The minimum tax - calculated at 1% of gross turnover - went into effect in January, prompting at least four business groups to file a case challenging it and winning a temporary suspension of the measure in April.
"The Minimum Tax has the potential to not only subjecting the people to double taxation, but also unfairly targeting people whose businesses, for whatever reason, are in loss-making position to pay taxes from their capital rather than from their profit," High Court Judge George Odunga said in his ruling.
Tax agency Kenya Revenue Authority said it would challenge the ruling.
"This is to ensure that KRA continues to review and improve on tax policies in order to reduce the tax burden while ensuring that every citizen contributes their fair share of tax," Paul Matuku, its commissioner for Legal Services and Board Coordination, said in a statement.
The Kenya Association of Manufacturers, The Institute of Certified Public Accountants of Kenya, Kenya Flower Council, Retail Trade Association and Isinya East Sub-County Bar Owners Association, who challenged the tax, welcomed the ruling.
The decision "provides much needed relief to businesses that continue to strain under the weight of over-taxation and unpredictability in the country today," Mucai Kunyiha, chairman of KAM, said in a statement.
Businesses likely to be affected by the tax include low-margin ones dealing with fast-moving consumer goods, new businesses and loss-making companies, he said.
Kenya's economy, like others worldwide, has been hammered by the effects of the pandemic as lockdowns to curb the spread of COVID-19 have reduced tax revenue collection and stifled growth.
The finance ministry projects a budget deficit of 7.5% of GDP in the 2021/22 (July-June) fiscal year.
(Reporting by George ObulutsaEditing by Mark Porter)
