And this, in a season where the Kenyan Revenue Agency (KRA) is said to have been aggressively collecting tax.

Machakos (a town 63kms south-east of Nairobi) high court judge, George Odunga, said the levy targeted businesses who were suffering losses. And, it amounted to double taxation.

"Apart from minimum tax unfairly targeting people whose businesses are making losses for whatever reason, by forcing them to pay taxes from their capital as opposed to from their profits, it could potentially lead to double taxation,” he said.

"Generally, businesses suffering from losses will be sacrificed on the altar while the capital, for those making profits and are able to pay their levies, will not be affected," the judge said.

He also issued an order restraining the KRA from implementing or enforcing the controversial Section 12D of the Income Tax Act by collecting or demanding payment of the minimum tax.

Daniel Ngumy and Faith Macharia of ALN Kenya | Anjarwalla & Khanna represented the Kenya Association of Manufacturers, the Retail Trade Association of Kenya and the Kenya Flower Council in the application.

Ngumy said, “The minimum tax provisions had been widely criticised as they applied a tax of 1% on all taxpayers, even where such taxpayers were in a tax loss position. This was particularly problematic for businesses badly impacted by the pandemic. Furthermore, the provisions did not accommodate tax overpayments and tax losses carried forward creating the risk of double taxation.

“This unequal application of a tax law on taxpayers was found to be contrary to the provisions of the Kenyan Constitution, which requires that the burden of taxation be equally shared.”

Ngumy described the decision as “landmark” and one which would provide much needed relief to businesses and taxpayers embarking on the post-Covid road to recovery.

“It also points to the need for deeper engagement by the National Treasury and the Kenya Revenue Authority in policy formulation so as to create a tax regime that supports economic growth and development for all in Kenya.”

Minimum tax - a “new tax” payable unless it was specifically exempted - was introduced through legislation enacted in December 2020.

Bloomberg described the court ruling as a blow for President Uhuru Kenyatta’s administration, which was looking to collect at least KES 21 billion ($191 million) annually from the tax.

It was to be another income stream for the administration’s plan to narrow the East African nation’s fiscal deficit to 7.5% of gross domestic product in the year through June.

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