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The High Court Judge, Justice George Odunga has just declared the minimum tax provisions unconstitutional and the minimum tax guidelines void. The judge has issued an order restraining KRA from further implementing or enforcing the provisions of Section 12D of the Income Tax Act.
This historic decision by the courts today 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 Finance Act 2020 introduced minimum tax payable at the rate of 1% of gross turnover, which came into effect on 1st January 2021.
Being a Turnover based tax means that the Minimum Tax is not based on the affluence of a business, usually measured by the bottom-line. Therefore, the businesses that would have been affected by the Minimum Tax are, Low margin businesses such as those dealing with Fast Moving Consumer Goods; Capital intensive businesses with tax incentives; New businesses and loss-making companies.
With the appreciation that there is an urgent need to expand the tax base in the country, industry’s perspective is that this can be done differently and with minimal negative impact to already struggling businesses.
Pre-Covid, businesses were already facing recurrent regulatory and policy challenges that impeded their productivity causing the sector to shrink significantly. We are still reeling in the aftermath of the pandemic, which saw many businesses slow down, as others came to a halt.