KRA temporarily stopped from collecting minimum tax by court

Times Tower KRA's Head Office.

By: Isaac Thuku @MountKenyaTimes

The High Court on Monday temporarily stopped the Kenya Revenue Authority, KRA from collecting Minimum Tax until all the petitions before the court is determined.

Justice George Odunga said enforcement of the impugned legislation stands to kill businesses and livelihood of millions of Kenyans operating small to medium enterprises which form the majority of the business community.

“it is my view, and I find that this is an appropriate case for the 2nd Respondent (KRA) to ‘hold its horses’ for the time being as this Court navigates through the labyrinth of the respective contentions made by the parties herein…” said Justice Odunga.

The order will remain in force pending a petition filed by registered officials of the Isinya East Sub County Bar Owners Association.

“The death of a business is certainly not a damage that can be remedied by way of damages. That is why it’s in the interest of Justice that this court intervene to preserve the business and livelihood’s of the petitioners,” he said.

Further, Justice Odunga stated that what drafters of the Constitution intended was that the Court in determining the Constitutionality of an enactment ought to adopt what I would call “the guided-missile” approach to target only the offensive parts of the Act.

Minimum tax was introduced under the Finance Act 2020 to be charged at the rate of one per cent of the gross turnover of a business and took effect on January 1, 2021.

The tax is a base income tax payable by all persons regardless of whether or not they make a profit. It is aimed at bringing more enterprises into the tax bracket, despite their financial status.

The payment was to be made on or before the 20th day of each period ending on the fourth, sixth, ninth and 12th month of the year of income.

In the past, income tax was levied on businesses based on the profit they make.

Kenya has focused its efforts on reducing poverty and inequality, ensuring adequate health, education, and the development of basic infrastructure.

Despite significant progress, the country still faces challenges in domestic resource mobilisation characterised by a narrow tax base.

According to economic experts, tax-base expansion is a key strategy for enhancing revenue mobilisation.

This strategy, they say, is among key initiatives outlined in the KRA’s strategic corporate plan.

Through exploration of untapped sectors of the economy, expansion of the tax base, more revenue is collected.

As such, tax-base expansion aligns with the equity and fairness principle which epitomizes an effective tax administration system.

Besides, tax-base expansion promotes inclusivity thereby ensuring the tax burden is evenly shouldered across the board.

According to KRA the minimum tax was introduced to ensure everyone in business contributes something to the economy.

“We understand that there are Kenyans who are in credit business therefore this one per cent charge on total turnover has been put in place to ensure they also support the country’s revenue,” said KRA Assistant Manager of Taxpayer Services, Wanja Wangondu in February.

However, eight business lobby groups led the Kenya Association of Manufacturers, had last year, said the new tax would have an adverse effect on businesses, including deterring startups, increasing costs to consumers and increase cash flow constraints, consequently, pushing struggling entities to a premature close.

According to the Institute of Economic Affairs CEO Kwame Owino, taxation is a critical function in building sustainable and progressive economies.

Kwame said the timing to impose such taxes on businesses was ill-advised.

Other bodies represented in the meeting include the Association of Kenya Suppliers (AKS), Law Society of Kenya (LSK), Institute of Certified Public Accountants of Kenya (ICPAK), Retail Trade Association of Kenya (RETRAK), Association of Air Operators (AAO) and Association of Kenya Insurers (AKI).

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