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December 7, 2022

Kenya Court of Appeal upholds decision of the High Court of Kenya and declares minimum tax unconstitutional

  • In this case, the Appellant had appealed the decision of the High Court of Kenya that had declared minimum tax unconstitutional.

  • The Court of Appeal upheld the decision made by the High Court of Kenya.

  • The ruling implies that minimum tax is null and void and can only be reinstated through an Act of Parliament after taking into consideration the findings made by the Courts.

Executive summary

On 2 December 2022, Kenya’s Court of Appeal held that Section 12D of the Income Tax Act (Minimum Tax) as introduced by the Finance Act, 2020, was null and void to the extent 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 on other taxpayers contrary to the spirit of Article 201 of the Constitution.

Detailed discussion


The Finance Act, 2020, amended the Income Tax Act, introducing a Minimum Tax. The amendment provided for the Minimum Tax at the rate of 1% of the gross turnover and was to become operative on 1 January 2021. To implement the said section, the Kenya Revenue Authority (KRA) published "Guidelines on Minimum Tax."

Certain taxpayers went to court to seek a declaration that Section 12D of the Income Tax Act as introduced by the Finance Act, 2020, was illegal and contrary to the provisions of the Constitution. The trial court found merit in the petition and declared Section 12D was null and void as it violated Article 201 (b) of the Constitution. Further, the trial court granted an order of prohibition restraining the implementation, administration, or enforcement of the said amendment. Being dissatisfied with the decision of the trial court, the KRA appealed to the Court of Appeal.

Key arguments raised by the parties

The Appellant, among other issues, contended that the imposition of the Minimum Tax did not amount to double taxation as per the assertions of the Respondent. Further, the Appellant argued that the trial judge misconstrued the provisions of the Income Tax Act with respect to gains and profit in implying that income tax was only levied in respect of gains and profits, yet it is one out of the several types of income under section 3(2) of Income Tax Act. The Respondents asserted that the minimum tax is regressive and amounts to double taxation. They explained the issue in that a loss-making taxpayer would be expected to pay minimum tax, and that when the taxpayer becomes profitable, then they would be subject to pay corporation tax hence the issue of double taxation. In addition, they argued that this provision will deny the taxpayers the deductions allowed under Section 15 of the Act.

Court’s determination

The court found that the trial judge erred in his findings relating to double taxation; and in failing to resolve the applicability of Section 12D as a non-obstante clause not subject to any provision to the contrary vis a vis the provisions of Sections 15 and 16 of the Income Tax Act.

However, they agreed with the Trial Court in stating that Section 12D of the Income Tax Act as introduced by the Finance Act, 2020 was null and void to the extent 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 imposed 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.


For additional information with respect to this Alert, please contact the following:

Ernst & Young (Kenya), Nairobi

Ernst & Young Société d’Avocats, Pan African Tax – Transfer Pricing Desk, Paris

Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London

Ernst & Young LLP (United States), Pan African Tax Desk, New York


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