Eight Business Associations representing the business community in Kenya have come together to call for the abolishment of the 1% minimum tax introduced by the government, set to take effect on 1st January 2021.
The Associations, 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 to the economy.
‘This tax will have an adverse effect on businesses, including deterring startups, increasing costs to consumers, and increase cash flow constraints, which will consequently push struggling entities to reduce operations or worse, prematurely close. This will lead to loss of jobs and take the economy into a downward spiral of contraction,’ said Mr. Mucai Kunyiha, KAM Chairman.
Institute of Economic Affairs CEO, Kwame Owino added that taxation is a critical function in building sustainable and progressive economies.
‘The timing to impose such taxes on businesses is ill-advised. This unpredictability will overburden businesses and increase costs. We need to discipline public spending. Our debt is a spending problem and not a tax problem. This is a cynical way of collecting taxes because businesses will be taxed whether or not they make profits,’ noted Mr. Owino.
The tax, introduced through the Finance Act 2020, 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.
Rose Mwaura Institute of Certified Public Accountants of Kenya (ICPAK) Chair stated, ‘Unfavourable tax policies not only discourage investment and growth, but they are also a disincentive to exporters, which in the long run dilutes our competitiveness. The government does not generate revenue. Revenue comes from businesses and individuals. Therefore, for any economy to grow, the government must make it conducive for business to operate effectively.’
Concluding the session, Law Society of Kenya President Mr Nelson Havi said, ‘The tax burden is so enormous in this country. We need to enlighten the public and government, to see the need to abolish minimum tax especially now, as we combat COVID -19.’
The Associations stated that they will continue more rigorous engagement with the government in order to seek a better solution for local businesses, which are already hard hit by the COVID 19 pandemic.