Housing levy: State pleads to continue with collections
Attorney-General Justin Muturi.
President William Ruto on Wednesday pleaded with the Court of Appeal to allow the government to continue collecting the controversial housing levy, pending the hearing of an appeal challenging its legality.
Through Attorney General Justin Muturi, President Ruto said through the affordable housing programme, the government has created 120,000 jobs and anticipates to construct 258,874 units annually, which would be thrown into jeopardy, if the court freezes the collection of the levy.
The High Court last year found the housing levy illegal, stating that it was discriminatory as it targets those in formal employment while sparing those in informal sector.
A Bench of three judges, however, suspended the decision until January 10, to allow the government appeal against the decision.
The Attorney General told Court of Appeal judges Lydia Achode, John Mativo and Mwaniki Gachoka that over the past six months since the levy came into effect, there has been some major achievements, among them availability of more funds for the affordable housing project. Mr Muturi said 39,879 units have been launched, with a further 32,420 units earmarked for launching.
“Infrastructure projects initiated pursuant to the 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, significant 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 same gross to also calculate the Pay As You Earn, a form of double taxation. Every employee contributes 1.5 percent, matched by a similar percentage by the employer.
The Attorney General’s pleadings were supported by CS Treasury Prof Njuguna Ndung’u, who stated that the government has been collecting Sh5 billion every month with an estimated Sh73 billion annually through Finance Act, which is being challenged.
Prof Ndung’u said a suspension of the High Court judgment was required to avert possible legal suits — arising from cancellation of contracts and agreements entered into, and uphold the stability of the existing agreements.
Senior Counsel Kiragu Kimani said although the consequences of the failure to allow the government collect the taxes are irreversible, Kenyans being deducted the levy can get a refund, in case the court finds the levy unconstitutional.
“On the other hand, if the stay order sought herein is not granted and the intended appeal is successful, the government would have lost an opportunity to collect revenue required for the implementation of the affordable housing programme. This effect is irreversible,” he said.
Mr Kimani said it was in order for the government to pursue the appeal and at the same time seek to address the concerns pointed out by the High Court through a Bill in parliament.
Prof Ndung’u added, “The cessation of the affordable housing levy collection would disrupt ongoing projects through the levy, adversely affecting government programmes for affordable housing. In a speech that has come under heavy criticism, Dr Ruto complained that his plans are being sabotaged through court orders. He vowed to disobey the orders and implement the projects.
Prof Ndung’u said some projects will have to be suspended leading to service disruptions for already budgeted for revenue, if the court does not suspend the High Court decision.
National Assembly through Gitonga Murugara submitted that the High Court judges failed to consider that differentiated treatment of various taxpayers do not amount to discrimination.
The application was opposed by among others, Katiba Institute, Law Society of Kenya (LSK), Tribeless Youth as well as Busia Senator Okiya Omtatah and Eliud Matindi.
Katiba Institute through lawyer Dudley Ochiel pleaded with the court to stop the levy and all sections that the High Court found to be unconstitutional, saying the government introduced regressive tax measures that burden low-income earners excessively, thus threatening their right to life and livelihood.
Mr Ochiel said it was in the public interest to suspend the taxes including VAT on fuel, which was adjusted to 16 percent from 8 percent, because the resulting increase in the cost of fuel has a spillover effect on the cost of living.
“Thus, the doubling of VAT on petroleum fuels by the Finance Act 2023 is regressive and burdens poor people more because they spend a larger share of their overall budgets (60%) on food compared to (54%) for high-income people,” he submitted.
The lawyer said the government’s failure to propose any affirmative action measures to mitigate the increased cost of living for the most vulnerable violates the Constitution.
“Should the Honourable Court eventually find merit in the intended appeal, it would be impossible to reverse the wheels of time and undo the impact of regressive taxes on the lives and livelihoods of Kenyans during an economic recession,” he submitted.
Mr Omtatah faulted the High Court for suspending the decision after finding the levy illegal, arguing that the judges no longer had the jurisdiction after giving their judgement.
The court will rule on January 26 on whether to temporarily suspend the High Court judgment and allow the Kenya Kwanza administration to continue collecting the taxes.
