Business Membership Organisations (BOMs) in the country have petitioned the government to stay the planned implementation of minimum tax slated to begin January 1.

Beginning January, all businesses earning above Sh50 million annual gross income will be required to remit one per cent of the income to Kenya Revenue Authority (KRA) as minimum tax. 

Speaking on behalf of the organiSations when she appeared before National Assembly Departmental Committee on Finance and Planning, Institute of Certified Public Accountants of Kenya (ICPAK) chairperson, Rose Mwaura, said there was need to address the underlying considerations prior to implementing the tax.

She said even though introduction of minimum tax is projected to earn the government tax revenues to bridge the borrowing gap, minimum tax could yield undesired economic effects. 

“Consequently, there is need to re-look at the tax policy relating to minimum tax and tweak this to suit Kenya’s economy,” Mwaura added.

Organisations represented in the petition are Kenya Association of Manufacturers, Retail Traders association of Kenya, Kenya Association of Hotel Keepers, Law Society of Kenya, Institute of Certified Public Accountants, Association of Kenya Insurers, Association of Air Operators and association of Kenya Suppliers.

They said the introduction of a new tax based on turnover would impact the financial wellbeing of companies negatively creating cash flow constraints.

According to Mwaura, the tax targets loss making companies which are already facing difficulties in paying taxes due to the current Covid-19 pandemic which has impacted businesses negatively.

“The proposed tax will negatively affect business operations and significantly hamper cashflow, pushing struggling entities to premature closure leading to loss of jobs and taking the economy into a downward spiral,” she said.

She said most new businesses do not make a profit in the first few years of operation hence, it would be unwise to tax them, saying most of them would simply pass the cost to consumers by simply hiking prices.

Consequently, the tax will make Kenya unconducive for businesses that take long to break even and make Kenyan goods uncompetitive in the global market.

Economic shock

Experts have questioned the wisdom of levying minimum tax on loss making companies at a time when companies are reeling from economic shock brought about by the Covid-19 pandemic.

“We caution against the realism of taxing corporates which have genuinely incurred losses more so in the current uncertain environment,” Churchill Ogutu, the head of research at Genghis Capital. 

However, KRA has defended the proposed tax, saying it will promote equity and inclusivity in tax administration. 

Essentially, Deputy Commissioner for corporate policy, Maurice Oray explained, minimum tax will be an alternative tax to instalment tax and will only be payable where it exceeds the instalment tax, adding that in cases where the instalment tax is higher than the minimum tax, the former will be due. 

“With this arrangement in place therefore, there will be no case of double taxation as it has been the fear of many industry players,” he said. 

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 in the country via Finance Bill 2020, will see taxpayers remit one per cent of their gross annual turnover to Kenya Revenue Authority, payable on a quarterly basis.