KRA Barred From Collecting Housing Fund Levy

UPDATE 3:40pm 28/11/2023: Stay orders granted till Jan 10, 2024 on High Court judgment that declared the Housing Levy unconstitutional pending the filing of a formal application of stay and conservatory orders in the Court of Appeal.

This means 1.5% Housing Fund deductions continue.

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The High Court in Nairobi has declared the Housing Fund Levy introduced by President William Ruto’s administration unconstitutional.

The levy, which was set at 1.5% of an employee’s gross monthly salary matched by a similar amount from the employer, was aimed at providing funds for the development of affordable housing, associated infrastructure as well as the provision of affordable home financing to Kenyans.

A three-judge bench of justices Lawrence Mugambi, Christine Meoli, and David Majanja declared that the imposition of the levy was discriminatory. They asserted that it unfairly taxed only salaried Kenyans while excluding those employed in the informal sector.

"The levy against persons in formal employment to the exclusion of other non-formal income earners without justification is discriminatory, irrational, arbitrary and against the constitution," Justice David Majanja ruled.

Further, the court ruled that the levy lacked a comprehensive legal framework for implementation.

"Our understanding of 206(1) is that money earmarked and collected for a purpose must be paid over into a public fund established for that purpose by legislation. The housing levy cannot be paid over to a fund unless there is a legislative provision connecting the levy to the fund.  This does not exist in section 84 of the Finance Act," added Justice Majanja.

The three-judge bench also ruled that KRA did not have a mandate to collect the housing levy nor can the Cabinet Secretary for the National Treasury be the one giving the revenue authority power to collect the levy.

Projected Housing Levy Revenues

The ruling threatens to rob President Ruto’s administration over Ksh200 billion in revenues from the levy targeted for the first term of the Kenya Kwanza government.

In the first quarter of the 2023/2024 Financial Year (July - September 2023), the government collected a total of Ksh11.83 billion via the housing levy.

Here are the collection targets that the government had for the first term:

• FY 2023/24: Ksh63.2 billion
• FY 2024/25: Ksh70 billion
• FY 2025/26: Ksh78 billion
• FY 2026/27: Ksh89 billion

Subsequently, the government has been barred from collecting the levy.

"An order is granted prohibiting the respondent from collecting/charging or otherwise charging on Affordable Housing Act on the basis of section 84 of the Finance Act and all prayers on the consolidated petition not specifically granted," Judge Majanja ruled.

Social Health Insurance Act (SHIF), 2023 Suspended

This coming just a day after the High Court slammed the brakes on the implementation of the Social Health Insurance Act (SHIF), 2023, that mandated a 2.75% contribution of gross pay by employees to the fund that is set to replace the National Health Insurance Fund (NHIF).

The High Court halted the implementation until a legal challenge filed by the Kenya Medical Practitioners, Pharmacists, and Dentists Union (KMPDU) is heard and determined. 

KMPDU argues that the government proceeded without adequately involving stakeholders to address contentious issues.The KMPDU particularly opposes section 26(5) of the SHIF Act, contending that it could disenfranchise citizens from accessing government services.

“Any person who is registerable as a member in this act shall produce proof of compliance with the provisions of this Act on registration and contribution as a precondition of accessing public services from the national government, county government or national and county government entities,” reads section 26(5) of the SHIF Act, 2023.

Health Cabinet Secretary Susan Nakhumicha had earlier assured NHIF staff about a dignified transition into the new scheme, acknowledging potential job losses. 

She outlined criteria for the transition and discussed possible exit packages for NHIF staff, emphasising the option for those not meeting criteria to consider early retirement. 

Despite these assurances, Nakhumicha warned against any attempts to sabotage the transition to the Social Health Authority (SHA) - the new body formed to administer the fund.

The government has asked for stay orders for 45 days to regularize the Housing Levy. The High Court is set to rule on this at 3pm today.

KRA: We Are Not Taxing Till Numbers

The Kenya Revenue Authority (KRA) has come out to flag as fake messages going around social media about the authority seeking to tax till numbers. 

In a post on X platform, the revenue authority said the allegations were not true.

"Till numbers are NOT subject to taxation, and KRA does not collect any such taxes. Beware of fraudsters purporting to do any of the above," the post reads.

This follows a period of noted abandonment by traders of mobile money payments in favour of cash in response to the authority’s efforts to enforce tax compliance. 

Below are some notable events preceding this.

• In January 2023, KRA was reported to have been planning on tracking mobile money transactions in real-time to combat tax evasion.
• Monitoring targeted 16% VAT on sales and 20% excise duty on transactions.
• In September 2023, KRA deployed 1,400 revenue service assistants (RSAs) with paramilitary training to boost tax compliance, including online business registration.
• RSAs demand business permits, cash and receipt books, mobile money statements, M-Pesa till and paybill numbers, wage schedules, tenancy agreements, and rent receipts during compliance checks.
• In October 2023, KRA observed a shift from mobile merchant payments to cash transactions, complicating compliance checks.
• In the last two months, Kenyans on social media have been inundated with reports of everyday businesses reverting to cash transactions in fear of being targeted by KRA. This has forced the authority to make the post on social media.