A ruling by Justice George Odunga declaring the minimum tax unconstitutional is being blamed for a Ksh22 Billion national budget deficit, even as the taxman mulls issuing refunds amidst an appeal against the decision.
The minimum took effect in January 2021 after amendments to the Income Tax Act were passed in 2020.
The Kenya Revenue Authority was compelled to issue refunds after the High Court on September 20 declared section 12D of the Income Tax Act unconstitutional, null and void. The minimum tax was applicable to businesses regardless of whether they make a profit or not.
It was aimed at companies who reported losses as a means of evading taxes, but was successfully challenged by the Kitengela Bar Owners Association and other petitioners who highlighted the detrimental effect it would have on their businesses.
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“That I am aware that as a precaution of the anticipated outcome of the judgement, some taxpayers despite the institution of the petition subject to this application had been paying taxes in compliance of section 12D of the Income Tax Act.”
“This leaves the applicant in a precarious and chaotic position because on one hand [sic], the applicant intends to appeal the High Court’s decision…while on the other hand, refunds of the already paid taxes based on the High Court judgement will render the applicant’s appeal nugatory,” KRA disclosed in court documents.
KRA wants the High Court decision suspended to enable it to meet its revenue collection targets. It argued that its statutory mandate to collect taxes had been interfered with.
On the other hand, Treasury Cabinet Secretary Ukur Yattani stated that the decision had forced them back to the drawing boards in the national budgeting process as it created a Ksh22 Billion deficit.
“The decision by the court stopping charging of minimum tax has already caused a Sh22 billion deficit in our budget and in fact we will have to revise most of our budgets,” he stated.
The Odunga decision was generally welcomed by the business community and lobby groups, who maintained that focus needed to be on strengthening businesses in the wake of the pandemic.
“This historic decision by the courts today (Monday) provides much needed relief to businesses that continue to strain under the weight of over-taxation and unpredictability in the country today. It not only ensures that many businesses remain open and productive but provides space for businesses to bounce back and generate the much-needed revenue to support our country,” the lobbies including Kenya Association of Manufacturers (KAM), the Retail Trade Association of Kenya (Retrak) and the Kenya Flower Council noted in a statement following the ruling.
