The Kenya Revenue Authority (KRA) was temporarily barred from collecting the minimum tax from businesses by the High Court on Monday, April 19.
It throws into disarray the taxman’s plans to collect Ksh21 billion via the tax by June, introduced in the Finance Act 2020, which took effect on 1 January 2021. The case opposing the tax was filed by officials of the Isinya Bar Owners Association and the Kenya Association of Manufacturers (KAM) who echoed sentiments of many business owners insisting the tax will hurt their businesses.
The bar owners association further maintained that implementation of the minimum tax was unconstitutional – citing unclear timelines issued by KRA and uncertainty over various directives.
They further pointed a finger at Parliament for passing an amendment to the law without it passing through the Senate for debate and approval.
High Court Judge George Odunga told KRA to “hold its horses” on collection of the tax while the arguments were considered.
In a statement seen by Business Today following the ruling, KRA promised to comply with the court orders.
“Since the matter is still pending in Court, we shall not discuss the merits of the Petitions as it would be akin to litigating outside the Court.
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“KRA shall abide by the Ruling issued by the Court and await the outcome of the main Petition slated for hearing on 19th May 2021. Those who have already paid the tax will retain it as a credit in their iTax ledger pending the outcome of the Petitions,” the Authority asserted.
Notably, KRA successfully sought for an early hearing date and the Court agreed to hear and determine the matter before the second instalment becomes due.
The minimum tax (imposed a rate of 1% of gross turnover) is payable when the amount of a taxpayer’s instalment tax payable is less than the amount of the minimum tax.
Income from insurance businesses and from businesses with a retail price controlled by the government is exempt from the minimum tax. When the sum of the minimum tax and instalment tax exceeds the minimum tax payable, the excess may be carried forward.
It’s critics have argued that it further burdens businesses which are already struggling to turn a profit.