The high court has declared minimum tax provisions unconstitutional and its tax guidelines void.
In its judgement, the High Court has issued an order restraining the Kenya Revenue Authority(KRA) from implementing, further implementing, administering, applying or enforcing 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 or demanding payment of the minimum tax.
The move has offered a reprieve to businesses that had decried heavy taxation.
In April this year, the High Court in Machakos granted conservatory orders restraining the KRA from enforcing provisions of the minimum tax pending the hearing and determination of a petition challenging it that had been filed in court.
The minimum tax was introduced under the Finance Act 2020, to correct a drafting error that stated it would only be applicable where instalment tax is higher than minimum tax. The law was effective from January this year, charged at the rate of one per cent of the gross turnover of a business.
However, a petition filed by Kitengela Bars Association had sought to declare the implementation of the tax as unlawful and unconstitutional.
Justice Odunga ruled that minimum tax has the potential of subjecting Kenyans to double taxation and also unfairly diminishes capital for those making losses while businesses making profits the capital base are unaffected.
“It results in diminishing capital for those making losses, while for those making profits the capital base is unaffected,” Justice Odunga in his ruling.
He ruled that minimum tax should be precise and should only target the intended.
The move has been welcomed by business owners who say implementation of the tax would have had a devastating impact on businesses that are already reeling from the effects of COVID-19.
However, the KRA authority has however disagreed with the ruling and has appealed the judgement citing they seek to reduce the tax burden while every citizen contributes their share of taxes.