KRA has introduced a minimum tax regime, effective 01.01.2021 with minimum tax payable at 1% of gross turnover (Sales) regardless of whether or not they make any profits.The minimum tax will not be applicable to exempt income, employment income, residential rental income, capital gains, and persons undertaking mining or upstream oil and gas activities and persons subject to turnover tax.
Since turnover tax is paid by business with turn over between 1 million and 50 million, you can note that Minimum tax is the improved version of turnover tax for businesses with sales of more than 50 million per year.
Companies will be required to compute two distinct tax liabilities each year:
- Installment tax under the current regime and
- minimum tax then pay the higher of the two.
Companies that are in tax losses for prolonged periods would bear an additional burden since the minimum tax would be an additional expense, which cannot be set off against future tax liabilities.
The minimum tax will be a final tax and is payable in installments that are due on the same date as the current installment tax obligations i.e. on the twentieth day of each period ending.