Economy

Why Appeals rejected 1 per cent minimum tax

KTDA

KRA wins Sh621 million tax fight with Coop Bank. PHOTO | POOL

The Court of Appeal put the Kenya Revenue Authority (KRA) on the spot for its pursuit of minimum tax on claims that loss-making firms would bear a heavier taxation burden in breach of the law.

The three-judge bench rejected KRA’s petition that sought to overturn last year’s ruling by the High Court declaring the minimum tax unconstitutional, saying it was based on a wrong assumption that all loss-making firms were evading taxes.

KRA had petitioned the Court of Appeal to reject the ruling and pave the way for the taxman to collect an estimated Sh21 billion every year from businesses even if they made profits.

READ: KRA exceeds its revenue target by Sh149bn

The ruling is a relief for loss-making businesses that were wary of paying the minimum one per cent tax on corporate sales.

“In view of the foregoing, we agree with the respondent that levying of minimum tax on gross turnover as opposed to gains or profits would lead to a situation where a loss-making taxpayer would bear a heavier burden than other taxpayers contrary to Article 201 of the constitution,” the bench said in its ruling.

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Article 201 on principles of public finance says that the burden of taxation shall be shared fairly with the judges saying allowing KRA to enforce the tax would breach a key principle of the law. “If indeed there is a wide world of difference between tax evaders/avoiders and those who are unable to pay taxes due to genuine losses in their business, what would be the rationale for lumping them together?’’

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