By Victor Orandi
The Finance Act, 2020 assented into law on 30th June 2020. The Act introduced a Minimum Tax, which is a base income tax payable in instalments by all persons regardless of whether or not they make a profit, effective 1st January 2021. The rate of the tax is 1% of the gross turnover of the company.
The minimum tax is a final tax payable if higher than the Instalment Tax and is due on the 20th day of each period ending on the 4th, 6th, 9th and 12th month of the year of income.
Income exempted from Minimum tax.
- Exempt income.
- Employment income.
- Residential rental income.
- Income subject to turnover tax.
- Capital gains.
- Income subject to oil and gas extraction, mining, dredging and quarrying activities.
However, the High Court on 20th September 2021 ruled that the Minimum Tax is illegal in that it will subject taxpayers to double taxation and inequitably reduce business capital. This follows a case filed by Kitengela Bar Owners Association at the High Court, Machakos challenging the new tax.
However, the Kenya Revenue Authority (KRA) has moved to the Court of Appeal seeking suspension of the High Court judgment.
Conclusion
Currently, the Court of Appeal has yet to suspend the High Court judgment. Unless the judgment is suspended, KRA would be obliged to refund all monies collected from businesses in minimum tax revenue.