BY SAM ALFAN.
Kenya Revenue Authority has been dealt a blow in it’s bid to raise taxes after a judge declared minimum tax provisions and the minimum tax guidelines unconstitutional.
Justice George Odunga declared that the failure by KRA to comply with the provisions of the statutory Instrument Act renders the minimum Tax guidelines null and of no effect.
Justice Odunga further barred KRA from implementing or enforcing section 12D of income Tax Act by collecting or demanding payments of minimum Tax.
“I have also found that failure by Kenya Revenue Authority to comply with the provisions of the statutory Instruments Act renders the minimum Tax guidelines null and void and of no effect and in the absence of the said guidelines particularly as regards the definition of “Gross Turnover”, section 12D of thr Income Tax Act cannot br operationalised,” said Odunga.
The court had temporarily stopped KRA from collecting the Minimum Tax since April dealing a blow to the taxman, which is struggling to meet revenue targets.
Justice Odunga issued the orders saying the petition by traders from Kajiado and Machakos counties raised weighty questions of law and KRA can “hold its horses” for the time being, as the court navigates the arguments made by parties involved in the case.
“In the results I grant conservatory orders restraining Kenya Revenue Authority whether acting jointly or severally by itself, it’s servants, agents, representatives or otherwise from the implementation, further implementation, administration, application or enforcement of section 12D of the Income Tax Act, chapter 470 of the laws of Kenya as amended by the Tax Laws (Amendment) (No. 2) Act, 2020 by collecting or demanding payment of the minimum Tax pending hearing and determination of this petition”, ruled Odunga.
The judge noted that the 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.
He said the suspension of the law will not occasion a lacuna in the operations or governance structure which, if left unfilled, even for a short while is likely to cause very grave consequences to the general populace.
Stanley Waweru, Samwel Gitonga and Bernard Oranga, who are officials of Kitengela Bar Owners Association sued KRA, National Assembly and the Attorney General challenging the introduction of Minimum Tax at the rate of 1% of the gross turnover effective January 1,2021.
They are bar owners are based in Kitengela, Isinya, Athi River and Mavoko in Kajiado and Machakos counties.
Minimum Tax was assented by President Kenyatta last June after Parliament amended the Finance Act, 2020 by amending Income Tax Act (ITA) and introduced a new Section 12D which provided the Minimum Tax at the rate of 1 per cent of the gross turnover, from January 2021.
KRA later published “Guidelines on Minimum Tax”, which defines Gross Turnover. 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 tax.
The bar owners argued that the imminent enforcement of what they term as an unconstitutional, unlawful and devastating tax is a threat to their businesses.
