More than 3.2 million Kenyans in formal employment have been spared from paying the contentious Housing Levy that the government introduced in July after the High Court on Tuesday ruled that it was unconstitutional.
A three-judge Bench found that the levy was illegal as it subjects Kenyans in the formal employment to the tax while leaving out more than 15.9 million others in the informal sector from contributing to the fund.
However, Kenyans should not celebrate yet after Justices David Majanja, Christine Meoli and Lawrence Mugambi suspended their decision until January 10, to allow the government to appeal.
“An order is granted prohibiting the respondent from collecting or charging or otherwise charging on Affordable Housing Act based on Section 84 of the Finance Act and all prayers on the consolidated petition not specifically granted,” Justice Majanja who read the judgment said.
The Kenya Revenue Authority (KRA) and the Attorney-General had pleaded with the court to suspend the judgment for 45 days, arguing that the taxman, which was tasked with collecting the levy, might be swamped with a flurry of suits as Kenyans seek a refund of the money already collected.
Lawyer Gaya Ochieng for the KRA further said the period would be sufficient to allow the taxman to make necessary adjustments to its system to align it with the court decision.
The three judges ruled that the levy, which was introduced through amending section 84 of the Employment Act, was discriminatory for targeting persons in formal employment without justification.
In a quick reaction at a trade unions forum in Nairobi, President William Ruto said the government will align the law as per the court decision, even as he insisted that the programme has benefited 200,000 people.
“I know the court has said we should go and read history of the law and make it aligned appropriately. That, we are going to do,” Dr Ruto said.
The affordable housing fund is gross-on-gross taxation on workers’ income where the KRA uses same gross to also calculate the Pay As You Earn, a form of double taxation.
Dr Ruto rallied Parliament to enact the housing fund through the Finance Act 2023 despite protestation from employers and civil society groups.
In the programme, President Ruto’s administration targeted to put up 250,000 housing units every year and the levy, which took effect in July is collected by the KRA, with every employee contribution of 1.5 percent matched by the employer.
According to the judges, Section 84 of the Finance Act, which amended the Employment Act to introduce the levy violated the principles of taxation for making distinction between formal and informal sectors, thus creating unequal and inequitable principles.
The court added that the enactment of laws must be supported with a rational explanation but in the case of the housing levy, the government failed to explain the levy or even provide a legal framework to anchor the fees.
In challenging the Act, the petitioners, among them Busia Senator Okiya Omtatah, argued that it was a bad law that would affect many Kenyans who are already burdened by the high cost of living.
Further, the petitioners argued that certain provisions of the Finance Act were not part of the initial Bill, yet was passed without public participation contrary to provisions of Articles 10, 118, and 201 of the Constitution.
Rarieda MP Otiende Amollo pointed out that 22 new clauses were introduced on the floor of Parliament without public participation.
The MP said the clauses were introduced through an addendum, yet public participation, a core element especially in taxation, was not factored.
The judges disagreed with Mr Omtatah on some of his submissions, stating that there was no need of subjecting it to the concurrence of both Speakers of the House— National Assembly and Senate— as it is a money Bill.
Mr Omtatah had argued that both Speakers should have considered whether the Bill concerned counties and, if so, whether it was a special or ordinary Bill and resolve the questions before the Finance Bill was enacted.
Although the judges found that there were anomalies in the passage of some sections of the Act, they were not serious to negate the same law.
In the process, the judges upheld the taxes imposed such as the 16 percent VAT on fuel levy, insurance premiums, the digital asset tax, and the tax on betting, saying they were constitutional and within the mandate of Parliament.