Business has been paying taxes based on their profit. If a company makes loses, they would not pay tax but instead carry the loss forward to be offset by the profit of the preceding years.  These denied the taxman revenue as companies continuously declare losses and avoid paying taxes. The finance ACT 2020 introduced several radical changes to address such loopholes to the Tax laws. One of these was the introduction of minimal tax base on income for all persons, the tax applies whether one makes a profit or not.

Minimum Tax Rate

The tax rate for the minimum tax is 1% of the gross turnover of the Company.

The determination of whether a company should pay Minimum Tax

 Minimum Tax is payable by persons whose Instalment tax estimates is less than the minimal tax.

Instalment tax is an advance tax payment where business estimate their tax payment will grow by 10%, and they pay tax the in four equal instalments. 

E.g If a business previous year tax was Ksh 347,987 then the instalment tax is computed as follows:

Previous year Tax : Sh 347,987

Year Tax Estimates: 110% * 347,987 = 382,785.7

Instalment Tax will be : 25%*382,785.7 = 95,696.42

In the above example, if the business was to have an annual turnover of 569,500. The Minimal tax is calculated as follows:

Turnover: sh 45,695,500

Minimal Tax : 1%*45,695,500 =  456,955

25%* 456,955 = 114,238.75

Since the minimum tax is more than the Instalment tax, the company will be subject to Minimal Tax Base.

The due date for filing and Paying Minimum Tax

Minimal tax is payable in 4 equal instalments that are due on the 20^th of each tax period ending on the 4^th, 6^th, 9^th and 12^th Month of the year of income.

Income exempted from Minimum tax

Minimum Tax shall not apply to the following incomes:

1. Income exempted by the Act
2. Employment Income
3. Income subject to Residential Rental Income Tax
4. Income that is subject to Turnover Tax
5. Income subject to Capital Gains Tax
6. Income of the extractives sector 

Wrap up

Minimal tax will ensure that all persons contribute fairly to national coffers. Every business must therefore as it pays its suppliers it also pays the taxman tax, whether it will be making a profit or not as it would pay its other suppliers.

Samwel Gathia

Samwel Mwangi Gathia is a Certified Public Accountant (CPA), Certified Secretary (CS), an MBA graduate, and a member of the Institute of Certified Public Accountants of Kenya (ICPAK) and the Institute of Human Resource Management (IHRM). He is the Lead Consultant at Anziano Consultants.

A practising accountant and business consultant based in Nairobi, Kenya, Samwel brings extensive expertise in accounting, taxation, investment, insurance, corporate governance, and human resource management. He holds an MBA (Corporate Management) from KCA University, a Bachelor of Arts from the University of Nairobi and a Certificate of Proficiency in Insurance (COP) from the College of Insurance.

As a seasoned trainer and consultant, he is passionate about financial literacy, corporate compliance, strategic management, and FinTech-driven digital transformation. Through his articles, he simplifies complex finance and governance topics to help individuals and businesses make smarter financial and business decisions.

Credentials: MBA |BA | CPA | CS | ICPAK | IHRM | COP (Insurance)