Kenya's minimum tax after the court rulings
What happened to Kenya's 1% minimum tax in the High Court and Court of Appeal, why its status is uncertain, and how to advise loss-making clients.
By Achekam · · 5 min read · For Accountants & audit firms in Kenya
A loss-making client asks a simple question: "Do we have to pay tax this year?" For a short period in Kenya the answer was yes, because a minimum tax applied regardless of profit. Then the courts intervened, and the question became harder to answer than it looks.
This article sets out what the minimum tax was, what the courts decided, why its current status is uncertain, and how a firm can advise a loss-making client without overstating what is known. It also explains what Achekam computes for Kenyan companies, which matters if you are relying on it for the figures.
What the minimum tax was
Kenya introduced a minimum tax set at 1% and aimed at companies whose ordinary corporation tax was low or nil, typically because they reported losses. The policy aim was that every company with significant turnover would pay something, whatever its accounts showed.
That is a sharp difference from ordinary corporation tax, which is charged on profit. Resident companies and non-resident companies with a permanent establishment pay corporation tax at 30%, so a company with no taxable profit ordinarily pays no corporation tax for the year.
It is also different from turnover tax, a separate regime for smaller resident businesses with gross turnover above KES 1 million and not above KES 25 million. KRA gives the turnover tax rate as 1.5% of gross sales, and that rate should be confirmed on KRA's page before you rely on it. A client in that band is dealing with turnover tax, not the minimum tax. Turnover tax for small Kenyan clients covers it.
The High Court and Court of Appeal decisions
The minimum tax was struck down by the High Court in September 2021, and by the Court of Appeal in December 2022.
Two rulings at successive levels against a tax are a strong signal. They do not, on their own, settle what Parliament may do next, and they do not tell you whether later legislation has brought back something similar.
Whether it has been revived is uncertain
The research behind this article marks the question of revival as uncertain. That is the honest position for a firm to take with clients too: the minimum tax as originally enacted did not survive the courts, and whether it, or a successor, now applies to a given client is something to check against the current law at the time you advise.
Where to check:
- the current text of the Income Tax Act, as consolidated with each year's Finance Act;
- KRA's public notices and guidance for the year of income concerned;
- any decision after December 2022 on the same question.
The consolidated Income Tax Act on Kenya Law is the law behind corporation tax, PAYE, withholding tax, turnover tax, instalment tax and allowable deductions, and it is the place to read the provisions as they now stand.
Do not confuse the old minimum tax with other measures that use similar words in other countries or contexts. If a client's other advisers or a group finance team mention a "minimum tax", ask which law they mean before agreeing that it applies.
Advising loss-making clients
A loss-making company still has work to do even if no minimum tax applies:
- File the return. A Kenyan corporation tax return is due within 6 months after the year end, whether the company made a profit or a loss.
- Keep the loss computation. Record the tax loss and its make-up with the working papers, because it affects later years.
- Reconsider instalments. Instalment tax is based on the lower of 110% of the previous year's tax or the current year's estimate. A company moving into loss may estimate its current year, and that estimate should be documented.
- Write down the position on minimum tax. State in the file what the firm concluded, on which sources, and on what date, so the advice can be revisited if the law moves.
The fourth step protects both client and firm. If the position later changes, the file shows the advice was right on the law as it stood.
Be careful, too, with clients who were assessed or paid while the tax was in force. Whether amounts paid then can be recovered, and how, depends on the facts of each case and on what the courts ordered, and it is a question for a tax specialist rather than a general statement to all clients. Identify the clients concerned from your records, note what they paid and when, and take advice on each one rather than promising refunds.
Explaining it to the client
Clients rarely want the litigation history. They want to know what to do. A short, plain explanation works best: the old minimum tax was struck down by the courts; whether anything has replaced it is being checked against the current law; the company still files its return and keeps its losses on record; and the firm will tell them promptly if the position changes. Put that explanation in writing, so the client's understanding and the firm's advice match.
What Achekam computes
Once its rules are approved, Achekam computes Kenyan corporation tax, instalment tax, VAT, withholding tax, turnover tax, capital gains tax and stamp duty. That list does not include a minimum tax, so Achekam will not produce a minimum tax figure for a loss-making client; if your advice concludes one applies, compute it outside and record your reasoning.
Even the listed taxes depend on approval. Every Kenyan tax figure in Achekam's rule book was seeded "under review", and Achekam computes nothing from a figure until an Achekam platform administrator approves it. No firm user can change a rate. The instalment side is covered in Kenyan instalment tax and the company return.
A note for each loss-making client
List the Kenyan clients reporting a loss for the current year. For each, add a short file note on the minimum tax position, the sources checked and the date, and diary a review when the next Finance Act is published.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
