High Court of Kenya declares that minimum tax is unconstitutional

Local contact

EY Global

21 Sep 2021
Subject Tax Alert
Categories Corporate Tax
Jurisdictions Kenya

Executive summary

On 20 September 2021, the High Court of Kenya in Machakos (the High Court) declared that the minimum tax provisions as stipulated in section 12D of the Kenya Income Tax Act (KITA) and the minimum tax guidelines are unconstitutional. The High Court therefore barred the Kenya Revenue Authority (KRA) from implementing the said provisions.

This followed a petition by several affected and interested parties who sought relief from the implementation of the minimum tax due to the adverse effects it would have on their businesses.

Detailed discussion


The Finance Act, 2020, introduced Section 12D of the KITA which provides for the payment of minimum tax at the rate of 1% of the gross turnover. There was, however, a drafting error which hindered the implementation of the law since it provided that a person is liable to pay minimum tax equal to 1% of gross turnover if the person’s installment tax is higher than 1% of gross turnover. The Tax Laws (Amendment) (No. 2) Act, 2020, rectified the drafting error by providing that minimum tax is payable if installment taxes are lower than 1% of the gross turnover.

In January 2021, the KRA published guidelines which were meant to provide clarity on various issues including the definition of gross turnover, and exemptions of certain income items from the minimum tax regime. The income items which were exempt from minimum tax include: income that is exempt under the KITA, employment income, income subject to residential income tax, income subject to turnover tax, income subject to capital gains tax, and income from extractive industries. It also exempts persons engaged in business whose retail price is controlled by Government and persons engaged in insurance business.

To stop the implementation of minimum tax, the petitioners filed a petition at the High Court challenging the constitutionality of the minimum tax provisions and guidelines. On 19 April 2021, the High Court issued conservatory orders restraining the KRA from the implementation, administration and/or enforcement of Section 12D of the KITA pending the hearing and determination of the case. 

High Court decision

On 20 September 2021, the High Court made its final determination that the legislative amendments introduced in Section 12D of the KITA violates Article 201(b)(i) of the Constitution. This is because the application of this provision violates the principle of fair treatment, particularly affecting businesses in a loss-making position.

In addition, the High Court also made the determination that failure by the Respondents to comply with public participation requirements in line with the provisions of the Statutory Instruments Act rendered the minimum tax guidelines null and void.

Next steps

The Respondent has indicated that they will appeal the decision in the Court of Appeal. In the meantime, this landmark ruling has put a halt to the implementation of the minimum tax provisions and minimum tax guidelines, pending any further directions or determination at the Court of Appeal.


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

 Ernst & Young (Kenya), Nairobi
  • Francis Kamau
  • Christopher Kirathe
  • Hadijah Nannyomo
  • Robert Maina
  • David King’ori
Ernst & Young Société d’Avocats, Pan African Tax – Transfer Pricing Desk, Paris
  • Bruno Messerschmitt
  • Alexis Popov
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
  • Kwasi Owiredu
  • Byron Thomas
Ernst & Young LLP (United States), Pan African Tax Desk, New York
  • Brigitte Keirby-Smith
  • Dele Olagun-Samuel

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.