Following a petition challenging its compliance, Kenya’s High Court has temporarily halted the introduction of a recently enacted minimum tax on businesses.
On Monday, Justice George Odunga issued conservatory orders prohibiting the Kenya Revenue Authority (KRA) from collecting the tax at the rate of 1% of gross turnover.
As a result, the minimum tax payments that were due on Tuesday, April 20, have been postponed until the case is resolved.
The levy, which was enacted as part of the Finance Act of 2020, is levied on all businesses, regardless of whether they make a profit or not.
The Income Tax Act (ITA) was amended by Parliament in order to implement the minimum tax from January 2021.
The tax, which is set at 1% of gross turnover, is paid in instalments on the 20th day of each quarter of the financial year.
“I grant conservatory orders restraining the Kenya Revenue Authority (KRA) …from collecting and/or demanding payment of the minimum tax pending the hearing and determination of this petition,” said Justice Odunga in his ruling signed and delivered virtually in a court in Machakos County.
The Kitengela Bar Owners Association filed the lawsuit against the National Assembly, KRA, and the Attorney General.
The bar owners contend in their petition that income tax is only levied on gains or profits, not gross turnover, as suggested by the minimum tax.
They also say that the tax is unconstitutional and could harm businesses.
The bar owners had also criticize the National Assembly for claiming that the tax was included in the income tax division when the legislation was amended.
The Kenya Association of Manufacturers (KAM), the Retailers Association of Kenya (RAK), and the Kenya Flower Council (KFC) had also filed a similar suit in Nairobi in March.
According to EastAfrican, the High Court sitting in Nairobi has since transferred the Nairobi petition to Machakos to have the two petitions consolidated and heard together.
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