A Machakos court has suspended the one percent minimum tax on turnover that was due to come into force. The Kenya Revenue Authority wants businesses to pay income tax even if they are losing money.
This inequitable tax does not conform with global best practice. Other countries don't do it. The court was right to strike it down.
The KRA believes that many businesses dodge paying income tax by pretending to make losses. So they should pay the KRA one percent of their turnover. This is a flawed argument. Why doesn't KRA just audit these loss-making companies to determine the truth?
Secondly, paying one percent of your turnover to the KRA is no joke. A company pays 30 percent income tax on its net profit. A company making thin profits could find itself paying the minimum tax and be pushed into loss.
The KRA says it wants to widen the tax base so that everyone pays something. Like it or not, the most effective way to do that is by increasing the fuel tax. The minimum tax can be a killer blow for many businesses struggling to survive in the Covid era.
Quote of the day: "The difficulty lies not so much in developing new ideas as in escaping from old ones."
John Maynard Keynes
The English economist died on April 21, 1946
