Retailers and manufacturers have sued the State over collection of one percent tax on gross turnover of companies arguing that this has created implementation uncertainties and risks closure of loss-making entities.
Three lobby groups—Kenya Association of Manufacturers (KAM), Retail Trade Association of Kenya (Retrak) and Kenya Flower Council— argue that most companies are reeling from Covid-19 effects and the new tax might lead to closure.
Retailers and manufacturers have sued the State over collection of one percent tax on gross turnover of companies arguing that this has created implementation uncertainties and risks closure of loss-making entities.
Three lobby groups—Kenya Association of Manufacturers (KAM), Retail Trade Association of Kenya (Retrak) and Kenya Flower Council— argue that most companies are reeling from Covid-19 effects and the new tax might lead to closure of more companies, which are making losses.
The payment, called minimum tax, was introduced through the Finance Act of 2020 and came into effect on January 1, making loss-making firms to start remitting tax.
The manufacturers and retailers argue that the amendment seeks to tax a taxpayer out of their pocket or capital, in violation of taxpayers’ right to property.
The associations says the minimum tax goes against the taxing principle that requires the percentage of taxpayers’ income that can be affected by a tax not to exceed the available.
“Since minimum tax is based on gross turnover and not gains or profits, all persons, even those in a loss-making position will be required to pay. If a company is in a loss-making position, how will it cater for the additional tax liability under minimum tax?” KMA posed in the petition.
The manufacturers reckon that the tax, which was implemented after changes were made to Income Tax Act (ITA) has also created uncertainty and ambiguity.
“The law, on one hand provides that taxes are to be charged on the net income, having deducted expenditure wholly and exclusively incurred by the person in the production of that income, and on the hand under the impugned amendment, provides that minimum tax is payable on gross turnover,” lawyer Faith Macharia submitted.
The minimum tax, she said is paid without deducting production costs and operational expenses that were already part of the provisions of the ITA.
She said Section 15(4) of the ITA recognises that companies can be in a tax loss position and therefore exempts such taxpayers from paying corporate tax.
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