The Kenya Revenue Authority (KRA) on Tuesday, January 3, moved to the Supreme Court to challenge a decision by the High Court to declare the minimum tax subjected to businesses unconstitutional.
KRA filed a notice of appeal declaring an intention to challenge a decision by the Court of Appeal to uphold an earlier ruling.
On December 2, 2022, the Court of Appeal upheld Justice Odunga's September 2021 decision quashing Section 12D of the Income Tax Act introducing a 1.0% tax on turnover.
This was after the High Court in Machakos declared a section of tax laws allowing the taxman to demand minimum tax from companies unconstitutional.
“Take notice that the appellant, being dissatisfied with the decision of the Court of Appeal given at Nairobi on December 2, 2022 intends to appeal to the Supreme Court against the whole of the said decision,” the notice filed at the Registrar of the Supreme Court read in part.
The Authority is looking for a favorable ruling that will then pave the way for collection of the billions every year from businesses even if they made profits.
According to KRA, the minimum tax is based on gross turnover and not gains or profits, and all businesses, even those in a loss-making position, are required to pay.
In December 2022, the Court of Appeal upheld the High Court’s decision stating that the tax was based on a wrong assumption that all loss-making firms were evading taxes.
The Finance Act of 2020, introduced Section 12D of the KITA which provides for the payment of minimum tax at the rate of 1% of the gross turnover.
Furthermore, the Act also exempts persons engaged in business whose retail price is controlled by Government and persons engaged in the insurance business.
KRA’s push is aimed at protecting an estimated Ksh21 billion that it hopes to raise every year through the minimum tax, in a bid to shore up its revenue collections.
The ruling by the Court of Appeal indicated that the tax breached Article 201 on principles of public finance which states that the burden of taxation shall be shared fairly.
