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Court declares minimum tax provisions unconstitutional

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NAIROBI, Kenya, Sep 20- Kenya’s High Court Monday ruled that the plan by the Kenya Revenue Authority (KRA)  to impose a Minimum Tax on companies’ annual sales is unconstitutional, null, and void.

Under the minimum tax which was introduced by Treasury Cabinet Secretary (CS) under the Finance Act 2020, businesses were to be charged at the rate of one percent of the gross turnover beginning 2021.

High Court Judge Justice George Odunga, in his ruling, said that the tax law is loss-making to businesses faulting the levy as a way of catching tax cheats which in turn affects the trading performance.

” The minimum tax has a potential of not only subjecting the people whose businesses for whatever reason are in loss-making positions to pay taxes from their capital rather than profits. Those who can pay taxes from their profits will not have their capital affected while those generally in loss-making positions will be sacrificed at the alter,” he added.

The suit was filed at the Machakos High Court by Kitengela Bar Owners association against the National Assembly, the Kenya Revenue Authority, and Attorney General Paul Kihara.

The petitioners argued that the tax would contribute to the annihilation of their businesses where many of the Small Micro Enterprises (SME’s)  were already struggling to manage their business due to the harsh economic environment occasioned by the pandemic.

They also argued that the levy is a contravention of section 15(1) of the Income Tax Act that says taxes should be subjected to gains and not as turnover.

” All these companies that are assumed to have avoided paying taxes are in loss-making positions, with due respect that is not how to enact a fiscal legislation,” Odunga ruled.

 

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