The National Treasury has proposed the re-introduction of the minimum tax that was declared unconstitutional during former President Uhuru Kenyatta’s administration.
In a draft proposal titled ‘Medium-term Revenue Strategy 2024/25 - 2026/27’, the Treasury proposed the introduction of the tax to allow the government to meet its revenue generation objectives.
According to the Treasury, several Kenyan businesses falsely declare negative returns in a bid to evade tax payments.
The introduction of a minimum tax would help curb that.
“Minimum Tax 39. The Government recognizes the need for an entity to pay a minimum tax to facilitate the Government to achieve its objectives. This is due to the fact that some entities prepare their accounts to depict perpetual loss position thus evading taxation. To ensure fairness in taxation of income, the government will redesign the minimum tax taking into account the issues raised by the Court on the previous minimum tax,” Treasury’s proposal read in parts.
The tax proposed is based on gross turnover and not gains or losses.
This is to say that businesses will be mandated to submit 1 per cent of their gross turnover to the tax man regardless of the state of their yield.
The said tax was declared unconstitutional in 2021 by the High Court which ruled that it offended the principles of public finance itemised under Article 201 (a)(i) of the Constitution.
Consequently, the Court prohibited Kenya Revenue Authority (KRA) from further implementation or enforcement of Section 12D of the Income Tax Act by collecting or demanding payment of minimum tax.
The revenue collection agency then moved to the Court of Appeal to challenge the ruling. However, the appellate court dismissed KRA’s case for lack of merit.
Similarly, in January this year, the taxman issued a statement saying that they would move to to the Supreme Court to overturn the high court’s 2021 ruling.
A few months later in July, they withdrew the case denying ever intending to file it in the first place.
“Truth is that we never filed anything at the Supreme Court regarding minimum tax. We contemplated and even issued a statement but never proceeded,” a source said to the Business Daily.
