a subsequent amendment to the Public Finance Management Act, 2012 which required that the Finance Act be enacted by 30 June. In January this year, eight associations were against a section of the bill that slaps a 1 per cent minimum tax on all individual businesses regardless of whether or not they make a profit. 

The Kenya Association of Manufacturers (KAM), Law Society of Kenya (LSK), Institute of Certified Public Accountants of Kenya (ICPAK), Association of Kenya Suppliers (AKS), Retail Trade Association of Kenya (RETRAK), Association of Air Operators (AAO), Association of Kenya Insurers (AKI) and Kenya Tourism Federation (KTF), held an event to discuss the impact of the tax on the economy. 

The case, filed in Machakos by Kitengela Bar Owners Association through their lawyers Okwach & Company Advocates, has raised similar issues to the suit that had been filed last month by Kenya Association of Manufacturers, Retailers Association of Kenya and Kenya Flower Council in Nairobi.

The court has on April the 19th 2021 granted an injunction against the implementation of the tax due date.

Justice George Odunga sitting in Machakos stated that, “… I grant conservatory orders restraining the 2nd Respondent Kenya Revenue Authority (KRA) whether acting jointly or severally by itself, its servants, agents, representatives or howsoever otherwise from the implementation, further implementation, administration, application and/or enforcement of Section 12D of the Income Tax Act, Chapter 470 of the Laws of Kenya as amended by the Tax Laws (Amendment) (No.2) Act, 2020 by collecting and/or demanding payment of the Minimum Tax pending the hearing and determination of this Petition.”

The orders granted in Machakos are applicable to the Petition filed in Nairobi and can be relied on by all Kenyans.

Also Read: EABC Urges EAC Partner States to Harmonise Tax Regime

This has been confirmed and admitted by KRA this afternoon in court before Justice Mrima in the Nairobi Petition.  By virtue of the Conservatory Orders having been granted, the Minimum Tax payments due tomorrow have been stayed until the matter is heard and determined in full.

This order fully aligns with the petitions submitted to the courts by the above-mentioned Associations on the increased cost burden to businesses across the country.

“It also captures the mood and the spirit of the country as we grapple with the difficulties presented with navigating the COVID-19 pandemic.” Reads a joint press release from the business community in Kenya.

Additionally, the High Court sitting in Nairobi has now transferred the Nairobi Petition to Machakos to have the two Petitions consolidated and heard together. The Conservatory Orders issued are an interim measure and the matter will be fully heard in the coming days. As KAM and the other Associations involved, we shall continue to vigorously argue our case on behalf of members.

The analysis from KPMG also notes that this rate remains significantly higher than that for other businesses which are eligible for a tax rate of 1 per cent on turnover under turnover tax for income ranging from KES1 million ($9,093) to KES50 million ($454,661). Further, the amendment on the lower threshold is in order to align with the current lower individual tax band. 

Also Read:Kenyan government urged to abolish the 1% minimum tax taking effect in 2021

Yvonne Kawira is an award winning journalist with an interest in matters, regional trade, tourism, entrepreneurship and aviation. She has been practicing for six years and has a degree in mass communication from St Paul’s University.

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