Treasury moves to correct error in minimum tax law

The National Treasury has proposed changes to the minimum tax legislation which takes effect from January 1, 2021. Also Read:  Financial hardships overtake health as top concern among Kenyans Through ammendments carried in the Tax Laws (Ammendment) (No.2) Bill, 2020, businesses entities whose installment tax is lower than one percent of their expected annual gross turnover will be required to make minimum tax payments. The amendment serves as correction to the Income Tax Act schedule 12 D which was introduced earlier this year through the Finance Act, 2020. In its original form, the minimum tax was aimed at covering businesses whose one percent of their respective gross annual turnovers exceeds the installment tax. “This appears to be a drafting error, as the Finance Bill has also proposed to amend Section 12 of the Income Tax Act to exempt persons from payment of instalment tax if minimum tax would be higher than instalment tax. Minimum tax should only be applicable where instalment tax payable is lower than minimum tax and we expect this to be amended before the Bill is enacted,” tax consultancy firm Deloitte stated in a June budget note. The minimum tax takes effect from next year and applies at the rate of one per cent of gross turnover paid out on a quarterly basis and is aimed at obligating loss making entities to pay their fair share of revenues to the exchequer. Meanwhile, the installment tax is an advance tax paid by businesses on a quarterly basis to cover the total tax payable for the year of income. The roll-out of the minimum tax continues to face backlash from the local enterprises as they see it as an unjust charge at a time when businesses are seeking to emerge from the COVID-19 hit.

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