Nairobi — The Kenya Revenue Authority (KRA) target to raise more money through the minimum tax has been dealt a blow after the Court of Appeal termed it illegal.

The three-judge bench Court termed Section 12D of the Income Tax Act which was introduced by the Finance Act, 2020 and amended by the Tax Laws Amendment (No 2)Act, 2020 as null and void.

KRA sought higher Court intervention after the High Court ruled the Act unfair to businesses.

"The levying of Minimum Tax on gross turnover as opposed to gains or profit would lead to a situation where a loss making tax payer, would bear a heavier burden than on other taxpayers contrary to the spirit of Article 201 of the Constitution; and that lumping innocent entities that are in a loss making position with tax evaders in a bid to expand the tax base violates the innocent taxpayers' constitutional right to fair treatment and dignity," the Judges said in their ruling.

The minimum tax at the rate of one percent of gross turnover was introduced by Kenyan National Assembly, requiring firms to remit taxes to the taxman every quarter.

High Court Judge Justice George Odunga found it illegal at a time when firms were reporting losses.

With minimum tax, collection of taxes are based on gross turnover and not profits or gains. This means that loss-making firms are required to pay taxes with a goal of netting taxes from firms that previously tricked the tax collector that they were not making profits.

The lawsuit was sponsored by the Kenya Association of Manufacturers (KAM), Kitengela Bar Owners Association (KBOA), the Retail Trade Association of Kenya (Retrak) and the Kenya Flower Council.

In their argument, they questioned why Treasury exempted firms such as Kenya Airways from paying the tax.