Companies

KQ exempted from 1pc minimum tax

allan-kq

Kenya Airways CEO Allan Kilavuka during a January 18 briefing in Nairobi. PHOTO | DENNIS ONSONGO | NMG

bonface_img

Summary

  • The tax shield was announced by National Treasury Secretary Ukur Yatani in a Kenya Gazette notice dated March 17, 2021.
  • The national carrier has been making losses over the years, which has seen it pay minimal corporate taxes.
  • In the financial year ended December 2020, it even received a tax credit of Sh354 million.

Kenya Airways #ticker:KQ is now exempted from paying the minimum tax set at one per cent of gross turnover, saving the cash-strapped airline hundreds of millions of shillings annually.

The tax shield was announced by National Treasury Secretary Ukur Yatani in a Kenya Gazette notice dated March 17, 2021.

The national carrier has been making losses over the years, which has seen it pay minimal corporate taxes. In the financial year ended December 2020, it even received a tax credit of Sh354 million.

The company, however, faced significant cash outflows from the introduction of the minimum tax on January 1, 2021, with the new levy to be paid if a firm’s normal corporate taxes fall below one percent of gross revenue.

But Mr Yatani has protected KQ, as the carrier is known by its international code, from this new tax that is designed to ensure that firms that are in perpetual losses also contribute to the State’s coffers.

“In exercise of the powers confirmed by section 13(2) of the Income Tax Act the CS for National Treasury and Planning directs that the income derived from or accrued in Kenya by an airline in which the government of Kenya owns at least 45 percent of its shares, and the subsidiaries of that airline shall be exempted from the provisions of Section 12(d) of the Act,” Mr Yatani said in the notice.

The notice did not mention KQ specifically but the shareholding threshold fits the government’s ownership in the company.

Through the National Treasury, the government holds a 48.9 per cent stake in the airline. The stake could rise to 100 per cent following the commencement of plans to nationalise the company which is considered a strategic asset with benefits to the wider economy including tourism and the horticulture sector.

Without the protection, KQ was scheduled to make its first minimum tax payment by April 20 covering the first three months of its current financial year.

The tax exemption means that the national carrier will now only pay income taxes when it returns to profitability in the future.

The Nairobi Securities Exchange-listed firm generated revenues of Sh52.8 billion in the year ended December. Assuming it posted a similar turnover this year, it would have paid the minimum tax amounting to Sh528 million in the absence of Mr Yatani’s protection.

The tax shield will be extended to the airline’s subsidiaries such as the low-cost carrier Jambojet which flies to domestic destinations.

For KQ, the tax exemption is the latest financial assistance it has received from the government that is keen on keeping it afloat despite mounting losses.

The company reported a record Sh36.2 billion net loss in the year ended December, widening it from Sh12.9 billion the year before as costs surpassed revenues by a large margin.

Other loss-making firms will not be so lucky as the minimum tax is designed to ensure that each company pays either the new levy or normal corporate taxes, whichever is higher.

“Minimum tax has been introduced to ensure that every person makes a fair and just contribution to the provision of government services regardless of the person’s profit position,”Kenya Revenue Authority said in a tax guide.