In a landmark ruling that could have far-reaching implications for Kenya’s tax regime, the High Court has declared unconstitutional a 1.5% levy intended to fund affordable housing. The court’s decision has been widely hailed as a victory for taxpayers and workers, who have raised concerns about the burden of the levy. However, the government has vowed to appeal the ruling, and the decision could open the door to legal challenges against other taxes.
The 1.5% levy, imposed as part of the Finance Act 2023, was met with widespread criticism from the public and opposition parties. Critics argued that the levy was unfair and discriminatory, as it only applied to workers in the formal sector, leaving those in the informal sector exempt.
The High Court agreed with these criticisms, ruling that the levy violated the principle of horizontal equity, which states that similarly situated taxpayers should be treated equally. The court also found that the government had failed to provide a rational explanation for why the levy should be applied only to formal sector workers.
The court’s decision is a major setback for the government’s affordable housing agenda, which had relied on the levy to raise Ksh25 billion (US$203 million) per year. The government is now scrambling to find alternative sources of funding, and it remains to be seen whether it will be able to meet its ambitious housing goals.
However, the court’s decision could also have broader implications for Kenya’s tax regime. The ruling could encourage other taxpayers and workers to challenge other taxes that they believe are unfair or discriminatory. This could lead to a wave of legal challenges that could reshape the country’s tax policy.
The court’s decision has been welcomed by tax experts and activists, who argue that it is a victory for fairness and equity. They say that the decision sends a strong message to the government that it cannot unfairly burden certain groups of taxpayers.
“This is a landmark ruling that sets a precedent for future tax cases,” said David Kamau, a tax expert at the University of Nairobi. “It is a victory for taxpayers and a reminder to the government that it must be fair and equitable in its taxation policies.”
The government, however, is not giving up without a fight. The government has stated that it will appeal the court’s decision, and it is also considering introducing new tax measures to make up for the lost revenue from the affordable housing levy.
It remains to be seen how the legal challenges to the levy will play out, and whether the government will be able to find alternative sources of funding for its affordable housing agenda. However, the court’s decision has undoubtedly shaken the foundations of Kenya’s tax regime and could have a lasting impact on the country’s fiscal policy.