Members of Parliament (MPs) have approved the National Treasury’s decision to exempt Kenya Airways (KQ) and its subsidiaries from paying the minimum tax set at one percent of gross turnover.
The National Assembly adopted the Delegated Legislation committee’s report for the tax relief for the troubled national airline that has been facing financial challenges.
Treasury Secretary Ukur Yatani announced the tax shield for KQ and its subsidiaries in a Gazette notice dated March 17, 2021, which was sent to parliament for approval.
“The committee recommends that the House approve such a statutory instrument in accordance with section 13 (2) of the Statutory Instruments Act,” the committee said.
During the debate on Wednesday afternoon, legislators expressed mixed reactions.
Kikuyu Member of Parliament Kimani Ichungwa welcomed the move but challenged the National Treasury to look at other airlines who have also been making losses and not just KQ.
“We even have to be thinking how to extend this to beyond other airlines and other businesses from this minimum tax, and I hope that the matter in court will save Kenyans from the minimum tax,” said Ichungwa.
Other MPs opposed the tax waiver, arguing that KQ was making massive losses and that there was little to salvage.
“It would be a fallacy to give tax relief for some Japanese company and fail to rescue our own company in Kenya that is suffering,” said Suba North MP Millie Odhiambo.
The tax exemption focused on airlines where the state owns at least 48.9 percent of the shares and its subsidiaries.
The Committee, however, anchored the exemption request to cover the national carrier on subsidies extended to State-linked carriers in other jurisdictions around the world.
Tax waiver include all landing and parking fees between April and December last year by the Seychelles government, Ksh.13.7 billion ($128 million) relief for tourism and air transport sectors in Senegal and the Ksh.1.2 trillion (9 billion Euro) bailout of Lufthansa by Germany.
KQ had applied for the tax exemption due to the coronavirus disruption that has seen the airline suspend international flights since March last year.
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In its push for the exemption, KQ said it has been paying its leasing expenses and fees for the inspection of its aircraft, adding that paying the minimum tax would make its operations unsustainable.
The minimum tax was introduced on January 1, 2021, which seeks to compel companies in Kenya that are also making losses to contribute to the National Treasury.
This was to take effect from April 20, 2021, but the High Court through Justice George Odunga suspended the move pending hearing and determination.
“… I grant conservatory orders restraining the 2nd Respondent Kenya Revenue Authority (KRA) whether acting jointly or severally by itself, its servants, agents, representatives or howsoever otherwise from the implementation, further implementation, administration, application and/or enforcement of Section 12D of the Income Tax Act, Chapter 470 of the Laws of Kenya as amended by the Tax Laws (Amendment) (No.2) Act, 2020 by collecting and/or demanding payment of the Minimum Tax pending the hearing and determination of this Petition.” said justice Odunga.
The petition was filed by the Isinya Sub-County Bar Owners Association who challenged the constitutionality and validity of the new tax provision effected through the 2020 Finance Act.
The petitioners argued the tax fails to meet the threshold of income tax by subjecting loss-making entities to taxation.
