The measure was introduced in the Income Tax Act (ITA) amendment of 2020. Under the proposal, every business was required to pay 1% of its annual turnover, regardless of whether it was making a loss or profit. The tax was payable every quarterly.

KRA claims that the measure would prevent businesses from evading tax by reporting losses. However, it would also strangle businesses that were already making losses and struggling to survive.

The Kenya Revenue Authority would earn ksh 21 billion from the mandatory tax collected from all businesses.

However, several key businesses were exempt from the mandatory tax. These include Kenya Airways, fuel and power distributors such as Kenya Power.

However, a court petition by an alliance of business coalition stopped its implementation in 2021. These include the Kenya Association of Manufacturers (KAM), the Retail Trade Association of Kenya (Retrak), the Kenya Flower Council, and the Kitengela Bar Owners Association (KBOA).

Justice George Odunga ruled in favor of the businesses, terming the move as illegal as it would result in double taxation.

The Kenyan government vowed to appeal and promised the International Monetary Fund (IMF) to have the case resolved quickly.

Additionally, the Kenyan government has promised to implement a new tax measure to supplement the expected revenue and meet the IMF conditions if it loses the appeal.

“If the outcome of the court process is not as we anticipate, we will implement other tax measures to achieve the Sh8 billion in FY2022/23 that we expect from the reintroduction of the MACT.”