Section 12D of the Income Tax Act on minimum tax violates the principle that the burden of taxation should be shared fairly
On June 30, 2020, the President assented to the Finance Act, 2020 which amended the Income Tax Act by introducing a new section 12D providing for introduction of minimum tax at the rate of 1% of the gross turnover effective January 1, 2021 (impugned amendment). To implement the impugned amendment, the 2nd respondent published Guidelines on Minimum Tax (the Guidelines) whose centrality was the definition of gross turnover. The effect of the impugned amendment, according to the 1st set of petitioners, was that they were threatened with the real and imminent enforcement of an unlawful minimum tax which if allowed would lead to the absolute annihilation of the 1st petitioners’ businesses along with a majority of small and medium enterprises struggling to earn an income. The petitioners also claimed that the minimum tax could result in double taxation.
The petitioners contended that the minimum tax was unconstitutional as it did not fall within the category of taxes imposable by the National Government as envisaged under article 209(1) of the Constitution of Kenya, 2010 (Constitution). The petitioners further contended that the impugned minimum tax was contrary to and inconsistent with the meaning and purpose of income tax as; on one hand the Income Tax Act provided that income which was subject to tax under the Income Tax Act was income in respect of gains or profits having deducted all expenditure wholly and exclusively incurred in the production of that income while on the other hand minimum tax was chargeable on gross turn over including losses with no possibilities of deducting expenses or costs.
The petitioners sought for among other orders that; the court declare section 12D of the Income Tax Act unconstitutional; the court declare that section 12D was unconstitutional and contravened the provisions of articles 40(1)(a) and (2)(a) and 201(b)(i) of the Constitution; the court declare section 12D unconstitutional and that it contravened the article 27 of the Constitution due to its discriminatory nature.
i. What was the role of the system of checks and balances incorporated in the doctrine of separation powers?
ii. What was the effect of declaring a statute unconstitutional?
iii. What were the factors to consider in determining the constitutionality of a statute?
- Whether the fact that the implementation of a statute could be difficult as opposed to being unconstitutional warranted it being declared unconstitutional.
- Whether a legislation could be declared unconstitutional if it was based on best practices which violated the Constitution.
iv. Whether the High Court could interfere with a government policy due to the timing of the policy decision based on the prevailing circumstances.
v. Whether the effect on the finances of the county governments resulting from the imposition of the minimum tax by section 12D of the Income Tax Act was direct and hence subject to consideration by the Senate.
vi. What was the criteria for determining whether a provision of law was discriminatory?
vii. What was the effect of failure to lay a statutory instrument before the National Assembly within the stipulated period?
viii. Whether the Minimum Tax Guidelines which were likely to have a direct, or a substantial indirect effect on businesses were void for being made without compliance with the provisions of the Statutory Instruments Act.
ix. What was the nature of a non obstante clause?
x. Whether section 12D of the Income Tax Act which provided for introduction of minimum tax which had the potential of subjecting taxpayers to double taxation and loss-making businesses to payment of taxes from their capital violated the principle that the burden of taxation was to be shared fairly.
xi. Whether the minimum tax under section 12D of the Income Tax Act violated the right to dignity of tax payers in loss making positions by failing to take into consideration the circumstances under which tax payers found themselves in loss-making positions.
Relevant provisions of the law
Constitution of Kenya, 2010
Article 109 – Exercise of legislative powers
- Parliament shall exercise its legislative power through Bills passed by Parliament and assented to by the President.
- Any Bill may originate in the National Assembly.
- A Bill not concerning county government is considered only in the National Assembly and passed in accordance with Article 122 and the Standing Orders of the Assembly.
- A Bill concerning county government may originate in the National Assembly or the Senate and is passed in accordance with Articles 110 to 113, Articles 122 and 123 and the Standing Orders of the Houses.
- A Bill may be introduced by any member or committee of the relevant House of Parliament, but a money Bill may be introduced only in the National Assembly in accordance with Article 114.
Article 114 - Money Bills
3) In this Constitution, “a money Bill” means a Bill, other than a Bill specified in Article 218, that contains provisions dealing with—
- the imposition of charges on a public fund or the variation or repeal of any of those charges;
- the appropriation, receipt, custody, investment or issue of public money;
- the raising or guaranteeing of any loan or its repayment; or
- matters incidental to any of those matters.
Income Tax Act, Cap 470 Laws of Kenya
Section 12D – Minimum tax
- Notwithstanding any other provision of this Act, a tax to be known as minimum tax shall be payable by a person if—
- that person’s income is not exempt under this Act;
- that person’s income is not chargeable to tax under sections 5, 6A, 12C, the Eighth or the Ninth Schedules; or
- the installment tax payable by that person under section 12 is higher than the minimum tax;
- that person is not engaged in business whose retail price is controlled by the Government;
- that person is not engaged in insurance business;
- The tax payable under this section shall be paid in installments 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.
1. While the Constitution provided for several State organs, including commissions and independent offices, the people’s sovereign power was vested in the Executive, Legislature and Judiciary. The broad principle of separation of powers incorporated the scheme of checks and balances, but the principle was not to be applied in theoretical purity for its ultimate object was good governance, which involved phases of co-operation and collaboration, in a proper case.
2. The system of checks and balances served the cause of accountability, and it was a two-way motion between different State organs and among bodies that exercised public power. The commissions and independent offices restrained the arms of Government and other State organs and vice versa. The spirit and vision behind the separation of powers was that there be checks and balances and that no single person or institution should have a monopoly of all powers.
3. Whereas the legislative authority vested in Parliament and the county legislative assemblies, where a question arose as to whether an enactment was inconsistent with the Constitution or was passed in contravention with the Constitution, the High Court was the institution constitutionally mandated and empowered to determine such an issue subject to the appellate jurisdiction given to the Court of Appeal and the Supreme Court. That was in recognition of the fact that there was nothing like supremacy of the legislative assembly outside the Constitution since, under article 2(1) and (2), the Constitution was the supreme law of Kenya and it bound all persons and all State organs at both levels of Government and no person could claim or exercise State authority except as authorized under the Constitution.
4. Where the law had granted certain and specific functions to a public office, the courts ought to be slow in interfering with the mandate of that institution. In interpreting the Constitution, the court would be guided by the general principles that there was a rebuttable presumption that legislation was constitutional hence the onus of rebutting the presumption rested on those who challenged that legislation’s status save that, where those who supported a restriction on a fundamental right relied on a clawback or exclusion clause, the onus was on them to justify the restriction.
5. Though under article 1 of the Constitution sovereign power was delegated to Parliament and the legislative assemblies in the county governments; the National Executive and the executive structures in the county governments; and the Judiciary and independent tribunals; the said organs had to perform their functions in accordance with the Constitution. The Constitution having been enacted by way of a referendum, was the direct expression of the people’s will and therefore all State organs in exercising their delegated powers had to bow to the will of the people as expressed in the Constitution. Otherwise, article 2 of the Constitution allowed for the recall of any law, including customary law that was inconsistent with the Constitution, or any act or omission in contravention of the Constitution for the purposes of being voided and or invalidated.
6. When a statute was adjudged to be unconstitutional, it was as if it had never been. Rights could not be built up under it; contracts which depended upon it for their consideration were void; it constituted protection to no one who had acted under it, and no one could be punished for having refused obedience to it before the decision was made.
7. The presumption of constitutionality of a statute was a rebuttable one the effect of which was to shift the onus of proof to the person alleging its unconstitutionality.
8. Under article 259 of the Constitution, the court was enjoined to interpret the Constitution in a manner that promoted its purposes, values and principles, advanced the rule of law, human rights and fundamental freedoms in the Bill of Rights and in a manner that contributed to good governance. In exercising its judicial authority, the court was obliged under article 159(2)(e) of the Constitution to protect and promote the purposes and principles of the Constitution.
9. In determining whether a statute was constitutional or not, the court had to determine the object and purpose of the impugned statute for it was important to discern the intention expressed in the Act itself. Further, in examining whether a particular statutory provision was unconstitutional, the court had to have regard not only to its purpose but also its effect. The Constitution ought to be given a purposive, liberal interpretation and the provisions of the Constitution had to be read as an integrated, whole, without any one particular provision destroying the other but sustaining the other. The spirit of the Constitution had to preside and permeate the process of judicial interpretation and judicial discretion.
10. Tax law and any legislation for that matter was guided by and was a reflection of the policy of the Government at any one given point in time. In the instant case, the policy was enacted into law by the 1st respondent and was to be implemented by the 2nd respondent since under section 5(2) of the Kenya Revenue Authority Act, the 2nd respondent, as part of its functions under section 5(1), was required to administer and enforce all provisions of the written laws set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.
11. It was not for the court to determine whether in arriving at a particular policy decision, the policy maker’s decision was wise or merited. Therefore, the timing of a policy decision based on the prevailing circumstances did not justify the court’s interference with the policy in question.
12. Unless there was an allegation of a specific violation of the Constitution, the court could not question the wisdom of legislation or its policy object. The fact that the implementation of the statute could be difficult or inconvenient as opposed to being unconstitutional or unlawful, did not warrant it being declared unconstitutional since it was within the authority of the Legislature to enact legislation governing the manner in which a particular form of tax was administered including the manner in which it was imposed, calculated and enforced because such issues affected the application of the Act, rather than its constitutionality.
13. It was within the sole mandate of the Legislature/Parliament to decide when to legislate, what to legislate and how much to legislate and to decide the timing, content and extent of legislation. Vague contentions as arbitrariness, unreasonableness or irrationality without more did not warrant the striking out of an enactment unless some constitutional infirmity was found.
14. As regards the best practice comparative jurisdiction, circumstances befalling different jurisdictions varied immensely and one of the most salient variances amongst different jurisdictions was the economic status of a State and that of its citizens as well as the unique and peculiar income-generating activities and the circumstances surrounding them. It was presumed that Parliament was alive to the needs of the people whom they represented hence the best judge of the community by whose suffrage they came into existence and those needs were what dictated the taxation policies of Kenya. It was therefore not for the court to decide what the best practice comparative jurisdiction was unless it was shown that the taxation regime in force in those other jurisdictions went contrary to the Constitution.
15. The ways of doing modern business had changed very substantially in the previous 20 years or so and it would be fool-hardy for any court to disregard internationally accepted principles of business as long as those did not conflict with Kenya’s own laws. To have done otherwise would be highly short-sighted.
16. If the Legislature, based on the best practices enacted a law that violated or contravened the Constitution, such a law would not stand. It, therefore, followed that the Legislature while considering any policy had to ensure that the same whether in its enactment or operations, adhered to the constitutional values and principles.
17. A money Bill could be introduced only in the National Assembly in accordance with article 114 of the Constitution and article 114(3) defined a money Bill. A Bill, other than a Bill specified in article 218 of the Constitution, that contained provisions dealing with taxes was a money Bill. A Bill referred to in Chapter Twelve, which was a Bill dealing with public finance, affecting the finances of county governments, was a Bill concerning county governments. Such a Bill could originate from either of the two Houses of Parliament.
18. The preamble to the Finance Act, 2020, provided that it was an Act of Parliament to make amendments to tax-related laws and the Act made provisions for the amendments to the Income Tax Act (Cap 470), Value Added Tax Act, 2013 and Stamp Duty Act (Cap 480). While under article 209 of the Constitution the power to impose value-added tax, income tax, customs duty and excise duty was on the National Government, the exercise of such power could in certain cases affect the finances of county governments. However, for such action to have been said to affect the finances of county governments, the effect ought to have been direct.
19. The effect on the finances of the county governments resulting from the imposition of the minimum tax would result from the inability by the taxpayers to remit to the county governments what the county governments expected; that was not a direct effect on the finances of the county governments. Any decision as regards tax could even in a remote way affect the collection of revenues by the county governments. However, that did not necessarily affect the finances of the county governments. A finding to the contrary would mean that any Bill containing provisions dealing with taxes would be a Bill affecting the finances of the county governments. Such an interpretation would be contrary to the holistic and purposive interpretation of article 109(5) of the Constitution. The amendment introducing the minimum tax did not require consideration by the Senate.
20. The issue regarding the possibility of double taxation could not be wished away simply on the ground that no prayer was sought as regarded the same. The matter having been placed before the court and the parties having been put on notice, the court had to deal with it.
21. It was not only unconstitutional and unlawful to subject one to double taxation but the same was also economically punitive in nature. According to article 201(b)(i) of the Constitution, one of the principles guiding public finance in Kenya was that the burden of taxation should be shared fairly. A system of taxation that lent itself to the possibility of double taxation could not be said to be fair. Such a system failed the test prescribed in article 201(b)(i). It mattered not that such a system could exist in other jurisdictions.
22. According to article 2(4) of the Constitution, any law, including customary law, that was inconsistent with the Constitution was void to the extent of the inconsistency and any act or omission in contravention of the Constitution was invalid. Therefore, a legislation that did not pass the constitutional muster could not be justified based on the ground that similar legislation existed in other jurisdictions since the Constitution in article 2(1) and (2) provided that the Constitution was the supreme law and bound all persons and all State organs at both levels of Government and no person could claim or exercise State authority except as authorized under the Constitution.
23. Kenya’s Constitution, being a value-oriented Constitution as opposed to a structural one, its interpretation and application had to therefore not be a mechanical one but had to be guided by the spirit and the soul of the Constitution itself as ingrained in the national values and principles of governance espoused in the preamble and inter alia article 10 of the Constitution. The court was therefore required in the performance of its judicial function to espouse the value system in the Constitution and to avoid the structural minimalistic approach.
24. In applying and interpreting the Constitution any of the three arms of the State, had to keep in mind the nature of Kenya’s transformative Constitution and promote its spirit. Kenyans had to therefore be cautious in borrowing policies from other jurisdictions whose constitutions might not be similar to Kenya’s. Accordingly, the law passed in other jurisdictions had to be tested against the provisions of Kenya’s Constitution in order to determine whether they passed constitutional muster.
25. In so far as the introduction of the minimum tax in the manner contemplated opened the window for violation of article 201(b)(i) of the Constitution, the court in the exercise of the powers conferred upon it by article 165(3)(b) of the Constitution was enjoined to intervene. Article 165(3)(b) provided that the court had the jurisdiction to determine the question as to whether a right or fundamental freedom in the Bill of Rights had been denied, violated, infringed or threatened. Once it was proved that there was a threat to right or fundamental freedom, the court did not have to wait until such a threat became a reality.
26. While hardship did not necessarily warrant the declaration of the constitutional invalidity of a fiscal statute or economic law, where what was in contention was not hardship but illegality that was likely to be occasioned by the implementation of an otherwise constitutional statute, the court could not turn a blind eye to it.
27. A system of taxation that lent itself to the possibility of double taxation could not be said to be fair. Such a system failed the test prescribed in article 201(b)(i) of the Constitution and it mattered not that such a system was being applied in other jurisdictions. Apart from that, the introduction of the minimum tax meant that those people who genuinely made losses would be forced to fall back on their capital in order to pay the tax while those who made profits would be paying the income tax from their profits.
28. In carrying out its mandate, the Government had to ensure that all its actions were undertaken pursuant to the constitutional dictates and that the payment of taxes was constitutional and lawful. The imposition of taxes had to be undertaken for the purposes of fulfilling its obligations owed to the people and therefore had to be constitutional and lawful. The Constitution provided that one of the principles guiding public finance was that the burden of taxation should be shared fairly.
29. Taxation could not be fair when a system of taxation was introduced with the potential effect of diminishing the capital for those making losses while for those making profits, their capital base was unaffected. Taxation ought not to be applied so that those who had more added to it while those who had little, had even that little taken away from them. Such a system could not be said to be fair and that system failed the test of fairness prescribed under article 201(b)(i) of the Constitution. The 2nd respondent had to devise a way in which the tax evaders could be identified and lawfully dealt with rather than adopting a system under which even the innocent were ensnared. A statute, particularly one that dealt with taxation had to be certain.
30. The Government could devise a system and it had done that before, whereby those enjoying certain facilities met their expenses. That could be done without violating the law. Such taxes ought not to be introduced through the backdoor as was attempted in the instant case. Article 201(b)(i) and (ii) of the Constitution provided that some of the principles meant to guide all aspects of public finance in Kenya included the fact that the public finance system should promote an equitable society, and in particular the burden of taxation should be shared fairly.
31. The criteria for determining whether a provision of the law was discriminatory was as follows:
a. Whether the provision differentiated between people or categories of people. If so, whether the differentiation bore a rational connection to a legitimate purpose. If it did not, then there was a violation of the Constitution. Even if it bore a rational connection, it could nevertheless amount to discrimination.
b. Whether the differentiation amounted to unfair discrimination. That required a two-stage analysis: -
- Whether the differentiation amounted to discrimination. If it was on a specified ground, then discrimination would have been established.
- If it was not on a specified ground, then whether or not there was discrimination would depend upon whether, objectively, the ground was based on attributes and characteristics which had the potential to impair the fundamental human dignity of persons as human beings or to affect them adversely in a comparably serious manner.
c. If the differentiation amounted to discrimination, whether it amounted to unfair discrimination. If it had been found to have been on a specified ground, then the unfairness would be presumed. If on an unspecified ground, unfairness would have to be established by the complainant. The test of unfairness focused primarily on the impact of the discrimination on the complainant and others in his or her situation. If at the end of that stage of the inquiry, the differentiation was found not to be unfair, then there would be no violation.
d. If the discrimination was found to be unfair then a determination would have to be made as to whether the provision could be justified under the limitations clause of the Constitution, being article 24 of the Constitution.
32. The impugned amendment and the Guidelines exempted persons engaged in businesses whose retail price was controlled by the Government (such as oil marketing companies (OMCs) and persons engaged in insurance business) from the minimum tax. OMCs were exempted from minimum tax on the basis that their prices were regulated by the Government and therefore they could not increase their prices arbitrarily which meant they could not control their profits while the airlines were exempted on the basis that they were Government-owned at 45% of its shares.
33. The inability to increase prices arbitrarily was a situation that was present in other sectors such as sellers of essential goods and in the consumer goods sector. In addition, the rationale applied by the 1st and 2nd respondents that the prices levied by OMCs were regulated by the Government was baseless. There were other sectors where the State had a say in the prices charged by the persons engaged in those sectors.
34. The exemption of Kenya Airways from the application of section 12D of the Income Tax Act was contradictory to the very purpose of imposing the minimum tax, which was to ensure that loss-making companies also contributed towards national revenue. The exclusion of OMCs and Kenya Airways from the application of minimum tax did not serve any legitimate purpose.
35. The petitioners did not have a carte blanche to challenge any provisions of the Income Tax Act in the proceedings. In the proceedings, they could only challenge the impugned amendment and the steps taken in pursuance thereof. Therefore, to the extent that the exemptions extended to Kenya Airways were pursuant to a provision other than section 12D of the Income Tax Act, that exemption could not properly form the subject of inquiry in the judgment.
36. Through the Price Control (Essential Goods) Act, 2011, the Government could control the prices of essential goods such as consumer goods. If that were to happen then the sectors concerned would be entitled to exemption from the minimum tax regime. What section 12D of the Income Tax Act provided was that the minimum tax was not payable by those engaged in business whose retail price was controlled by the Government.
37. While the Departmental Committee on Finance and National Planning of the National Assembly in its report specifically pointed the exemption of OMCs, the law as enacted was not restricted to the OMCs but applied to all businesses whose retail price was controlled by the Government. Such enterprises could not be said to fall under the same circumstances as the entities whose retail prices were controlled by the rules of demand and supply. As long as the exemption applied to all those engaged in business whose retail price was controlled by the Government including the petitioners whenever the Government decided to control their retail prices, the minimum tax could not be said to be unfairly discriminatory on that score.
38. Article 27(1) of the Constitution did not prohibit differentiation or classification based on different requirements of the law and what the Constitution required was that any classification or differentiation had to bear a rational connection to a legitimate Government purpose. The reason given for differentiation between those business entities whose retail prices were controlled by the Government and those that were not was that the former had little or no room to increase prices arbitrarily since pricing was controlled by the Government and hence it would be fair to base their tax on their income before deduction of depreciation, interest and tax on income. Even if the court was to disagree with that reason, that alone would not be a justifiable reason to strike out the provision that reason being a policy decision.
39. The respondents had given a legitimate reason to differentiate between the two sets of entities and while such reason could be unwise in the opinion of the court it was not rendered illegitimate by that mere fact.
40. Courts had to decline to intervene at will in the constitutional spheres of other organs, particularly when they were invited to substitute their judgment over that of the organs in which constitutional power reposed, because those organs had expertise in their area of mandate, which the courts did not normally have. Courts had to shun invitation to dabble in matters of national economic policy, when what was placed before them were the views of only two players in one industry.
41. Section 11(4) of the Statutory Instruments Act provided for the consequences for the failure to lay the instrument to be enacted before the National Assembly within the stipulated period which was that the statutory instrument would cease to have effect immediately after the last day for it to be so laid but without prejudice to any act done under the statutory instrument before it became void.
42. According to the respondents the Guidelines were made pursuant to the powers conferred under section 62 of the Tax Procedure Act under which the Commissioner-General of the 2nd respondent (Commissioner) could make a public ruling setting out the Commissioner’s interpretation of tax law. While such rulings were binding on the Commissioner, they were not binding on the taxpayer. The Guidelines did not state anywhere that it was a public ruling. Similarly, it had no identification number. Accordingly, it did not meet the prescription of a public ruling under the Tax Procedures Act in order to distinguish it from the other statutory instruments.
43. Minimum Tax Guidelines as the name indicated were guidelines. If purportedly issued in execution of a power conferred by or under section 62 of the Tax Procedure Act, then they were guidelines issued pursuant to an Act of Parliament under which the rulings were expressly authorized to be issued. They, therefore, met the definition of statutory instruments. While section 5(1)(a) of the Statutory Instruments Act emphasized the need for consultation in particular where the proposed statutory instrument was likely to have a direct or a substantial indirect effect on business, the provision did not state that consultation was unnecessary where the instrument had no direct or substantial effect on business.
44. It was not contended that the term gross turnover was defined under the Act. It was the Guidelines that had defined the said term. In order to calculate the minimum tax. However, a determination had to be made as to what constituted gross turnover, since it was the gross turnover that determined the amount of tax payable under section 12D of the Income Tax Act. In other words, without a determination of the gross turnover, the minimum tax payable could not be determined.
45. A determination as to what constituted gross turnover for the purposes of section 12D of the Income Tax Act, was likely to have a direct or a substantial indirect effect on the businesses of the petitioners. The respondents therefore ought to have complied with the provisions of the Statutory Instruments Act and the failure to do so rendered the Guidelines null and void and of no effect. In their absence, it was difficult to see how section 12D of the Income Tax Act could be implemented.
46. Whereas the Constitution empowered Parliament to enact legislation that could authorize the National Government to impose any other tax apart from income tax, value-added tax, custom duties and other duties on import and export of goods and excise tax, in the instant case the minimum tax was introduced by section 12D of the Income Tax Act and was, therefore, part of income tax.
47. Absent section 12D of the Income Tax Act that introduced minimum tax, income upon which tax was chargeable under the Act was income in respect of gains or profits. Therefore, minimum tax, in the absence of section 12D could not be deemed as income upon which income tax could be levied. Pursuant to section 15 of the Income Tax Act, in the absence of section 12D, for the purpose of ascertaining the total income, all expenditure wholly and exclusively incurred by a person in the production of income in a year of income was to be deducted. That meant that in determining what constituted income, the expenditures wholly and exclusively incurred by a person in the production of income in a year of income were to be excluded.
48. Where the provisions of an enactment were penal provisions, they had to be construed strictly and in such circumstances violence ought not to be done to its language in order to bring people within it, but rather care should be taken to ensure that no-one was brought within it who was excluded from it in express language. No part of a statute and no word of a statute could be construed in isolation. Statutes had to be construed so that every word had a place and everything was in its place.
49. The impugned minimum tax was not in contradiction with the provisions on income tax. On the contrary, a keen reading of the provisions would show that the enforcement and implementation of the two taxes were mutually exclusive and depended on each other, whereby, the minimum tax was enforceable in the instance where the installment tax payable was lower than the minimum tax.
50. Section 12D(1) of the Income Tax Act opened with the phrase, notwithstanding any other provision of the Act. The word “notwithstanding” was an English word derived from the Latin, non obstante. Section 12D was a non obstante provision and therefore other provisions were to be read subject to it. However, the non obstante clause had to be given a restricted meaning and when the section containing that clause did not refer to any particular provisions which it intended to override but referred to the provisions of the statute generally, it was not permissible to hold that it excluded the whole Act and stood all alone by itself.
51. There was need for a determination as to which provisions answered to the description non obstante and which did not. While interpreting the non obstante clause, the court was required to find out the extent to which the Legislature intended to be so and the context in which the non obstante clause was used.
52. While section 12D of the Income Tax Act was not unlawful due to the mere fact that it was a non obstante provision, it had to be read in such way that it was not seen as a clause outside the Act. It was only in situations where there was a conflict between it and any other provision of the Act that it prevailed. Where, the provisions could exist side by side with the other clauses without causing injury to either then that co-existence would be upheld. However, where there was a conflict between section 12D and any other provision in the Income Tax Act, section 12D being a non obstante provision would prevail.
53. Section 12D of the Income Tax Act was a new provision that was meant to be an alternative to corporate tax. There was nothing inherently unlawful or unconstitutional in changing the law or the nature of the income tax as long as the same was in accordance with the law. As long as the Legislature operated within the law, the policy guiding its decision was not a matter for determination by the court unless it was shown that the policy itself was constitutionally infirm. However, where it was shown that the Legislature or the Executive in the process of enacting the law or implementing it had transgressed the law, the court had to step in and bring them back on track.
54. The Finance Act, 2020, which amended the Income Tax Act by introducing a section 12D providing for the introduction of minimum tax at the rate of 1% of the gross turnover effective January 1, 2021, was not enacted in accordance with article 201(b)(i) of the Constitution since its application violated the principle that the burden of taxation was to be shared fairly. The imposition of that tax had the potential of not only subjecting the people to double taxation but also unfairly targeting people whose businesses, for whatever reason, were in loss-making positions, to pay taxes from their capital rather than from their profits, an advantage enjoyable by others merely because their businesses were thriving.
55. Whereas the respondents could well have identified the virus that had infected the revenue collection system as being the dishonest returns of losses by some entities, it was the vaccine developed for that virus that was inappropriate in dealing with it. The solution was not to cast the net wide in order to catch the culprits as well as non-culprits as was done but to develop a system that was tailored to target only the culprits. To develop a system, as was done by the respondents whereby even those for whom the law was not meant to be enacted would thereby find themselves lumped together with the culprits could not be said to be fair legislation.
56. Payment of tax was an obligation imposed by the law. It was not a voluntary activity. A taxpayer was not obliged to pay a single coin more than was due to the taxman. The taxman on the other hand was entitled to collect up to the last coin that was due from a taxpayer.
57. Article 28 of the Constitution provided that every person had inherent dignity and the right to have that dignity protected. It was for the court to ensure that all persons enjoyed the rights to dignity. Failing to take into consideration the circumstances under which taxpayers found themselves in a loss-making position, but instead subjecting them to the same law and placing them in the same class as those whose tax loss was not trading loss thereby treating them as an undifferentiated mass, violated their right to dignity. By so doing the 2nd respondent was abdicating its mandate of identifying the real tax evaders from those who ought not to be treated as such.