Manufacturers are considering legal action if the government ignores their pleas to review the blanket imposition of the newly introduced one percent minimum tax that is aimed at firms abusing declaration of losses to evade tax.
Kenya Association of Manufacturers (KAM) policy, research and advocacy head Job Wanjohi said that they are hoping the guidelines on the implementation of the tax will take consideration of subsectors that experience low profit margins but have a tradition of paying their taxes, as opposed to the perennial loss-making companies that are the actual target of the new levy.
The lobby and its partners argue that the minimum tax assumes that a company is making a profit margin of more than four percent, which is not the case or feasible for many businesses especially manufacturers and distributors.
“It's unfortunate that our plea for deferment or revocation of the one percent minimum tax was refused. We are awaiting publication of guidelines to operationalise the new tax before making a decision on our last option, litigation,” he said.
“Firms are struggling to make a profit due to the Covid-19 pandemic…if pushed further, the small and medium enterprises could be tipped into premature closure, hurting jobs and the economy.”
In a letter sent to the government, KAM and its partner membership organisations said many firms have already been forced to implement tough cost cutting measures due to Covid difficulties, and that the new tax will further eat into their cash flows and force closures.
“In effect the proposed tax will be raising the tax rate of the least profitable companies which will promote an inequitable and unfair environment,” they said.