Kenya High Court declares minimum tax unconstitutional

In a groundbreaking decision, the High Court in Kenya has declared the minimum tax provisions unconstitutional, sending shockwaves through the business community and sparking a debate on tax policy and revenue collection in the country. The ruling, which nullified the minimum tax guidelines that were introduced to expand the tax base and increase government revenue, has major implications for both businesses and the government. CNBC Africa spoke with Senior Tax Manager at KPMG, Robert Waruiru, to dissect the ramifications of this decision. The minimum tax provision, which required every citizen to contribute one percent of their turnover to government funds, was seen as a way to ensure that all businesses were paying their fair share of taxes. However, the timing of this provision raised concerns, particularly in light of the economic impact of the COVID-19 pandemic. Many businesses were already struggling to stay afloat, and imposing a high-level tax on their turnover posed a significant burden. Robert Waruiru acknowledged the noble objective of expanding the tax base but pointed out that the timing of the minimum tax implementation was ill-advised. With businesses facing closures and increasing costs of living, the minimum tax added an additional layer of financial strain. The high court's ruling to declare the minimum tax unconstitutional was seen as a bold move, with Waruiru emphasizing the relief it brought to businesses and taxpayers. The decision has prompted a reevaluation of the minimum tax policy in Kenya, with calls for a more strategic approach to tax collection. While minimum tax is not a new concept globally, countries like Nigeria have suspended similar provisions, and Tanzania has implemented a lower rate than Kenya's one percent. Waruiru suggested that while minimum tax could be beneficial, the rate and implementation methods needed to be reconsidered to ensure fairness and promote compliance. The implications of the high court's judgment have elicited mixed reactions, particularly from business associations like the Kenya Association of Manufacturers. The ruling was welcomed as good news for struggling businesses, but it also signaled a need for a comprehensive tax policy review. Waruiru emphasized the importance of defining a clear tax policy that aligns with the economic landscape and ensures equitable taxation. One of the key points raised in the interview was the need for a balanced approach to tax collection, targeting specific sectors and addressing the challenge of informal sector taxation. Waruiru highlighted the importance of expanding the tax base to include a larger segment of the population and reducing the burden on existing taxpayers. He underscored the necessity of cutting expenditure and reevaluating government spending to facilitate sustainable revenue generation. The decision to declare minimum tax unconstitutional has opened up a dialogue on tax reform and revenue collection strategies in Kenya. As stakeholders grapple with the implications of this ruling, the focus is on finding a middle ground that fosters economic growth while ensuring adequate government funding. The path forward calls for a collaborative effort to craft a tax policy that promotes compliance, fosters economic development, and strikes a balance between revenue generation and taxpayer comfort.