KRA loses bid to overturn minimum tax nullification

The Kenya Revenue Authority (KRA) has lost
its bid to overturn the illegality of the minimum tax at the Court of Appeal.

In its judgement of the taxman’s appeal, the
Court of Appeal agreed with High Court’s position which declared the tax
discriminatory.

The minimum tax which had taken effect
temporarily on January 1 last year, was levied at one per cent of gross
business turnovers and was targeted at loss-making entities.

The High Court declared the tax null and void
after a petition filed by Stanley Njuguna Waweru alongside the Kenya
Association of Manufacturers (KAM), the Retail Trade Association of Kenya
(RETRAK) and the Kenya Flower Council.

The petitioners argued successfully that the
tax was an unfair burden as it targeted businesses in genuine loss-making,
forcing them to pay taxes from their capital instead of gains and profits.

The Court of Appeal has come up with similar
finding cementing the minimum tax as null and void.

“Levying of minimum tax on gross turnover as
opposed to gains or profit would lead to a situation where a loss-making
taxpayer, would bear a heavier burden than other taxpayers contrary to the
spirit of Article 201 of the Constitution,” noted the Court of Appeal in its
ruling on Friday.

“Lumping innocent entities that are in loss-making
position with tax evaders in a bid to expand the tax base violates the innocent
taxpayers’ constitutional right to fair treatment and dignity.”

By losing the appeal, KRA has suffered a
major setback in its quest to expand the tax base for greater domestic revenue
mobilisation.

In its counter argument to prop the stay of
the minimum tax, the taxman insisted that many businesses had adopted
structures that enabled them to return perpetual tax losses even when trading
in profits so as to avoid paying any taxes.