The High Court has declared minimum tax provisions unconstitutional and the minimum tax guidelines void.

22 September 21


In its judgement, the High Court has also issued an order restraining the Kenya Revenue Authority (KRA) from implementing, further implementing, administering, applying and/or enforcing 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.

ALN Kenya | Anjarwalla & Khanna represented the Kenya Association of Manufacturers, the Retail Trade Association of Kenya and the Kenya Flower Council, the 2nd Petitioners in the consolidated petition heard by the High Court.

Minimum tax was introduced through the Finance Act, 2020 enacted on 30 June 2020 and amended by the Tax Laws (Amendment) (No.2) Act, 2020 (the Act) enacted on 23 December 2020 (TLA) to correct a drafting error which stated that minimum tax would apply where instalment tax is higher than minimum tax. To resolve this, the TLA amended section 12D of the Income Tax Act, Chapter 470 of the Laws of Kenya (ITA) to provide that minimum tax is payable where the instalment tax is lower than minimum tax, at the rate of 1 percent on the gross turnover.

The effect of this amendment was to introduce a new tax that would be payable unless specifically exempt. The following were the exemptions from minimum tax:

  1. Income that is exempt under the ITA;
  2. Employment income;
  3. Income subject to residential rental income tax
  4. Income subject to turnover tax;
  5. Income subject to capital gains tax;
  6. Income of the extractive industries;
  7. Income of a person engaged in a business whose retail price is controlled by the Government; and
  8. Income of a person engaged in insurance business.

The declarations by the High Court, are a reprieve to Kenyan taxpayers and businesses overwhelmed with tax demands in a season where the KRA has become more aggressive in tax collections.

A detailed legal alert will follow shortly.

Should you require more information, please do not hesitate to contact Daniel Ngumy or Faith Macharia.

The content of this alert is intended to be of general use only and should not be relied upon without seeking specific legal advice on any matter.