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Reprieve for businesses as court suspends minimum tax

Justice George Odunga.

The government’s plan to widen its revenue base by introducing new tax measures has received a blow after the High Court suspended the implementation of a new tax law. The law required persons or companies, whether they are making profits or losses, to pay a minimum tax of one per cent.

Justice George Odunga said the Kenya Revenue Authority (KRA) commissioner-general should neither collect nor demand payment of the minimum tax, pending the hearing and determination of a case filed by Kitengela Bar Owners Association.

In suspending the implementation of the law, the judge said the introduction of minimum tax in Kenya is new, hence the KRA can halt its implementation until the case is heard and determined.


The law came into force on January 1, 2021 following amendment of the Finance Act, 2020. The minimum tax imposed a rate of one per cent of gross turnover which is payable when the amount of a taxpayer’s instalment tax payable is less than the amount of the minimum tax.

When opposing the interim order, the KRA commissioner- general had told the court that it should be allowed to continue with the implementation and if the petition succeeds, it will refund the taxes paid.

Economic recession

KRA added that Kenya and the whole world is going through a serious economic recession mainly attributed to the vagaries of Covid-19 pandemic. The court took judicial notice of the fact that for a number of months last year, a lockdown was imposed and restrictions on movement imposed during certain hours. That curfew is still in force in the country while five counties have been classified as disease infected areas and are under lockdown.

“As a result, businesses have been seriously and adversely affected and with that sources of income have been seriously diminished if not obliterated altogether. It is not in doubt that as a result of the effects of the mitigating steps taken by the government, people lost their jobs while businesses had to close down,” said Justice Odunga.

Accordingly, he stated, it is not far-fetched to say that further implementation of the minimum tax is likely to aggravate the situation, further sending the petitioners and businesses into abyss.


“That is a situation which ought to be avoided since it would be unhelpful to tell the petitioners once they fold up and or are wound up that they can resurrect and carry on with their businesses. In my view, the lesser evil would be for the commissioner-general to continue operating as it has been operating hopefully in the next few months and also to keep the petitioners afloat,” said the judge. He explained that the right to life is meaningless unless people have an opportunity to engage in income generating activities in order to eke a living.

In the petition, the businessmen led by Mr Stanley Waweru argue that effect of the said amendment is that they are threatened with the real and imminent enforcement of what they term as an unconstitutional, unlawful and devastating minimum tax introduced under section 12D of the Income Tax Act.

They say that should the new be imposed, it will lead to the absolute annihilation of their business along with a majority of small and medium enterprises that are struggling to earn an income in the already struggling economy.

Finance Act

They further contend that the disputed minimum tax introduced by the National Assembly in the amendment of the Finance Act is unconstitutional as it does not fall within the category of taxes imposable by the National Government as envisaged under Article 209 (1) of the Constitution. According to them, by its very definition, the said minimum tax does not amount to Value-Added Tax, custom duties nor excise tax, yet the National Assembly included it in the category of income tax.

The court heard that income tax is only chargeable on gains or profit and not as gross turnover as implied by minimum tax. As such, they argued, the novel tax cannot be deemed in any manner to amount to income tax. The traders also said the new law is inconsistent with the meaning of income tax as provided under the Income Tax Act (ITA).

In their view, on one hand, the ITA provides that income which is subject to tax is an income in respect of gains or profits having deducted all expenditure wholly and exclusively incurred in the production of that income. On the other hand, minimum tax is chargeable on gross turn over including losses with no possibilities of deducting expenses or costs. –