Kenya Revenue Authority has filed an appeal against a ruling by the High court suspending the
collection on minimum tax from businesses.
KRA has sought an early hearing date, and the court agreed to hear the matter. Additionally,
KRA is applying for a stay to the court appeal, said Mr. Paul Matuku, KRA commissioner for
legal services. The appeal seeks an early date for the case to be heard on May 19 before the
second installment for minimum tax payment.
The appeal comes barely 48 hours after the high court issued conservatory orders that
successfully block KRA from implementing the tax until a hearing and petition by Kitengela Bar
Owners Association. The orders restrain KRA or anybody acting on its behalf from enforcing
section 12D of income tax amendment (No2) Act, 2020. The High Court George Odunga, in his ruling,
said the petition by traders was raising substantial questions and that the tax collector should wait
until the court listens to arguments by parties.
Outside the court, other lobbies, including the Kenya Association of Manufacturers (KAM),
Kenya Flower Council, and Retail Trade Association of Kenya (Retrak), have also expressed
their displeasure against the tax. They argue that many companies are wobbling from the effects
of Covid-19, and a new tax may cause the closure of loss-making companies.
Federation of Kenya Employers, in a February 2021 statement, said that “enterprises are
struggling to survive during the Covid-19 pandemic. Small and medium enterprises could if
pushed further close prematurely, hurt jobs and the economy.”
What Is Minimum Tax?
The minimum tax is a levy emanating from the Finance Act 2020 by the national assembly
empowering KRA to collect 1% of gross turnover and not profits or gains meaning even the loss-
making entities will pay. Turnover is the amount that a business generates from total sales within
a particular period, unlike profit that measures earnings after deducting the expenses. Gross
revenue or income or the other names you use when referring to turnover.
The implementation began in January 2021 until the high court halted the collection on April 19,
2021. Businesses should pay minimum tax quarterly by the 20th day after each quarter of an
accounting year. The tax is payable after the fourth, sixth, ninth, and twelfth months of every
The purpose of introducing a minimum tax was a way to seal loopholes that some institutions use
to evade taxation by declaring losses. Kenya is a self-assessment tax regime meaning that KRA
collects the amounts that people declare. According to the principles for this form of taxation,
KRA levies taxes on business incomes based on the profit margin. It means that a business that
declares a loss in a particular period is not in the taxpaying bracket. However, some firms have
been abusing the provision to avoid paying corporation tax, and others by a perennial declaration
of losses to the taxpayer.
A salient question about such cases is how businesses that post losses continuously continue
Concerns by the Petitioners
The fear by the petitioners and those supporting their case is that collecting the tax will cause the
extinction of small and medium enterprises (SMEs) struggling to generate income under difficult
economic conditions. The petition in high court also faults minimum tax as a product of a
the process that contravenes Section 15(1) of the Income Tax Act that states taxation should be
subjected to gains or profits but not turnover.
Other grievances by the aggrieved parties are:
• Minimum tax does not allow deduction of cost and expenses before taxation
• Minimum tax can become more than the mandatory 30% corporate tax creating a heavier
• Failures to take the ability of taxpayers to pay minimum tax into account when many
SMEs make losses in their first years.
Tax experts and analysts feel that implementing such a tax will weigh heavily on companies with
high turnover but a low profit margin. They cite businesses selling fast-moving consumer goods
like supermarkets may seem to earn much income, but profit margins are low. For instance, a
trader who buys 1000 products at 500 each and sells at a profit of 50 will have a gross profit of
The turnover by the business will be 550,000, so the 1% minimum tax will be for the
entire amount. Additionally, the total sales are not a profit because of operating costs. The
recorded profit of 50,000 after-sales will also reduce after deducting all expenses, but the
minimum tax will be for the entire turnover of 550,000. KRA will charge Ksh 5500 as minimum
tax when it would have been just Ksh 500 when based on profits. If the entity declared profits
and falls into the corporate tax category, it would pay much more than in the previous years.
The opposing parties will present their submissions to court when the case comes up in court in