Faith Nyasuguta
A Kenyan appeals court has invalidated a set of taxes introduced in 2023, jeopardizing a crucial revenue stream for the government, according to Reuters. This ruling represents a significant setback for President William Ruto’s administration, which had relied on these taxes to fund various initiatives.
The decision comes on the heels of the government’s withdrawal of this year’s finance bill amidst violent protests. Finance bills, presented at the start of each financial year, are essential for detailing the government’s revenue generation strategies, including tax hikes and new levies.
The 2023 tax measures faced intense scrutiny and legal challenges following widespread unrest led by opposition groups. The protests were sparked by the government’s decision to double the value-added tax (VAT) on fuel, introduce a housing tax, and raise the top personal income tax rate. According to Bloomberg, these tax changes were projected to generate approximately 211 billion shillings (about $1.6 billion) for the fiscal year ending last month.
On Wednesday, a three-judge panel ruled that the taxes enacted last year violated Kenya’s budgetary regulations. The court found the legislative process used to pass these taxes to be “fundamentally flawed” and unconstitutional. This ruling came in response to an appeal against a prior High Court decision, which had largely upheld the Finance Bill but struck down the housing levy.
Following the initial High Court ruling, the government enacted new legislation to continue the housing tax collection, but this new law is also under legal scrutiny. The administration now faces the option of appealing the Court of Appeal’s decision to Kenya’s Supreme Court, the highest judicial authority in the country.
President Ruto has defended the tax increases, arguing they are essential for funding development projects and addressing a significant public debt that exceeds International Monetary Fund (IMF) and World Bank recommendations. In response to the court’s ruling, the government has submitted a revised economic plan to the IMF, with a review expected by the fund’s board at the end of August.
This legal setback for the government brings to light the challenges President Ruto faces in implementing his economic agenda and highlights the ongoing political and legal battles over fiscal policy in Kenya.
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