The Finance Act 2020 introduced a minimum tax of 1% on gross turnover aimed at expanding the tax base and ensuring fairness, effective from January 1, 2021. Exemptions include certain income types, and taxpayers must pay minimum tax in installments with specific due dates based on turnover. Taxpayers must declare their turnover monthly and file annual returns while handling losses under specific provisions of the Income Tax Act.

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Minimum Tax

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Minimum Tax
The Finance Act 2020, introduced Minimum Tax by inserting Section 12D to the
Income Tax Act (CAP 470).

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Minimum Tax
The rate of the tax is 1% of the gross turnover of the taxable person effective 1st January
2021.

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Minimum Tax
Where the instalment tax payable by a person is higher than the minimum tax, then a
person shall pay the instalment tax.

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Minimum Tax
The introduction of Minimum Tax ensure that all companies pay tax and thus expand
the tax base and ensure equity and fairness in the tax system i.e businesses in perpetual
losses will pay tax.

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Exclusions from Minimum Tax
Income that is exempt under the Income Tax Act (CAP 470)
Employment income – Section 5

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Exclusions from Minimum Tax
Income subject to Residential Rental Income Tax – Section 6A
Income that is subject to Turnover Tax – Section 12C

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Exclusions from Minimum Tax
Income Subject to Capital Gains Tax – 8th Schedule
Income of Extractive Sector – 9th Schedule

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Exclusions from Minimum Tax
Income that is subject to withholding tax, including Digital Service Tax. (such
income is only excluded from MT to the extent that tax payable as computed
at the end of the accounting period is higher than minimum tax payable)

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Payment of Minimum Tax
Payment of Minimum Tax:
Minimum Tax shall be paid in instalments which shall be due on
the 20th day of the 4th, 6th, 9th and 12th month of the accounting
period at a rate of 1% of the turnover as provided in the table
below.
Payment Applicable Turnover Date Payable
1st Payment 1st, 2nd & 3rd months By 20th of the 4th month
2nd Payment 4th & 5th months By 20th of the 6th month
3rd Payment 6th, 7th & 8th months By 20th of the 9th month
4th Payment 9th, 10th & 11th months By 20th of the 12th month
Balance of Tax 12th month By last day of the 4th month after
the accounting period

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Payment of Minimum Tax Cont’...
Minimum tax shall apply where it is higher than the instalment tax due for
the period.
Illustration:
Instalment Tax due = Kshs. 27,500
Minimum Tax 1% of gross turnover
1% of 1,000,000 = Kshs.10,000
Tax payable will be the higher of minimum tax and instalment tax.
Therefore tax payable on due date will be kshs. 27,500 (instalment tax).

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Payment of Minimum Tax Cont’...
 If the gross turnover was Kshs. 4,000,000 then minimum tax will be; 1% of
4,000,000 = 40,000
 Tax payable will therefore be Kshs. 40,000 (Minimum tax)

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Preparation of accounts
A person who upon preparation of accounts for the accounting period,
establishes that:
the sum of the minimum tax, instalment tax and other tax credits paid is higher
than the tax payable, the excess shall be considered as a tax credit subject to a
tax refund. The established tax payable cannot be less than minimum tax
payable.

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Preparation of accounts Cont’...
A person who upon preparation of accounts for the accounting period,
establishes that:
Tax payable from taxable income is greater than the Instalment and minimum
tax paid, the balance outstanding shall be paid as balance of tax on or before the
last day of the 4th month following the end of the accounting period.

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Preparation of accounts Cont’...
A person who upon preparation of accounts for the accounting period,
establishes that:
The tax liability is less than the Minimum Tax, the Minimum tax will be the
final tax.
They are in a loss position, minimum tax paid shall be final.

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Payment of Minimum Tax
Declaration of turnover.
Any person whose income is not exempt from minimum tax shall be required
to declare turnover for each period on a declaration form on iTax by 20th of
the month succeeding the period.

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Payment of Minimum Tax Cont’...
Filing of end of year income tax returns
A person who has paid his taxes for the year of income through minimum tax
shall be required to file annual returns under section 52B of the Act.

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Payment of Minimum Tax Cont’...
Application of losses.
Where a person is liable to pay minimum tax and is in a loss position, the loss
shall be carried forward, subject to limitations under the Income Tax Act.