REVENUE

Minimum tax set to level playing ground – KRA

According to the Finance Act 2020, the minimum tax will only be payable where it exceeds the instalment tax

In Summary
  • The minimum tax is among tax provisions in the Finance Act 2020 that took effect on January 1, 2021 and will be charged at the rate of 1% of the gross turnover.
  • Contrary to industry concerns, business enterprises registered under the turnover tax (ToT) regime will not be liable to pay the minimum tax.
KRA Assistant Manager of Taxpayer Services,Wanja Wangondu
KRA Assistant Manager of Taxpayer Services,Wanja Wangondu
Image: CHARLENE MALWA

The minimum tax has come in place to ensure everyone in business contributes something to the economy, KRA Assistant Manager of Taxpayer Services,Wanja Wangondu has said.

“We understand that there are Kenyans who are in credit business therefore this one per cent charge on total turnover has been put in place to ensure they also support the country’s revenue,” said Wangondu.

The minimum tax is among tax provisions in the Finance Act 2020 that took effect on January 1, 2021 and will be charged at the rate of one per cent of the gross turnover.

According to the Finance Act 2020, the minimum tax will only be payable where it exceeds the instalment tax payable to the taxman.

The payment will be made on or before the 20th day of each period ending on the fourth, sixth, ninth and 12th month of the year of income.   

“Many industry players have been of the fear that there will be double taxation on the introduction of this new tax but this is not the case, essentially, the minimum tax will be an alternative tax to instalment tax and will only be payable where it exceeds the instalment tax,” said Wangondu

She further explained that in cases where the instalment tax is higher than the minimum tax, the former will be due.

We understand that there are Kenyans who are in credit business therefore this one per cent charge on total turnover has been put in place to ensure they also support the country’s revenue
KRA Assistant Manager of Taxpayer Services,Wanja Wangondu

Apart from tax-base expansion, the minimum tax is set to level the operating playfield for business enterprises by ensuring that all contribute towards the government effort to mobilise resources for growth and development.

Kenya’s private sector has asked Treasury to implement the one per cent minimum tax on informal businesses to increase revenue collection and stimulate economic growth.

The tax on gross turnover came into effect this month and is payable on three-month installments. 

The payment will be made on or before the 20th day of each period ending on the fourth, sixth, ninth and 12th month of the year of income.    

Contrary to industry concerns, business enterprises registered under the turnover tax (ToT) regime will not be liable to pay the minimum tax.

The qualifying threshold for ToT registration is an annual turnover exceeding Sh1 million but less than Sh50 million.

Just like minimum tax, ToT is currently charged at the rate of one percent of the gross sales.

Some industry players however are terming the minimum tax as punitive especially as most businesses are still recovering from the effects of the pandemic.

“The timing for this new tax is not right, we are in talks with the government  to see if it can be shelved for 6 months then we review as we monitor business recovery,” said Caroline Kariuki, CEO, KEPSA.

Caroline noted that there are many other ways the government can reach out to businesses that don’t pay taxes, both local and foreign.

The Kenya Tea Development Agency on the other hand estimates that the minimum tax will cost smallholder tea farmers Sh754million every year in what could retract expected gains under the Tea Act 2018.