Oil marketing companies and insurance firms are the biggest winners of the Tax Laws (Amendment) Bill, 2020 after MPs voted to exempt them from payment of minimum tax.
The MPs backed amendments to the Tax Laws (Amendment) (No 2) Bill, 2020 that sought to impose the Minimum Tax at the rate of 1 percent of the gross turnover which was introduced through the Finance Act of 2020.
The Bill amends the provisions relating to Minimum Tax to provide that it will be payable when the installment tax is lower than the minimum tax.
The minimum tax shall apply to all persons whether they are making profits or incurring losses. The move seeks to expand the tax base and ensure companies that make perpetual losses contribute towards enabling the government in provision of services.
The Treasury said where companies are making losses, they continue to enjoy facilities such as infrastructure, whose cost of construction continue being serviced by the government.
“We have proposed an amendment to exempt those whose business are already regulated by the government like the petroleum and insurance sectors,” Gladys Wanga, who chairs the Finance and National Planning committee said during the scrutiny of the Tax Laws (Amendment) (No 2) Bill, 2020.
Ms Wanga successfully lobbied MPs to amend the Minimum Tax provision to exempt business whose prices are already under strict government regulation.
Petroleum Institute of East Africa (PIEA) and the Association of Kenya Insurers (AKI) had earlier lobbied the Finance committee to exempt oil marketing companies and insurance firms from payment of minimum tax.
PIEA argued that prices of petroleum products in Kenya are regulated by Energy and Petroleum Regulatory Authority (Epra) and hence oil marketing companies have no role to play in determining the prices.
“Imposing minimum tax will erode the predetermined single digit margins and render oil marketing companies business unsustainable,” the petroleum lobby told the committee.
PIEA said petroleum products’ turnover constitutes of cost of product, taxes and levies and operational costs with taxes and levies making up 60 percent of the turnover.
“It will be punitive for the same turnover to be subjected to additional taxes. OMCs that participate in the Open Tender System have very low margins ranging from 0.5 percent to 0.8 percent. Imposing minimum tax will cause importers of petroleum products to withdraw from the OTS,” the lobby said.