High Court has declared a section of tax law that allows the Kenya Revenue Authority to demand minimum tax from companies, unconstitutional and unfair.
The Highcourt Judge Justice George Odunga said on Monday, September 20, it is unfair to bundle loss-making companies into the same basket as those with a history of tax evasion.
“Minimum tax provisions are unconstitutional and the guidelines should be considered void. I, therefore, issue an order restraining KRA from implementing, further implementing or enforcing the provisions of Section 12D of the Income Tax Act,” Justice Odunga ruled.
The ruling is a relief to companies that were expected to pay the 1 per cent levy on total sales from the beginning of 2021. This was despite the tough economic challenges several companies are facing due to Covid and poor state policies.
“This punitive amendment can only be enjoyed by thriving business. The solution is not to cast the net wide to get culprits but to come up with a tailor-made solution aimed at catching the culprits only,” Odunga said.
Odunga said that the minimum tax subjected businesses to double taxation and unfairly targets loss-making businesses to pay taxes from their capital.
“It results in diminishing capital for those making losses, while for those making profits the capital base is unaffected,” he said.
The 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 starting January this year.