The Minimum Tax Burden Is No More

The Constitutionality of Minimum tax provision

In a Constitutional Petition filed early this year, The High Court in Machakos declared section 12D of the Income Tax Act unconstitutional and hence null and void. Section 12D had introduced Minimum Tax as a blanket target on all taxpaying business entities at a rate of 1% on net sales regardless of whether they made losses or profits. Justice George V. Odunga while delivering the judgement on 20th September 2021 noted that the Minimum tax provision was in contravention of Article 201 (b) (i) of the Constitution of Kenya 2010 for subjecting taxpayers to double taxation hence punitive in nature. The Kenya Revenue Authority (KRA) had banked on the introduced new tax to widen its tax base. The court however noted that when the tax collector chose to widen its net for a bigger catch did not care about the effect its decision will have on Small Scale Businesses which are currently in perennial losses due to the abysmal economy caused by the covid-19 pandemic.  Justice Odunga stated that;

“The minimum tax has the potential of not only subjecting the people to double taxation but also unfairly targeting people whose businesses for whatever reason are in a loss-making position to pay taxes from their capital rather than profits.”

The KRA wanted to utilize the Minimum tax to capture treacherous business entities that were avoiding taxes through the declaration of constant losses. The above tax system is however discriminatory especially on entities making losses since they will have to tax their capital as opposed to profits. The court further noted that a tax system that reduces the capital base falls short of the values of an optimal tax system.

Economists, financial experts and associations such as Retail Trade Association of Kenya (RETRAK), Kenya Association of Manufacturers (KAM), Kenya Private Sector Alliance (KEPSA), Deloitte, Price Waterhouse Coopers (PWC) and Kenya Bankers Association (KBA) had earlier on opposed the 2020 amendments to the Income Tax Act introducing Minimum tax due to its punitive nature on businesses with low-profit margins and high capital turnover. Firms in the category of fast-moving consumer goods (FMCG) have a reason to smile since they were the worst hit businesses by the new changes in the Income Tax regime due to their low-profit margins and high capital. Business entities can now operate without fear of reducing their capital to pay tax.

The Small Claims Court

A milestone towards achieving the ease of doing business in Kenya

The Small Claims court is a game-changer to the commercial sector in Kenya. With the introduction of this court, individuals being owed ksh 1 million and below have a reason to smile since they can quickly recover the sum through judgement and execution of orders from the Small Claims Court. This Court was established under the Small Claims Court Act of 2016 which has recently undergone several amendments. The court became operationalized early this year after being launched by the then Ag. Chief Justice Philomena Mbete Mwilu. This is a subordinate court in the structure of the court system under Article 169 (1) of the Constitution of Kenya. This court has a monetary jurisdiction of matters not exceeding Kshs 1 million. The judiciary has established the court as part of an initiative of creating the ease of doing business environment in Kenya. The move is set to attract small and medium scale investors into the Kenyan economy due to the assurance of a simple, inexpensive and expeditious commercial dispute resolution mechanism. 

The structure and the dispute resolution process is created in such a way that it enhances access to justice to all. The pleadings used to approach the court and response to claims filed before the court by the claimants are provided for under prescribed forms in the Rules of the Court hence no hustle of drafting complex documents as required in the other subordinate and superior courts. The settlement of disputes takes only 60 days hence expeditious enough to allow the litigants to proceed with their business without incurring unnecessary legal costs arising from lengthy litigation. It is therefore important for all business communities composing both local and foreign investors seeking to start up businesses in Kenya through any specials purpose vehicles for commercial transactions to be fully aware of the operations of the Small Claims Court. 

The main objective of this court is to guarantee the right of access to justice as envisioned under Article 48 of the Constitution of Kenya. The underlying values and objects of this court to the business community is the simplicity of procedure to the extent of making it easy for the litigants to represent themselves, timely disposal of suits, impartiality and fairness of the process. Litigants are not required to pay any court fees hence the court allows those who cannot afford legal costs to have equal access to justice. It, therefore, behoves everyone to be fully aware of the running and operations of the court for improved business transactions in the country.

Boaz Bwire |
The writer is a Lawyer at Oundo Muriuki and Company Advocates.