TAXATION

Minimum tax will seal tax avoidance loopholes

To a large extent, this will promote equity and fairness in tax payment.

In Summary

• The minimum tax is among tax provisions in the Finance Act 2020 that took effect on January 1, 2021

• It will be charged at the rate of one per cent of the gross turnover.

KRA Commissioner General James Githii Mburu
KRA Commissioner General James Githii Mburu
Image: COURTESY

Kenya is among tax jurisdictions in the world that operate a self-assessment tax regime. This is a regime where the taxman puts utmost trust in the taxpayer and expects him or her to declare the rightful amount of tax on income generated in a given period.

Although this regime is the best at a time when taxmen are changing tax administration approach from enforcement to more friendly strategies, self-assessment could easily be taken advantage of by tax avoiders. The best way to ensure the regime is not taken advantage of is to put in place foolproof tax policy measures.

One such measure that might work perfectly well is the minimum tax. 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.    

Introduction of the minimum tax might, therefore, be the much-needed measure to put an end to instances where some taxpayers deliberately declare losses year in year out to avoid payment of taxes. By sealing this loophole, the minimum tax will ensure a level field for all players. To a large extent, this will promote equity and fairness in tax payment.

Unless we all pay our rightful share of taxes, our country will forever be trapped in the webs of foreign debts, thereby stagnating our country’s development.  

Kimani Wairimu, Nairobi