Third Eye

Make taxes predictable for businesses to thrive

Tuesday, September 21st, 2021 00:00 |
Justice George Odunga.

Kenya Revenue Authority (KRA) yesterday moved to the Court of Appeal seeking to overturn a  High Court ruling that declared the implementation of the minimum tax unconstitutional.

Justice George Odunga’s ruling had provided relief to the businesses community, which has been hit hard by the burden of taxation and a tax regime analysts call unpredictable.

However, just hours after Justice Odunga read his judgement, the authority said it disagreed with the findings and would move to the Court of Appeal hoping for a favourable review.

KRA said the move will ensure the authority continues to review and improve on tax policies in order to reduce the tax burden while ensuring that every citizen contributes their fair share of tax.

Introduced by the Finance Act, 2020, the Act was to take effect on 1 January 2021, and was well intentioned as it sought to ensure each business registered and operating in the country pays income tax.

It followed Covid-19 knocks revealing Kenya’s pressing need to address fair and effective taxation of multinationals that can finance economic growth and development.

The tax was to be implemented parallel to the normal corporation income tax and will be charged at 1 per cent of a company’s gross business revenue.

The challenge, however, is that it will tax businesses regardless of whether they make a profit or not, except for individuals and companies that have exemptions.

Analysts now warn that the minimum tax could come to haunt the government, given that it is punitive and was not constituted by public participation.

Further, they say that it criminalises every Kenyan as if everyone wants to evade paying tax.

But more importantly, the new tax is an additional burden to business in a nation already reeling in many taxes, which will impact negatively on the cost of doing business.

This not only makes it difficult to attract foreign direct investments but also means that a country which sheds close to a million jobs will not gain synergies to explore further growth with additional cost burdens.

While it is okay for the taxman to mull additional revenue by expanding the tax base, it may be important for the government to go back to the drawing board and seek a better alternative going by the tag the tax is labelled; unconstitutional and punitive.

A predictable tax regime is a magic wand to businesses that thrive and plan for the future.

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