📌 Introduction: The Most Misunderstood Tax in Kenya?
When Minimum Tax was introduced in 2020, it caused an uproar. Businesses wondered:
“Am I taxed even when I make a loss?”
Fast forward to 2025, and many SMEs are still confused about whether Minimum Tax is active, applicable, or repealed.
Let’s clear the air in plain, honest language.
🧾 What Is Minimum Tax?
Minimum Tax is a base-level tax charged at 1% of gross turnover, regardless of whether a business makes a profit or not.
It was introduced via Section 12D of the Income Tax Act (Cap. 470) through the Finance Act 2020, intended to widen the tax net by targeting businesses that perpetually declare losses but still operate.
⚖️ Legal Basis: Section 12D of Income Tax Act
Section 12D (now suspended) stated:
“A tax to be known as Minimum Tax shall be payable by a person whose income is not subject to income tax under any other provision of this Act… at the rate of 1% of the gross turnover.”
This would have meant that even loss-making businesses still had to contribute to the exchequer.
❌ Court Suspension and Constitutional Challenge
In 2021, the High Court of Kenya declared Minimum Tax unconstitutional, citing:
- Double taxation (especially where TOT or withholding tax already applied)
- Penalizing loss-makers
- Violation of fair taxation principles under Article 201 of the Constitution
🧑⚖️ As a result, KRA was barred from implementing Minimum Tax, and refunds were ordered where collections had already started.
📅 Status in 2025: Is Minimum Tax Still Applicable?
As of 2025, and confirmed by absence in the Finance Act 2025:
✅ Minimum Tax remains suspended
✅ No new law has reinstated it
❌ It is not being enforced by KRA
❌ You are not required to pay it
SMEs and traders with low margins or seasonal income do not need to file or pay Minimum Tax in 2025.
🧮 Who Would Have Been Affected?
Had it remained in force, Minimum Tax would have targeted:
- Businesses constantly declaring tax losses
- High-turnover, low-profit firms (e.g., wholesalers, retailers)
- Real estate developers sitting on unsold property
- Startups and capital-intensive ventures in early stages
🧑💼 Alternatives in 2025
| Scenario | Tax Regime |
|---|---|
| Turnover below Ksh 1M | Presumptive Tax (1% of SBP) |
| Turnover Ksh 1M–25M | Turnover Tax (1%) |
| Turnover above Ksh 25M | Standard Income Tax (30%) |
| Employment Only | PAYE |
| Rental Income | RRIT or normal tax |
📉 Common Misconceptions About Minimum Tax
- ❌ “I still owe Minimum Tax for 2023–2024”
- ❌ “KRA will restart it in 2025”
- ❌ “If I declare a loss, KRA will charge me Minimum Tax”
- ❌ “All businesses must pay 1% of turnover”
✅ None of these are true under the current tax framework.
🤔 FAQs
Q1: Is Minimum Tax active in Kenya in 2025?
No. It was suspended by the courts in 2021 and has not been reintroduced.
Q2: Is it still in the Income Tax Act?
Yes — Section 12D remains, but is unenforceable due to the High Court ruling.
Q3: Do I need to account for Minimum Tax in my return?
No. KRA does not require it in any 2025 return.
Q4: Will it be revived in future?
Possibly — but it would require parliamentary amendment and constitutional safeguards.
Q5: I paid Minimum Tax in 2020–2021. Can I get a refund?
Yes, if eligible. Contact KRA with supporting documents.
📣 Conclusion: Minimum Tax Is Out (For Now)
While it rattled businesses when first introduced, Minimum Tax is not applicable in 2025. That said, it’s still on the books, and any future reintroduction could catch the unprepared off guard.
✅ For now, focus on the correct regime — TOT, Income Tax, or Presumptive Tax — and stay compliant.
👉 Need help with small business tax registration or choosing the right tax type?
Visit Ushuru.com for personalized support today.