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Win for Ruto as Court okays collection of housing levy

President William Ruto scored a win after the Court of Appeal allowed the government to continue collecting the controversial housing levy, albeit until January 26 when the court will decide whether to lift the order or grant a further extension.

A Bench of three judges of the appellate court directed the status quo prevailing to be maintained until then, when they will rule on the application by Attorney General Justin Muturi seeking further collection of the levy, pending the determination of an appeal on the legality of the levy.

The High Court quashed the levy on November 28 for being discriminatory but suspended the judgment until January 10, to allow the government to pursue an appeal.

“In the meantime, the status quo obtaining as of today shall be maintained until the delivery of the ruling,” Lydia Achode, John Mativo and Mwaniki Gachoka said.

A day before the hearing of the application, President Ruto complained that his plans were being sabotaged through court orders. He vowed to disobey the orders and implement the projects.

Another application, seeking to lift an order blocking the implementation of the Social Insurance Act, 2023 was also slated for hearing at the Court of Appeal on the same day but it was pushed to another date, because of lack of time.

Mr Muturi had pleaded with the court to allow the collection of the levy arguing that it had created more than 120,000 jobs since it was started six months ago.

While quashing the levy, High Court judges David Majanja, Christine Meoli and Lawrence Mugambi stated that imposing it against persons in formal employment to the exclusion of other non-formal income earners, to support the national housing policy was without justification, unfair, discriminatory and irrational.

Kenya has about 3.2 million people in formal employment and about 15.9 in the informal sector and the court observed that it was illegal to subject a section of the population to the tax leaving out the rest.

“The introduction of the Housing Levy through amendment of the Employment Act by Section 84 of the Finance Act, 2023 lacks a comprehensive legal framework in violation of Articles 10, 201, 206 and 210 of the Constitution,” ruled the High Court judges.

Mr Muturi had pleaded with the judges to extend the order and allow the government to continue collecting the levy arguing that putting it to a hold, would disrupt ongoing projects and adversely affect government programmes for affordable housing.

“Infrastructure projects initiated pursuant to affordable housing, and in line with the government’s objective to facilitate affordable housing for the public, are presently underway. In the absence of a stay, the abrupt halt to these projects will lead to irreparable damage, significantly impacting the economy,” Mr Muturi said in submissions filed in court.

The affordable housing fund is gross-on-gross taxation on workers income where the Kenya Revenue Authority (KRA) uses the same gross to also calculate the Pay As You Earn. Every employee contributes 1.5 percent, matched by a similar percentage by the employer.

But as the government sought for an extension of the order pending the appeal, other parties including the Law Society of Kenya (LSK), Katiba Institute as well as Busia senator Okiya Omtatah opposed the application.

According to Katiba Institute, the Finance Act, 2023 imposed regressive taxes that burden low-income earners excessively, thus threatening their right to life and livelihood.

The non-governmental organisation argued that the ripple effect of the taxes would not be reversed by a successful appeal.

“The public interest in this matter merits urgent consideration and resolution by this Honourable Court since it concerns the imposition of regressive tax measures that burden low-income earners excessively, thus threatening their right to life and livelihood under Articles 26 and 43,” submitted lawyer Dudley Ochiel.

Other than the housing levy, the lobby will also be asking the court to quash sections 30 to 38 of the Finance Act (amending sections 5, 8, 12, 17, 31, 34, 43, First Schedule and the Second Schedule of the VAT Act); section 47 of the Act, amending the First Schedule to the Excise Duty Act, 2015; and section 47(a)(v) of the Act, amending Part I of the First Schedule to the Excise Duty Act, 2015.

The lobby said the High Court erred in law in ignoring the submission that the amendment to section 5(2)(ab) of the Value Added Tax Act 2013, section 30(b) of the Finance Act 2023 (to double the VAT on liquefied petroleum gas including propane) is unconstitutional.

Mr Ochiel said the amendment was regressive as it threatens the right to a clean environment through the increased use of wood fuel and other non-renewable energy sources as alternatives.

“Equally, the High Court erred in ignoring the submission that the amendment to section 5(2)(aa) of the Value Added Tax Act, 2013 by section 30(a) of the Finance Act, 2023 (to double the VAT from 8 percent to 16 percent on the fuels, is unconstitutional for being regressive.

“It is in the public interest to suspend this tax because the resulting increase in the cost of fuel has a spillover effect on the cost of living and disproportionately shifts the tax burden to the poor and marginalised,” he said.

The organisation submitted that the doubling of VAT on petroleum fuels is regressive and burdens poor people more because they spend a larger share of their overall budgets (60 percent) on food compared to (the 54percent) for high-income people.

“Again, the respondents’ failure to propose any affirmative action measures to mitigate the increased cost of living for the most vulnerable 20 violates Articles 10, 21(3), and 201 of the Constitution,” the NGO said.

Further, the amendment of the Excise Duty Act, 2015 to impose an excise duty of 25 percent on imported cartons, boxes and cases of corrugated paper or paper board and imported folding cartons, boxes, among others is unconstitutional.

The lobby said the amendment threatens the right to a clean and healthy environment through increased use of plastic as an alternative, leading to plastic pollution.

“Further, the tax will increase the pressure on Kenyan forest cover and violate Article 69(1)(b) of the Constitution, requiring a tree cover of at least ten percent of the land area of Kenya,” argued the lawyer.

Mr Ochiel said Kenya’s forest cover is presently hovering around the minimum and the effect of implementing this excise duty on paper packaging is, therefore, irreversible and violates the precautionary principle.

skiplagat@ke.nationmedia.com

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