OPPOSITION

Business community rejects new 1% minimum tax

They say the new tax will have an adverse effect on businesses

In Summary
  • The tax, introduced through the Finance Act 2020, is a base income tax payable by all persons regardless of whether or not they make a profit.
  • They have vowed to continue more rigorous engagement with Government in order to seek a better solution for local businesses
Workers at a local bottling plant pack Coca Cola sodas into crates ready for delivery to the market.FILE
Workers at a local bottling plant pack Coca Cola sodas into crates ready for delivery to the market.FILE

Eight business lobby groups in Kenya have called for the abolishment of the one per cent minimum tax introduced by the Government, set to take effect on January 1, 2021.

The tax, introduced through the Finance Act 2020, is a base income tax payable by all persons regardless of whether or not they make a profit. It is aimed at bringing more enterprises into the tax bracket despite their financial status.

Led by the Kenya Association of Manufacturers (KAM), they said the new tax will have an adverse effect on businesses, including deterring startups, increasing costs to consumers and increase cash flow constraints, consequently, pushing struggling entities to a premature close. 

"This will lead to loss of jobs and take the economy into a downward spiral of contraction,"KAM chairman Mucai Kunyiha said.

They have vowed to continue more rigorous engagement with Government in order to seek a better solution for local businesses, which are already hard hit by the Covid-19 pandemic.

According to the Institute of Economic Affairs CEO Kwame Owino,  taxation is a critical function in building sustainable and progressive economies. He said the timing to impose such taxes on businesses is ill-advised. 

''This unpredictability will overburden businesses and increase costs. We need to discipline public spending. Our debt is a spending problem and not a tax problem,'' Owino said. 

Institute of Certified Public Accountants of Kenya (ICPAK) chair Rose Mwaura said the 'unfavourable' tax policies not only discourage investment and growth, but they are also a disincentive to exporters, which in the long run dilutes competitiveness.

''The government does not generate revenue. It comes from businesses and individuals. Therefore, for any economy to grow, the Government must make it conducive for business to operate effectively,'' Mwaura said.

 Law Society of Kenya president Nelson Havi on his part said the tax burden is so enormous in the country, adding that there is a need to abolish the minimum tax, especially as the economy battles Covid-19.

Other bodies represented in the meeting include the Association of Kenya Suppliers (AKS), Retail Trade Association of Kenya (RETRAK), Association of Air Operators (AAO) and Association of Kenya Insurers (AKI).