Kenya Revenue Authority v Waweru & 3 others; Institute of Certified Public Accountants & 2 others (Interested Parties)
The bottom line
#Kenya's Court of Appeal confirmed that the 1% minimum tax on turnover was unconstitutional because it unfairly taxed loss-making businesses.
What this practically means
#Executive summary
#Key legal issues
#Whether section 12D amounted to double taxation
Section 12D does not amount to double taxation; it excludes a person who has already remitted minimum tax from corporation tax, and transition to profit triggers section 12(3) and (4), eliminating double taxation.
The trial court never identified two similar taxes on the same income in the same period; it relied only on a 'possibility' of double taxation. The court found that section 12D excludes those who have remitted minimum tax from corporation tax, and that a loss-making entity moving to profit becomes liable under section 12(3) and (4), so the same income is never taxed twice.
Whether income tax is levied only on gains and profits
The trial court erred in reading section 3(2)(a) alone; section 3(2)(a) to (h) lists seven types of income chargeable to tax, and minimum tax falls under section 3(2)(e).
Applying the plain-language canon of statutory interpretation and the principle that in construing a taxing Act the court has primary regard to the statutory words, the court held the trial court applied a limiting definition of 'income' by considering only gains and profits under section 3(2)(a), ignoring the other incomes enumerated in paragraphs (a) to (h).
Whether section 12D as a non-obstante clause is subject to sections 15 and 16
Section 12D, being non-obstante, is not subject to any contradicting clause; the income taxed under it is not subject to the deduction provisions of sections 15 and 16.
The court accepted the appellant's submission that the non-obstante clause removed all obstructions to its implementation, noting the trial judge had itself acknowledged that section 12D prevails in any conflict with other provisions of the Income Tax Act.
Whether minimum tax on gross turnover is unfair contrary to article 201(b)
Levying minimum tax on gross turnover rather than gains or profit would make loss-making taxpayers bear a heavier burden than others, contrary to article 201; the purpose was irrational and did not reflect article 201(b)(i).
The court agreed with the respondents that the ultimate purpose of the minimum tax was to net tax evaders by placing all loss-making entities in the tax net. Punishing entities already battling a stifled economy because of a few miscreants was the epitome of unfairness; adopting Big M Drug Mart, both purpose and effect can invalidate legislation.
Whether minimum tax violates the right to dignity under article 28
The imposition of minimum tax lumps innocent loss-making businesses with tax evaders, violating their right to dignity; the trial court's finding on this was without error.
Drawing on Chaskalson's exposition of dignity, the court held that respect for dignity means not being devalued or treated in a degrading or humiliating manner, and there could be no lesser humiliation than the imputation of criminal conduct for one grappling with a difficult economic environment.
Legal principles established
#- On a first appeal the Court of Appeal must reappraise the evidence and draw its own conclusions, intervening where the trial court plainly went wrong.
- A finding of double taxation requires identification of two taxes of a similar nature imposed on the same income in the same period; a mere 'possibility' of double taxation cannot justify invalidating a tax.
- A non-obstante clause such as section 12D of the Income Tax Act removes obstructions to its implementation and is not subject to the deduction provisions of sections 15 and 16.
- Levying minimum tax on gross turnover rather than gains or profit imposes a heavier burden on loss-making taxpayers contrary to article 201 of the Constitution, and lumping loss-making entities with tax evaders violates the right to fair treatment and dignity.
- Both the purpose and the effect of legislation can invalidate it; a tax whose purpose is irrational and does not reflect article 201(b)(i) is unconstitutional.
Court orders
#- 1.The appellant's appeal is dismissed.
- 2.Judgment of the High Court of Kenya at Machakos (GV Odunga, J) dated September 20, 2021 is upheld.
- 3.Each party bears their own costs of the appeal.
- On appeal from
- High Court of Kenya at Machakos
- Machakos Constitutional Petition No. E005 of 2021 (consolidated with Petition No. 1 of 2021)
- Jurisdiction invoked
- First appeal under rule 29(1) of the Court of Appeal Rules, 2022 against the High Court's exercise of constitutional jurisdiction under article 165(3)(d)(i) and (ii)
Key timeline
#Practical implications
#Frequently asked questions
#Later judgments citing this (2)
#Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.
- Cabinet Secretary for the National Treasury and Planning & 4 others v Okoiti & 52 others; Bhatia (Amicus Curiae)[2024] KESC 63 (KLR)29 Oct 2024
- National Assembly & another v Okoiti & 55 others[2024] KECA 876 (KLR)31 Jul 2024
Cite this brief
#Cite this brief
Caselaw, "Kenya Revenue Authority v Waweru & 3 others; Institute of Certified Public Accountants & 2 others (Interested Parties)", Case Analysis (2022). Civil Appeal E591 of 2021. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2022/1306/eng@2022-12-02
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.