When getting into business there are certain things we should all know, like paying taxes and which taxes are relevant to us. This tax is new and was announced introduced last year. However things changed when the High Court stopped it a couple of days ago.
What would have happened?
If the High Court had not ceased the KRA turnover tax on all businesses what would have happened?
A couple of days ago the High Court stopped the KRA from collecting minimum tax. This minimum payment was introduced by the Financial Act of 2020. Which in turn allowed KRA to collect a minimum of 1% of gross turnover from businesses starting 1st Jan 2021.
So what would have happened if this financial act had not been challenged and stopped by the High Court? Firstly, businesses would have had to file those taxes by 20th April 2021 regardless of whether they made a profit or not.
Secondly, this may have caused huge problems for businesses trying to survive during this tough period. This is because most businesses right now are currently either barely breaking even or making losses. Therefore by KRA adding that extra cost, can be a death sentence to struggling businesses.
Interesting Facts About The Minimum Tax
According to KRA, some would have been exempted from this tax. They are: –
a) Income that is exempt under the Income Tax Act (CAP 470)
b) Employment income – Section 5
c) Income subject to Residential Rental Income Tax – Section 6A
d) Income that is subject to Turnover Tax – Section 12C
e) Income that is subject to Capital Gains Tax – Eighth Schedule
f) Income of Extractive Sector – Ninth Schedule
g) A person engaged in business whose retail price is controlled by Government
h) A person is engaged in the insurance business
Another interesting thing to note is that it was to be paid quarterly. So this means that on the 20th of April businesses were expected to have filed at 1% of the gross turnover they made since January.
However, some subtractions would have been done to this tax as well. According to KRA, “Tax payable shall be reduced by any Advance Tax, Withholding Tax or Digital Service Tax paid for the period.” This means some businesses might have paid a lower than others.
Most businesses are excited that it has been paused and are awaiting a hearing for now. However, should the ruling in court favor the policy, then businesses will be forced to comply with this new tax regulation. It is safer to say let’s hope for the best but prepare for the possible worst.