Think tank floats steps for minimum tax resumption 

By , July 14, 2025

The government will have to consider tax base, profits made by businesses and the tax rate, if at all, it wants a successful reinstatement of the minimum tax in the country. 

This is even as the country now shifts its focus to robust revenue collection strategies to finance its Ksh4.2 trillion budget for the financial year 2025/26, with the revenue projection set at Ksh3.3 trillion.  

Introduced through the Finance Act, 2020, the minimum tax, which was to be levied at 1 per cent of a business’ gross turnover aimed to ensure that all businesses, regardless of their profitability, contribute to the country’s revenue basket by preventing base erosion, according to Kenya Revenue Authority (KRA).  

According to the Institute of Public Finance (IPF), the tax is supposed to act as an alternative to the Corporate Income Tax (CIT), with an aim of sealing tax loopholes by businesses.  

“So, the minimum tax is now supposed to be an alternative tax to corporate income tax, but it will be taxed on the revenues only, without making any reductions,” Veronica Ndegwa, an economist at IPF, said during a media roundtable.  

This is set to work in the sense that if the minimum tax is higher than the CIT, then a business will be required to pay the minimum tax to ensure that companies are not avoiding paying taxes in Kenya.

Tax avoidance means the act of a business manipulating its income or expenditure in a bid to reduce its tax liability.  

The government, through the Medium-Term Revenue Strategy (MTRS) 2024–2027, has signalled plans to reintroduce this tax to address corporate tax avoidance and protect the tax base.   

Kenya’s earlier attempt in 2020 to implement a minimum tax was voided by the High Court and Court of Appeal for violating the principles of equity, right to fair treatment and dignity and for failing to follow the laid down procedure under the Statutory Instruments Act.  

The petition to scrap the bill had been presented to the courts by the business community, which then had cited that they were running into losses due to the COVID-19 pandemic as part of their core arguments.  

Gross turnover 

In regard to the three core aspects that the think tank has highlighted, a turnover-based minimum tax is levied on gross turnover, which is the most common tax base for a minimum tax due to its simplicity, and ease in administration and compliance. 

“It is less susceptible to evasion but can impose an unequal tax burden on businesses with different profitability,” Ndegwa noted.  

An asset-based minimum tax, on the other hand, is based on the value of a company’s gross or net assets and can be more equitable than turnover tax. But given its likely detrimental impacts on investment, Ndegwa pointed out that Kenya should not consider introducing an asset-based minimum tax. 

“The main patch on this is that it poses a challenge in the valuation of assets, difficulty in balancing the tax and promoting investment, and it imposes a heavier burden on capital-intensive corporates,” she explained.  

Additionally, the effect of this, drawing lessons from countries such as Argentina, is that companies would now shift to leasing of assets, which in this regard becomes obsolete in addressing base erosion and profit shifting, which is the main objective of a minimum tax.  

At the same time, a profit-based minimum tax is charged on profits before taxes or earnings before interest, taxes, depreciation, and amortisation (EBITDA).  

This form of a minimum tax is closely aligned with a company’s actual financial performance; however, just like the standard corporate income tax, it is vulnerable to accounting adjustments and tax planning.  

“Because of the tax base, tax rates under this form of minimum tax are typically higher compared to turnover or asset-based minimum tax,” Ndegwa explained. 

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