The unconstitutionality of minimum tax: An analysis of the court of appeal’s judgment on the Kenya revenue authority’s move to impose minimum tax

The Court of Appeal has upheld the decision of The High Court of Kenya (High Court) to nullify the Kenya Revenue Authority’s (KRA) introduction of minimum tax in the region. This comes as a reprieve to taxpayers, as the minimum tax would have required loss-making entities to pay the equivalent of 1% of their gross turnover, in tax.

8 Dec 2022 3 min read Tax & Exchange Control Alert Article

At a glance

  • The Court of Appeal upheld the High Court's decision, stating that the provisions of the Finance Act 2020, which introduced minimum tax, were unconstitutional and contradicted the spirit of Article 201 of the Constitution.
  • The Kenya Revenue Authority (KRA) argued that the minimum tax aimed to ensure equity in taxation by expanding the tax base and preventing tax evaders from escaping their tax liability.
  • The taxpayers and associations argued that the minimum tax violated the principle of fair sharing of the tax burden, targeting loss-making entities unfairly and contradicting other provisions that allow deductions for expenses. They also highlighted that assuming businesses in loss-making positions were intentionally avoiding tax violated their right to dignity.

Agreeing with the findings of the High Court, The Court of Appeal reiterated that the provisions of Finance Act 2020, which introduced minimum tax, was unconstitutional, as it was a contradiction to the spirit of Article 201 of the Constitution.

Arguments of the KRA

The KRA (Appellant) argued that the rationale behind the introduction of the minimum tax was to ensure equity in taxation by expanding the tax base to involve as many people as possible in sharing the tax burden. The Appellant further reiterated that the need to share the tax burden necessitated the inclusion of loss-making companies through payment of the minimum tax at the rate of one percent of their gross turnover.

The Appellant also argued that the ultimate purpose of imposing the minimum tax was to net tax evaders, by placing all loss-making entities under the Appellant’s bracket (as they nonetheless benefitted from infrastructure maintained by the government) and prevent tax evaders from escaping their fair share of tax liability.

Arguments of the Taxpayers and Associations

The Taxpayers and Associations (the Respondents) argued that the imposing of a minimum tax violated the principle of fair sharing of the burden of tax as set under Article 201 of the Constitution. The minimum tax would have unfairly targeted entities in loss-making positions, to pay taxes from their capital while thriving business paid taxes from their profits, maintaining their capital base. The Respondents also argued that the legal provisions that introduced minimum tax were contrary to other provisions in the Income Tax that allowed businesses to reduce their tax liability by taking allowable deductions such as expenses.

Besides, the Respondents submitted that the KRA’s argument on the introduction of the minimum tax to net tax evaders, violated taxpayer’s right to dignity as it assumed that honest businesses in loss-making position were intentionally avoiding paying tax. The Respondents stated that the KRA failed to adduce any evidence showing audited accounts of any establishments that purported to have made losses to avoid payment of taxes.

According to the Respondents, KRA did not justify the imposition of a broad tax regime that stands to punish genuinely complaint entities that deserve legal protection.

The Court of Appeal’s findings

In dismissing KRA’s appeal, the Court of Appeal found that the levying of minimum tax on gross turnover, as opposed to gains or profit would lead to a situation where a loss-making taxpayer, would bear a heavier burden than other taxpayers contrary to the spirit of Article 201 of the Constitution.

Additionally, the Court of Appeal appreciated the stack difference between tax evaders and businesses that are unable to pay taxes due to genuine losses. It further stated that tax evasion implied devious criminal conduct while the other is a victim of odd cluster inhibitions, not out of wilful design. Consequently, the Court of Appeal held that the imputation of criminal conduct for a business that  is grappling with a difficult economic environment, constituted grave humiliation and a violation of their right to dignity.


This decision by the Court of Appeal cements the place of a taxpayer’s right in the realm of tax imposition and tax legislation. We note from the judgment that both the trial court and the Court of Appeal understood and accepted that the rationale on sharing the tax burden was in consonance with Article 201(b) of the Constitution.

From the foregoing, courts have appreciated that parliament has the mandate of realising the provisions of the Constitution such as ensuring that the tax burden is fairly shared, however, the same must be within confines of the law and in line with the spirit of the Constitution.

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