Relief for SMEs as court slams break on minimum tax roll out

Thousands of business in Kenya can breathe a sigh of relief after the High Court stopped the roll out of minimum tax, a newly introduced charge whose first instalment was to fall due on Tuesday, April 20.

The stoppage of its implementation follows a successful petition on the constitutionality of the tax by Kitengela Bar Owners Association, which sued the National Assembly, the Attorney General and the Kenya Revenue Authority.

The High Court sitting in Machakos issued conservatory orders blocking the Kenya Revenue Authority (KRA) from effecting the tax pending the hearing and determination of the petition in ruling on Monday, April 19.

“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 interven3e to preserve the business and livelihood s of the petitioners,” said Judge George Odunga.

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The bar owners’ association argued that their businesses are threatened with the imminent enforcement of what they term as an unconstitutional, unlawful and devastating minimum tax introduced under the Income Tax Act that was recently amended by the Finance Act 2020.

The petitioners said if the tax is imposed it would lead to the annihilation of their business along with a majority of SMEs in Kenya that are struggling to earn an income in an already subdued economy.

The businesses said that introduction of minimum tax requires a taxpayer to pay their income tax based on the higher of either 30 per cent of net profit or one per cent of gross revenue. The latter provides that the tax shall be applicable on the gross turnover of businesses and other taxpayers before deduction of production and operational costs. This, they argued contradicts sections 3 as read with section 15 of the income tax Act.

The minimum tax came into being through the Finance Act 2020 in January this year and was endorsed by the Treasury Cabinet Secretary Ukur Yatani as a measure to counter cases of tax evasion by businesses by declaration of nonexistent losses.

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