Kenya Revenue Authority (KRA) has been barred by the High Court from collecting minimum tax from businesses, a move which hands them a lifeline.
Justice George Odunga arrived at the ultimate decision after ruling section 12D of the Income Tax Act as unconstitutional.
In April, the High Court had temporarily halted KRA from collecting the tax after three officials of the Kitengela Bar Owners Association challenged it in court on the fear that enforcing the tax alone would endanger the lifespan of their businesses.
The petition was also filed against the National Assembly and Attorney-General Paul Kihara Kariuki.
Had the minimum tax been affected, it would have seen businesses file their returns under the tax bracket, whether they made profits or not.
Justice Odunga in his determination was in agreement with the petitioners that the law would have thrown businesses across the country into the abyss.
He stated that the law would also be unfair to businesses entities in the country as even those making losses would be required to file one percent of their returns as tax.
Justice Odunga had hit out at the National Assembly for failing to involve the Senate prior to passing the law on minimum tax.
He noted that a number of counties had enforced the law, and left many businesses in serious danger of having to pay twice in tax.
In 2020, the National Assembly amended the Income Tax Act to give KRA the mandate to collect minimum tax at the rate of one percent of the gross from companies making revenues of at least Ksh50 million, starting January 2021. Businesses would have been forced to pay the KRA once every quarter had the tax bracket stood.
Those exempted were individuals and companies paying employment tax and PAYE, rental income tax, turnover tax for small-sized firms, as well as capital gains and proceeds from mining or oil exploration taxes.
“The tax payable under this section shall be paid in instalments which shall be due on the twentieth day of each period ending on the fourth, sixth, ninth and twelfth month of the year of income,” section 12D(2) of the Income Tax Act states.
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