Court deals blow to KRA’s Sh21bn tax plan

The Kenya Revenue Authority (KRA) has suffered a setback after the High Court yesterday temporarily stopped it from collecting the minimum tax from businesses, jeopardising its plans of netting Sh21 billion by June this year.

Three officials of the Kitengela Bar Owners Association, Stanley Waweru, Samwel Gitonga and Bernard Oranga, have sued the taxman, saying that the enforcement of the tax is unconstitutional and would harm their businesses.

They argue that the KRA has set ambiguous timelines, creating uncertainty and leaving them and other taxpayers confused and unable to anticipate or plan for their tax liability and compliance.

The bar owners also fault MPs for allegedly passing an amendment to the law without subjecting the Bill to the Senate for debate and approval, in violation of the Constitution.

Charging minimum tax on gross turnover, they say, also affects the finances of county governments which already have their own set of levies on businesses within their jurisdictions.

High Court judge George Odunga said the petition by the traders from Kajiado and Machakos counties raised weighty questions of law and that the KRA can “hold its horses” for the time being, as the court listens to the arguments made by parties involved in the case.

“It is true that the impugned amendment introduces minimum tax in Kenya for the first time, hence the respondents (KRA) can hold off on its implementation for the limited period of determination of the petition,” the judge said.

Justice Odunga said the suspension of the law would not occasion a lacuna in the operations or governance structure which, if left unfilled, even for a short while was likely to cause very grave consequences to the general populace.

“In this petition, I am satisfied that the issues raised herein disclose substantial questions of constitutional law as what is at stake is the balancing of the need to secure the government’s revenue sources on one hand and the protection of the Bill of Rights on the other, both of which the State is enjoined to attain,” the judge said.

Parliament amended the Income Tax Act (ITA) to introduce the minimum tax at the rate of one percent of the gross turnover, from January 2021.

The minimum tax is based on gross turnover and not gains or profits, and all persons, even those in a loss-making position will be required to pay.

The KRA has defended the law, saying taxes are a form of raising revenue sanctioned by the Constitution and the imposition of taxes does not deprive the bar owners the right to property as alleged.

The taxman said payment of taxes was an obligation imposed on all businesses and individuals and suspending the law would bring more cases, since nearly all businesses and individuals would raise similar issues about taxation, fairness issues, and double taxation, among others.

The Finance Act 2020 was passed through the laid down procedure for enacting law, argued the KRA.

According to taxman, the real danger lay with the government foregoing the taxes at an interim stage due to suspension of the law.

Justice Odunga, however, dismissed KRA’s assertion, saying there is need to respect the socio-economic rights of Kenyans.

“In my view, the right to life is meaningless unless people have an opportunity to engage in income-generating activities in order to eke out a living. It does not help to guarantee a right to life in the Constitution or the law books when there are no corresponding socio-economic rights which are realistically and progressively respected, protected, promoted and fulfilled as required under Article 21 of the Constitution,” the judge said as he suspended the law.

The Kenya Association of Manufacturers (KAM), the Retail Trade Association of Kenya (Retrak) and the Kenya Flower Council had also challenged the tax, arguing that most companies were reeling from effects of Covid-19 and that the introduction of the new tax might lead to the closure of more loss-making companies.