Kenya’s National Treasury has exempted cash strapped Kenya Airways (KQ, ) from paying a minimum tax of 1% of its gross turnover, meaning the flag carrier will now only pay income taxes when it returns to profitability.
Without the tax shield, Kenya Airways was scheduled to have made its first minimum tax payment by April 20, 2021, covering the first three months of its current financial year. The airline had generated revenues of KES52.8 billion (USD485 million) in the year ending December 2020. A similar turnover this year would have meant a minimum tax of KES528 million (USD4.8 million), reported Kenya’s Business Daily.
The tax shield was announced by National Treasury Cabinet Secretary Ukur Yatani in a Kenya Gazette dated March 17, 2021, without actually naming the airline: “In exercise of the powers confirmed by section 13(2) of the Income Tax Act the Cabinet Secretary for National Treasury and Planning directs that the income derived from or accrued in Kenya by an airline in which the government of Kenya owns at least 45% of its shares, and the subsidiaries of that airline shall be exempted from the provisions of Section 12(d) of the Act.” This meant the tax shield also covered Kenya Airways’ low-cost subsidiary, Jambojet (JM, Nairobi Jomo Kenyatta).
Section 12D relates to the payment of minimum tax introduced in the Finance Act of 2020 to ensure fair and just contributions to the provision of government services. The intention was to bring onboard companies which declared losses to avoid payment of corporate taxes, Yatani explained.
In its recent financial results, Kenya Airways registered a loss of KES36 billion shillings (USD336 million) for the 2020 financial year. In the same year, it received a tax credit of KES354 million (USD3.2 million).