Opinion Article: MINIMUM TAX by CPA Bilal Musani, ACCA


Over the last decade, the Government implemented huge infrastructure projects to spur economic growth and financial stability.


This was largely supposed to ease the tax burden on Kenyans who are already paying huge taxes compared to the other growing nations worldwide, in return for very limited benefits. Fund developments, re-opening of factories, foreign amnesty, Universal Healthcare, Free Schooling, Turkana wind power generation, Oil exploration, Port expansion and of course the SGR were all supposed to ensure economic growth which would ensure that the lives of Kenyans will improve for the better.


Come March 2020, even before our nation was hit with the first COvid 19 case, Treasury is already formulating plans to further tax Kenyans and their businesses. In view of the tax reductions made, the Finance Act is quietly passed in June 2020 and without any hesitance or consideration, Minimum Tax had been introduced.


Minimum Tax is a tax that will be paid by all business in Kenya at the rate of 1% of their gross turnovers.


How the Government plans to implement this tax and convince traders in the country to comply with the new tax will be the challenge. Several associations and organisations are challenging the implementation of the tax and many more stakeholders are expected to challenge and oppose the implementation of these taxes.


How minimum tax will work.

A business trading in Kenya will from 1st January 2021 pay 1% on its turnover.


The Government has been borrowing and borrowing and borrowing. The project impact assessments and financial implications were misstated and miscalculated. The results are that no project has lived up to its expectations financially. Furthermore, political interventions have disabled promising projects such as the implementation of solar power.


Kenyans, who look upon the Government for support and creating of a better living environment will from 1st January feel the effect of the new minimum taxes which will increase the price of commodities as the direct and indirect costs are passed onto the consumers.


The Treasury plans to collect the same tax throughout the cycle of the product in turn taxing the same value over and over. This roll-on effect will result in increased prices.


Manufacture of a product will pay 1% on his sale to a distributor who will once again pay 1% on the same item when selling to a retailer. The retailer is required to again pay 1% when he sells to the final consumer. Along this chain of distribution, the same product, the same cost price has already been taxed 3 times.


The Government has also failed to consider how the minimum tax will affect volume-based businesses. Distributors and commodity importers rely on volume-based trading. A business will have low gross profit margins ensuring high volumes to achieve the desired net profits. Commodities trade and distribution work on margins close to 1% in some cases. In order to make the business profitable, companies and traders will resort to cost-cutting. Redundancies, pay cuts and job cuts will be the order of the day.


Over the last few years, the Government has implemented policies to allow banks to provide better credit facilities and to encourage lending by banks. Late payment of taxes results to interest and penalties charged monthly. Banks that have provided loans and overdraft facilities to businesses will witness further loan applications as well as defaults of the loans. A business will race to borrow from banks in order to pay the required taxes, most businesses have extended credit terms post covid. In addition to the cash outflows, businesses will experience, interest and finance costs are expected to further eat into profits.


Kenya, as a nation has been investing heavily in infrastructure, revising and implementing new trade policies with other nations to increase its export trade as well as provide competitive prices internationally. With the implementation of the minimum tax, Kenya’s exports are going to be pricy and less competitive which will discourage exports from Kenya. With lesser US Dollars flowing into the economy than the US Dollars being paid out as loans and for imports, we may see the US Dollar crossing the 120 shilling mark sooner than later.


A recent drive along the Mombasa – Nairobi highway and the Coastal business environment will already tell you tales of a struggling region after the SGR. Furthermore, the tourism sector has almost but nearly stood still during the COVID -19 pandemic. The little foreign currency that is expected from the few tourists willing to take a chance and holiday in Kenya may also disappear as our neighbours Tanzania will be a cheaper destination to fly to.


Kenya is a net importer, as a farming nation, it still cannot meet the food demand for its people. A nation blessed with rich volcanic soil, suitable temperatures and massive underground water reserves. Today, Kenya imports rice, sugar, wheat and even maize. Our policies have over the years shifted from self-sustainment to economic colonization. Our products locally have become pricier than products imported and we are certain to stop manufacturing in the coming few years. The minimum tax will make food prices rise in an already low supply market, affordability will be a new status amongst the low income earning people who are the largest of the population.


Where will our investments come from? I recall a conversation I had with an investor trying to set up a lipstick manufacturing plant in Kenya. His concern was the costs in the country were so high that it was cheaper for him to import the final product and distribute it locally. Investors are setting base in Rwanda and Ethiopia which provides them with the tax benefits as well as a cheaper source of fuel. With the implementation of the minimum tax, investors are unlikely to recover their investments faster and the costs of their products will discourage any exports from Kenya.


The Government has also passed the revised PAYE rates effective January 2021, Kenyans are expected to be taxed further on their incomes over Kshs. 24,000 per month. There will be lesser take-home pay for the middle-income earners, lesser money to spend and with an expected price increase from the minimum tax implementation I see 2021 for Kenyans being far much worse than what we experienced in 2020.


The target set by the Government to collect taxes by implementing this tax may yet not be realized. The effect of the same will be realized in other sectors of Government revenues. Pay As You Earn collections will be reduced as more and more businesses reduce staff. VAT will reduce as more and more business close shop to divert investments in sectors which are much profitable (Government Bonds and Treasury Bills), county revenues will reduce as businesses close and relocate to other countries, duties and imports will fall as lesser people will be willing to invest into Kenya.


We pray that the fight is joined in by all relevant stakeholders but for the few that are in it, Kenyans are hoping and praying for your victory.


This tax will have an adverse effect on businesses, including deterring startups, increasing costs to consumers and increase cash flow constraints, which will consequently push struggling entities to reduce operations or worse, prematurely close. This will lead to loss of jobs and take the economy into a downward spiral of contraction – Mr Mucai Kunyiha, KAM Chairman.


The timing to impose such taxes on businesses is ill-advised. This unpredictability will overburden businesses and increase costs. We need to discipline public spending. Our debt is a spending problem and not a tax problem.  This is a cynical way of collecting taxes because businesses will be taxed whether or not they make profits – Mr Owino, CEO Institute of Economic Affairs.


 Unfavourable tax policies not only discourage investment and growth, but they are also a disincentive to exporters, which in the long run dilutes our competitiveness. The government does not generate revenue. Revenue comes from businesses and individuals. Therefore, for any economy to grow, the Government must make it conducive for business to operate effectively – FCPA Rose Mwaura Institute of Certified Public Accountants of Kenya (ICPAK) National Chair.



TAX ALERT 01/2020 ACE Group of Companies


Turnover tax was re-introduced in the Finance Act 2019 effective 1st January 2020 with similar regulations previously applied.

Notable changes are;
1) Monthly submission of the TOT returns by 20th of the following month.
2) Presumptive tax is still applicable in addition to the TOT
3) Presumptive tax can be claimed as a credit against TOT payments.

Previous regulations include;
• 3% TOT on gross turnover. No expenses deductible.
• Gross turnover should not exceed 5 million a year.
• TOT does not apply to Limited Companies, Employment Income, Management Income, Professional Income, Rental Income and VAT registered individuals’ or businesses with over 5m turnover a year.
• Commissioner approval is required to remain in the normal income tax regime.
• Late submission penalty – Kshs. 5,000 for each month.


Presumptive tax remains at 15% of the single business permit.

Notable changes as a result of the Finance Act 2019;
1) PT is no longer a final tax.
2) PT can be claimed as a credit against TOT payable.

Previous regulations that are still effective;
• Payable by individuals to whom a business permit or a trade license is issued by the County Government.
• Payable at the time of payment for the County Government business permit or trade license.
• Commissioner approval is required to remain in the normal income tax regime.
• PT does not apply to Limited Companies, Employment Income, Management Income, Professional Income, Rental Income and VAT registered individuals’ or businesses with over 5m turnover a year.
• Late submission penalty – 5% of the PT due.


• Income earned by an individual in the Ajira Programme is exempt from tax for the first three years on set criteria.
• The amount withdrawn from the National Housing Development Fund to purchase a house by a contributor who is a first-time homeowner is exempt from tax
• The amount of affordable housing relief shall be 15% of the employee’s contribution but shall not exceed KES 108,000 per annum.
• Plastics recycling plant will be entitled to a reduced corporate income tax rate of 15% for the first five years upon commencement of its operations.
• Import Declaration Fee (IDF) to 3.5% of the customs value of goods imported for home use.
• IDF reduced to 1.5% on the customs value of raw materials imported by manufacturers, approved imports by the CS and input for the construction of homes under the affordable housing scheme approved by CS.
• Railway Development Levy (RDL) from 1.5% to 2% of the customs value of goods imported for home use.
• Withholding VAT reduced to 2%.
• Non-registered persons importing taxable services will now be required to account for reverse VAT.

Excise Duty rate changes

Excise Duty rate changes – Other items (Sin Tax)

A person is considered to be tax resident in Kenya if they:
• have a permanent home in Kenya and were present in Kenya for any period in a particular year of income under consideration, or
• do not have a permanent home in Kenya but were:
o present in Kenya for 183 days or more in that year of income, or
o Present in Kenya in that year of income and in each of the two preceding years of income for periods averaging more than 122 days in each year of income.

Individual Tax Bands and Rates
Monthly Pay Bands-1st January 2018 Annual Pay Bands-1st January 2018 Rate of Tax
1 – 12,298 1 – 147,580 10%
12,299 – 23,885 147,581- 286,623 15%
23,886 – 35,472 286,624 – 425,666 20%
35,473 – 47,059 425,667 – 564,709 25%
Above 47,060 Above 564,710 30%
Personal Tax Relief
1,408.00 16,896.00

• Residential rental income – 10% of gross residential rental income received payable monthly before the 20th of the following month. Annual gross residential rental income should not exceed 10 million shillings.
• Life, health and education relief is 15% of the premium paid but cannot exceed Kshs. 60,000 p.a
• Affordable housing tax relief – 15% of gross emoluments at a maximum of Kshs. 108,000 p.a (Starts at time of application and awaiting allocation of a house under the affordable housing scheme)

• Mortgage interest on an owner-occupied house at a maximum amount of Kshs. 300,000 p.a is deductible
• Gratuity and payments to a registered pension scheme is deductible to a maximum of Kshs. 240,000 p.a but cannot exceed 30% of the emoluments.
• Homeownership savings plan – Contributions not exceeding Kshs. 96,000 p.a are deductible.
• Bonuses and overtime paid to low-income earners are tax-free.
• Kshs. 2,000 per day allowance for travelling for an individual outside his normal place of work is tax-free.


• Motor vehicles benefit taxed at 2% of the cost of the vehicle or the prescribed rate; whichever is higher.
• Telephone and mobile is taxed at 30% of the cost to the employer
• Furniture – 1% of the cost to the employer
• Housing – higher of market rate or actual rent paid or 15% of total employee income.
• Employee loans are subject to Fringe Benefits Tax (FBT)


Changes in NHIF Regulations;

• Limit cover to a maximum of one spouse and five children
• New members will have to wait for 90 days before accessing services or benefits in addition to making a one year upfront payment within the 90 days waiting period.
• Late payment of contributions will attract a fine of 50% of the monthly contribution and a requirement to pay one year in advance. Benefits and services will be restricted for a period of 30 days.
• Defaulting for more than 12 months will require re-registration and benefits and services can only be accessed after 90 days of resuming payments. A one year upfront payment will be required.
• Access to specialized services shall be restricted to 6 months waiting period following card maturity for new members.
• Access to maternity benefit will be restricted to 6 months waiting period following card maturity for both principal members and spouse declared.
• Any dependent declared after registration shall be subject to the 6 month waiting period for specialized and maternity services.
• For inpatient and medical outpatient, additional dependents will be eligible for the benefit apply after 30 days waiting period. Same applied for a change of spouse.
• Government-funded programmes like free maternity, health insurance subsidy, elderly persons with severe disabilities and Inua Jamii have been exempted from these changes

Contact Information;

Mombasa (Head Office):
Rashid Ahmed Lootah Road, 3rd Floor, Ace House
Telephone: 0727399199

TRV Towers, Suite 7F, 3rd Parklands
Telephone: 0707688699

2nd Floor, Zion Mall.
Telephone: 0707688699

Email contact acemsa@acegroup.co.ke info@acegroup.co.ke Website: www.acegroup.co.ke

Hello world!

Welcome to WordPress. This is your first post. Edit or delete it, then start writing!


Lorem ipsum dolor sit amet, consectetuer adipiscing elit. Aenean commodo ligula eget dolor. Aenean massa. Cum sociis natoque penatibus et magnis dis parturient montes, nascetur ridiculus mus. Donec quam felis, ultricies nec, pellentesque eu, pretium quis, sem. Nulla consequat massa quis enim.

Donec pede justo, fringilla vel, aliquet nec, vulputate eget, arcu. In enim justo, rhoncus ut, imperdiet a, venenatis vitae, justo. Nullam dictum felis eu pede mollis pretium. Integer tincidunt. Cras dapibus.

Vivamus elementum semper nisi. Aenean vulputate eleifend tellus. Aenean leo ligula, porttitor eu, consequat vitae, eleifend ac, enim. Aliquam lorem ante, dapibus in, viverra quis, feugiat a, tellus.

Donec pede justo, fringilla vel, aliquet nec, vulputate eget, arcu. In enim justo, rhoncus ut, imperdiet a, venenatis vitae, justo. Nullam dictum felis eu pede mollis pretium. Integer tincidunt. Cras dapibus. Vivamus elementum semper nisi. Aenean vulputate eleifend tellus. Aenean leo ligula, porttitor eu, consequat vitae, eleifend ac, enim. Aliquam lorem ante, dapibus in, viverra quis, feugiat a, tellus.