AfricaPress-Kenya: Manufacturers have welcomed the High Court’s ruling which on Monday temporarily suspended the implementation of minimum tax by the Kenya Revenue Authority (KRA).
The Kenya Association of Manufacturers (KAM) noted that the ruling captures the mood and the spirit of the country as businesses and individuals grapple with the difficulties presented with navigating the Covid-19 pandemic.
While reacting to the ruling, the taxman said it will abide by the court’s decision calling on those who had already paid the tax to retain it as a credit in the iTax ledger pending the outcome of the petition.
The High Court sitting in Machakos on Monday issued conservatory orders temporarily suspending KRA’s implementation of the Minimum Tax pending the hearing and determination of the petition.
The Petition had been filed by Isinya Bar Owners Association and Kenya Association of Manufacturers.
KRA said it successfully sought an early hearing date and the Court has agreed to hear and determine the matter before the second instalment becomes due.
“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,” said KRA’s Commissioner, Legal Services and Board Coordination.
“KRA shall abide by the ruling issued by the Court and await the outcome of the main petition slated for hearing on May 19. Those who have already paid the tax will retain it as a credit in their iTax ledger pending the outcome of the petitions.”
The minimum tax was introduced through the Finance Act 2020 and came into effect in January with KRA saying it was eyeing businesses that continually declare losses in their returns and do not pay taxes but have been operational over the years.
“Conveniently, the tax levied on business income is based on the profit made,” said KRA in guidelines to the new tax.
“When a business makes losses in a financial year, no taxes are payable and the loss is carried forward to the next period. To address this inequity in tax payment, the minimum tax was introduced,” explained the KRA.
The levy is supposed to be paid in quarterly instalments and due on the 20th day of each period ending on the 4th, 6th, 9th and 12th month of the year of income.
This means that if a firm’s financial year ends in December, minimum tax instalments fall due on the 20th of April, June, September and December. Last year KRA said it had projected to collect Sh20 billion from minimum tax returns in the first financial year of its administration.
However, the Kitengela Bar Owners Association argued that the Minimum Tax is unlawful and unconstitutional and if allowed will lead to the collapse of their businesses as well as that of the majority of Small and Medium Enterprises.
“According to the petitioners, by its very definition and as is undeniable, the said minimum tax does not amount to Value Added Tax, customs duties nor excise tax, yet the respondent purports to include it in the category of income tax,” read the judgement in part.
The Kitengella Bar Owners Association further challenged the categorisation of the minimum tax under income tax, since income tax is only chargeable on gains or profit, not gross turnover as implied by the minimum tax