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Nancy Gitonga and Fred Aminga

Business owners breathed a sigh of relief yesterday after the High Court sitting in Machakos issued temporary orders stopping Kenya Revenue Authority (KRA) from demanding payment for minimum tax introduced last year.

The move to halt the tax whose first instalment was to be paid today halts followed a petition by the Kitengela Bar Owners Association, saying the new tax will hurt their businesses and those of small and medium enterprises (SMEs) on the back of Coronavirus-inflicted economic knocks.

In his ruling, Justice George Odunga granted conservatory orders, saying continuous enforcement of the impugned legislation stands to kill businesses and livelihood of millions of Kenyans operating small to medium enterprises.

“I grant conservatory orders restraining the second respondent (KRA) whether acting jointly or severally by itself, its servants, agents, representatives or howsoever otherwise from the implementation, further implementation, administration, application and/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 and/or demanding payment of the Minimum Tax pending the hearing and determination of this petition,” he ordered.

Tax bracket

The tax was introduced in a bid to widen the tax bracket and help raise more revenues in a bid to bridge revenue shortfalls. 

In a June report to the Finance and National Planning Committee of the National Assembly, Treasury said it hoped to raise Sh21 billion from the introduction of minimum tax.

The tax, introduced via Finance Bill 2020, will see taxpayers remit one per cent of their gross annual turnover to KRA payable on a quarterly basis.

Officials of the association had sued National Assembly, KRA’s Commissioner General and Attorney General, arguing the minimum tax contravenes the constitution.Issuing the order, Justice Odunga said: “The death of a business is certainly not a damage that can be remedied by way of damages.

That is why it’s in the interest of Justice that this court intervene to preserve the business and livelihoods of the petitioners.”

He further observed that implementation of the minimum tax is likely to aggravate the current situation being faced by businesses owing to effects of the covid-19 pandemic.

“In my view, the right to life is meaningless unless people have an opportunity to engage in income generating activities in order to eke a living.”

Speaking to Business Hub after the order, a tax expert at PKF Consulting Michael Mburugu called the minimum tax a criminal initiative which was hurting the economy amid Covid-19 pandemic.

“Introduction of minimum taxes was unnecessary, unconstitutional and introduced unreasonable and inconsistent with all known principles of taxation.

How do you expect businesses to borrow money to pay taxes when they are making loses?” he asked.

The tax expert said the introduction and timing were wrong. “You tax income. You do not tax revenue,” he said, saying this will be a lesson to Parliament and the proponents of the tax.

“You can not tax poverty. When Covid-19 came businesses were definitely going to make losses, but the government went ahead and introduced these minimum taxes knowing very well they will make losses,” said Mburugu.

Aly Khan Satchu, an investment expert said the minimum tax idea was ill conceived, “on the fly and without any scenario analysis.

The Judge in Machakos has acted in the national interest and evidently understands tax better than the authors of this ridiculous ‘’Mickey Mouse’’ idea.”

Samwel Nyandemo, a senior economics lecturer at the University of Nairobi said the minimum tax was hitting small business at their lowest.

He said it was wrong to go for taxes from the less privileged in society. “Why should the government which has already mopped up the stimulus packages announced last year take more from these businesses yet they are not making enough profits?” he said.

Nyandemo warned that KRA could go ahead and assume collection despite the court matter.

“This is a country where law is not adhered to. So I hope KRA will adhere to the law.

“These were weird laws and authorities should instead have concentrated on sealing tax leakages and the rich to raise taxes. Not to target the poorest in the society,” he said.

Francis Kamau partner at Ernst & Young was also concerned about KRA, saying he is currently advising clients to be cautious.

“We have had a similar issue and we are not sure. The deadline is Tuesday (today) and we are now hoping that by the time of the second instalment which is on 2nd June, everything will be clear with regard to the case,” he said.

Pending  petition

The order will remain in force pending a petition filed by registered officials of the Isinya East sub-County Bar Owners Association. The petitioners operate their businesses within Kajiado, Isinya, Athi River and Mavoko within the Counties of Kajiado and Machakos.

 Kenya Association of Manufacturers, Retailers Association of Kenya and Kenya Flower Council in Nairobi said the orders granted in Machakos are applicable to the Petition they filed in Nairobi and can be relied on by all Kenyans.