According to Bloomberg, Kenyan tax authorities can continue collecting various taxes introduced last year while awaiting a Supreme Court hearing on a consolidated petition. The Supreme Court issued a conservatory order suspending a July 31 appeal court ruling that declared the Finance Act 2023 unconstitutional. The court will hear the consolidated appeals on September 10 and 11.
Last year, Kenya implemented new taxes, including doubling the value-added tax on fuel, increasing excise duties on money-transfer services, and raising the top salary-tax rate from 30% to 35%. Chief Justice Martha Koome and six other Supreme Court judges stated that maintaining these taxes is in the public interest to ensure stability in the budget and appropriation process until the appeal is resolved.
The enactment of the tax law led to 11 petitions in the High Court, primarily challenging the constitutionality of the legislative process and some provisions. The government had to abandon a separate tax law that proposed additional measures, which resulted in deadly street protests. Treasury Principal Secretary Chris Kiptoo noted that overturning the levies would reduce government revenue by approximately 214 billion shillings ($1.66 billion), necessitating budget revisions to cut expenditure.
Since taking office nearly two years ago, President William Ruto's administration has aimed to raise record revenue but had to reduce spending plans by 3% following protests that resulted in at least 61 deaths. Two ratings agencies have downgraded Kenya, citing uncertainty about its ability to diversify revenue streams. Further delays could exacerbate unpaid liabilities to contractors, suppliers, and pension funds. BancTrust & Co. Investment Bank warned that annulling the taxes would add uncertainty to revenue expectations and could widen the budget deficit. Kenya's financing gap is projected to be 5.8% of GDP this fiscal year due to risks associated with proposed spending cuts.