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Ndichu (As Administrator Of The Estate Of Peninah Wambui Kinuthia) & Another V Kibutha & 4 Others (Civil Appeal (Application) E683 Of 2021) [2022] KECA [1399] (KLR) (16 December 2022) (Ruling)
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Case Number: Civil Appeal (Application) E683 of 2021 |
Date Delivered: 16 Dec 2022 |
Judge: Daniel Kiio Musinga, Hellen Amolo Omondi, Paul Mwaniki Gachoka
Court: Court of Appeal at Nairobi
Parties: Ndichu (As administrator of the Estate of Peninah Wambui Kinuthia) & another v Kibutha & 4 others
Advocates:
Citation: Ndichu (As administrator of the Estate of Peninah Wambui Kinuthia) & another v Kibutha & 4 others (Civil Appeal (Application) E683 of 2021) [2022] KECA 1399 (KLR) (16 December 2022) (Ruling)
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Kibaru & Another V Standard Chartered Bank Of Kenya Limited & Another (Civil Application E370 Of 2022) [2022] KECA [1409] (KLR) (16 December 2022) (Ruling)
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Case Number: Civil Application E370 of 2022 |
Date Delivered: 16 Dec 2022 |
Judge: Daniel Kiio Musinga, Fatuma sichale, Paul Mwaniki Gachoka
Court: Court of Appeal at Nairobi
Parties: Kibaru & another v Standard Chartered Bank of Kenya Limited & another
Advocates:
Citation: Kibaru & another v Standard Chartered Bank of Kenya Limited & another (Civil Application E370 of 2022) [2022] KECA 1409 (KLR) (16 December 2022) (Ruling)
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Kenya Revenue Authority V Waweru & 3 Others; Institute Of Certified Public Accountants & 2 Others (Interested Parties) (Civil Appeal E591 Of 2021) [2022] KECA [1306] (KLR) (2 December 2022) (Judgment)
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Case Number: Civil Appeal E591 of 2021 |
Date Delivered: 02 Dec 2022 |
Judge: Daniel Kiio Musinga, Hellen Amolo Omondi
Court: Court of Appeal at Nairobi
Parties: Kenya Revenue Authority v Waweru & 3 others; Institute of Certified Public Accountants & 2 others (Interested Parties)
Advocates:
Citation: Kenya Revenue Authority v Waweru & 3 others; Institute of Certified Public Accountants & 2 others (Interested Parties) (Civil Appeal E591 of 2021) [2022] KECA 1306 (KLR) (2 December 2022) (Judgment)
Section 12D of the Income Tax Act on minimum tax violates tax payers rights to fair treatment and dignity
Brief facts
The Finance Bill, 2020 included an amendment to the Income Tax Act at section 12D, introducing the minimum tax. The amendment provided for the minimum tax at the rate of 1% of the gross turnover. To implement the impugned amendment, the appellant published Guidelines on Minimum Tax whose central feature was the definition of gross turnover. Aggrieved by the amendment to the legislation, two petitions were instituted by the 1st and 2nd respondents at the trial court.
The petitions sought declarations that: section 12D of the Income Tax Act was illegal and contrary to the provisions of articles 10, 27, 40, and 46 of the Constitution of Kenya, 2010 (Constitution) and that under section 3 as read with section 15 of the Income Tax Act, the taxable income was the net income after deduction of expenditure wholly and exclusively incurred in the production of that income. The appellant, the 3rd and 4th respondents opposed the petition and argued that the process of the enactment of the impugned legislation met the constitutional and procedural threshold; that it did not create any ambiguity; and that it was not discriminatory.
The trial court declared section 12D of the Income Tax Act null and void as it violated article 201(b) of the Constitution; and that failure to comply with the Statutory Instruments Act, rendered the Guidelines on Minimum Tax void. Accordingly, the trial court granted an order of prohibition restraining the implementation, administration or enforcement of the contested amendment on the following grounds: that the imposition of the tax had the potential of subjecting people to double taxation and that the amendment unfairly targeted businesses which were in genuine loss making positions, to pay taxes from their capital rather than from their profits while placing thriving businesses at an advantage. Aggrieved, the appellant filed the instant appeal.
Issues
- What were the factors to consider in determining whether there was double taxation?
- Whether section 12D of the Income Tax Act which provided for introduction of minimum tax amounted to subjecting taxpayers to double taxation.
- Whether levying of minimum tax on gross turnover would lead to a loss-making tax payer bearing a heavier burden than other taxpayers contrary to article 201 of the Constitution on the principles of public finance.
- Whether the minimum tax under section 12D of the Income Tax Act violated the right to fair treatment and dignity of taxpayers in loss making positions by failing to take into consideration the circumstances under which taxpayers found themselves in loss-making positions.
Relevant provisions of the law
Income Tax Act, Cap 470
Section 12D - Minimum tax
(1) Notwithstanding any other provision of this Act, a tax to be known as minimum tax shall be payable by a person if
(a) that person's income is not exempt under this Act;
(b) that person's income is not chargeable to tax under sections 5, 6A, 12C, the Eighth or the Ninth Schedules; or
(c) the instalment tax payable by that person under section 12 is lower than the minimum tax.
(2) The tax payable under this section shall be paid in instalments which shall be due on the twentieth day of each period ending on the fourth, sixth, ninth and twelfth month of the year of income.
Held
- The courts mandate on a first appeal as set out in rule 29(1) of the Court of Appeal Rules, 2022 required the court to reappraise the evidence and to draw its own conclusions.
- On the issue of double taxation, the trial court did not set out which two taxes were of a similar nature, imposed on the same income and in the same period to justify the conclusion of double taxation. The trial court only noted that the imposition of minimum tax had the possibility of double taxation, the key word there being possibility, but, nowhere in its judgment did the court show that possibility of double taxation.
- Section 12D of the Income Tax Act eliminated the possibility of the same income being taxed twice, as it excluded a person who had already remitted minimum tax pursuant to section 12D, which effectively excluded such a person from corporation tax or taxation under section (2)(a)(i) of the Income Tax Act. On the other hand, if a loss making entity subsequently moved to a profit making position, then section 12(3) and (4) of the Act set in, thereby eliminating any possibility of double taxation.
- The trial court ought to have considered the nature of the tax, the circumstances under which it was levied, and the period in which it was levied. The trial court misconstrued the manner in which the tax was to be effected; considered the sole issue of the tax burden, without taking into account that the imposition of different taxes concurrently did not necessarily result in double taxation.
- From a reading of the entire provisions in section 3(2) of the Income Tax Act it would appear that the trial court assumed that income tax was levied only in respect of gains and profits, which was provided for under section 3(2)(a) yet that was just one of the seven types of incomes upon which income tax was levied under that provision. Indeed, the number of incomes upon which income tax was levied were listed under section 3(2) (a) to (h) of the Act.
- In the construction of a taxing Act, the court had primary regard to the statutory words themselves. From the interpretation given by the trial court, the trial court erred in considering the wording of section 3(2)(a) of the Income Tax Act only, instead of considering the other incomes alluded to in paragraphs (a) to (h) of section 3(2) and to that extent applied a rather limiting definition of the term income for tax purposes. That was not what was envisioned by the Act.
- By virtue of section 12D of the Income Tax Act being a non-obstante clause, it in effect removed all obstructions which would arise in its implementation. Accordingly, section 12D was not subject to any contradicting clause in the Income Tax Act and that the income to which minimum tax was levied under section 12D was not subject to sections 15 and 16 of the Act, which dealt with deductions.
- Sections 15 and 16 of the Income Tax Act shed light as to what was considered as taxable income. Certain deductions in form of expenses had to be allowed and, therefore, for the appellants to now claim that minimum tax was to be levied on gross turnover without allowing for deductions as provided for under the Act would be contrary to the purpose and objects of the Act as provided for under section 3 of the Act, which was titled as the charging section of the Act.
- As a general rule when a taxing provision was ambiguous, it had to be construed in favour of the assessee. Such an interpretation was also in consonance with ordinary notions of equity and fairness, and would further fortify the trial court in adopting such a course of interpretation. The concept of fair taxation or a fair tax burden had no linear definition. The threshold for fairness was ensuring that everyone bore their fair share of taxation and paid the correct amount and which was seen to be fair by vigorous pursuit of tax avoidance and evasion.
- The ultimate purpose for imposing the minimum tax was to net tax evaders, by placing all loss making entities under the appellants bracket (as they nonetheless benefitted from infrastructure maintained by the Government), and prevent tax evaders from escaping their fair share of tax liability. Levying of minimum tax on gross turnover as opposed to gains or profit would lead to a situation where a loss making taxpayer, would bear a heavier burden than other taxpayers contrary to article 201 of the Constitution.
- Punishing entities who were already battling with a stifled economy because of a few miscreants was the epitome of unfairness. Both the purpose and effect could invalidate legislation. Given the nature of the tax and the circumstances under which it was to be levied made the purpose irrational, miscalculated and did not reflect the spirit of article 201(b)(i) of the Constitution.
- Respect for dignity meant not being devalued as a human being or treated in a degrading or humiliating manner. Surely, there could be no lesser humiliation than the imputation of criminal conduct for one who was grappling with a difficult economic environment. Accordingly, there was no error in the trial courts finding that the imposition of a minimum tax would undoubtedly lump innocent business that were in a loss making position with evaders, which violated the innocent taxpayers' right to dignity.
- Section 12D of the Income Tax Act as introduced by the Finance Act, 2020 and as amended by the Tax Laws Amendment (No 2)Act, 2020 was null and void to the extent that: the levying of minimum tax on gross turnover as opposed to gains or profit would lead to a situation where a loss making tax payer, would bear a heavier burden than on other taxpayers contrary to the spirit of article 201 of the Constitution; and lumping innocent entities that were in a loss making position with tax evaders in a bid to expand the tax base violated the innocent taxpayers' constitutional right to fair treatment and dignity.
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Rural Electrification Authority V Limelight Creatures Limited & 2 Others (Civil Appeal (Application) 26 Of 2019) [2022] KECA [1284] (KLR) (18 November 2022) (Ruling)
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Case Number: Civil Appeal (Application) 26 of 2019 |
Date Delivered: 18 Nov 2022 |
Judge: Daniel Kiio Musinga, Agnes Kalekye Murgor, Francis Tuiyott
Court: Court of Appeal at Nairobi
Parties: Rural Electrification Authority v Limelight Creatures Limited & 2 others
Advocates:
Citation: Rural Electrification Authority v Limelight Creatures Limited & 2 others (Civil Appeal (Application) 26 of 2019) [2022] KECA 1284 (KLR) (18 November 2022) (Ruling)
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Kenyatta University V Maina (Civil Appeal 261 Of 2020) [2022] KECA [1201] (KLR) (4 November 2022) (Judgment)
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Case Number: Civil Appeal 261 of 2020 |
Date Delivered: 04 Nov 2022 |
Judge: Daniel Kiio Musinga, Hellen Amolo Omondi, Fatuma sichale
Court: Court of Appeal at Nairobi
Parties: Kenyatta University v Maina
Advocates:
Citation: Kenyatta University v Maina (Civil Appeal 261 of 2020) [2022] KECA 1201 (KLR) (4 November 2022) (Judgment)
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Mungai V Kabuito Contractors Limited (Civil Appeal 53 Of 2018) [2022] KECA [1235] (KLR) (4 November 2022) (Judgment)
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Case Number: Civil Appeal 53 of 2018 |
Date Delivered: 04 Nov 2022 |
Judge: Daniel Kiio Musinga, Hellen Amolo Omondi
Court: Court of Appeal at Nairobi
Parties: Mungai v Kabuito Contractors Limited
Advocates:
Citation: Mungai v Kabuito Contractors Limited (Civil Appeal 53 of 2018) [2022] KECA 1235 (KLR) (4 November 2022) (Judgment)
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Aura V Cabinet Secretary Ministry Of Environment And Forestry & 2 Others (Civil Application E304 Of 2022) [2022] KECA [1151] (KLR) (21 October 2022) (Ruling)
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Case Number: Civil Application E304 of 2022 |
Date Delivered: 21 Oct 2022 |
Judge: Daniel Kiio Musinga, Hellen Amolo Omondi, Fatuma sichale
Court: Court of Appeal at Nairobi
Parties: Aura v Cabinet Secretary Ministry of Environment and Forestry & 2 others
Advocates:
Citation: Aura v Cabinet Secretary Ministry of Environment and Forestry & 2 others (Civil Application E304 of 2022) [2022] KECA 1151 (KLR) (21 October 2022) (Ruling)
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Athi Paper Mills Limited V Dakawou Transport Limited (Civil Appeal 19 Of 2018) [2022] KECA [1153] (KLR) (21 October 2022) (Judgment)
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Case Number: Civil Appeal 19 of 2018 |
Date Delivered: 21 Oct 2022 |
Judge: Daniel Kiio Musinga, Hellen Amolo Omondi, (Dr) Kibuya Imaana Laibuta
Court: Court of Appeal at Nairobi
Parties: Athi Paper Mills Limited v Dakawou Transport Limited
Advocates:
Citation: Athi Paper Mills Limited v Dakawou Transport Limited (Civil Appeal 19 of 2018) [2022] KECA 1153 (KLR) (21 October 2022) (Judgment)
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In Re Estate Of Cypriano Imanyara Imiru (Deceased) (Civil Appeal 78 Of 2016) [2022] KECA [1176] (KLR) (21 October 2022) (Judgment)
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Case Number: Civil Appeal 78 of 2016 |
Date Delivered: 21 Oct 2022 |
Judge: Daniel Kiio Musinga, Sankale ole Kantai, Fatuma sichale
Court: Court of Appeal at Nairobi
Parties: In re Estate of Cypriano Imanyara Imiru (Deceased)
Advocates:
Citation: In re Estate of Cypriano Imanyara Imiru (Deceased) (Civil Appeal 78 of 2016) [2022] KECA 1176 (KLR) (21 October 2022) (Judgment)
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Kenya Revenue Authority V Mount Kenya Breweries Limited (Civil Application E383 Of 2021) [2022] KECA [1002] (KLR) (23 September 2022) (Ruling)
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Case Number: Civil Application E383 of 2021 |
Date Delivered: 23 Sep 2022 |
Judge: Daniel Kiio Musinga, Hellen Amolo Omondi, Sankale ole Kantai
Court: Court of Appeal at Nairobi
Parties: Kenya Revenue Authority v Mount Kenya Breweries Limited
Advocates:
Citation: Kenya Revenue Authority v Mount Kenya Breweries Limited (Civil Application E383 of 2021) [2022] KECA 1002 (KLR) (23 September 2022) (Ruling)
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