Kenya’s High Court ruled Tuesday that the government’s new housing levy is unconstitutional, barring the state from collecting the planned over 60 billion in annual revenue.
In a unanimous verdict, the three-judge bench found that the levy inserted into the Finance Act 2023 “lacks a comprehensive legal framework and is irrational,” violating taxation principles and unlawfully distinguishing between Kenya’s formal and informal sectors.
“We find that the introduction of the housing levy amendment to Section 84 lacks a comprehensive legal framework in violation of the Constitution,” the judges said in the ruling.
The levy was established to raise funding for a new affordable housing program, with projected collections of KES 63.2 billion in 2023-2024. Justice Majanja noted that the Kenya Revenue Authority is not legally empowered to collect the levy.
“Housing levy is not one of the taxes KRA is empowered to collect,” Majanja said.
While the court found the rushed public participation process was likely sufficient, the lack of a legal framework for the levy and associated housing fund violated constitutional principles.
“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,” Majanja said.
Justice Meoli concurred that loopholes in the legislation rendered the levy unconstitutional despite its worthy policy aims, while Justice Mugambi noted the finance bill violates rules barring money bills from containing extraneous matters.
The ruling represents a major setback for the Kenya Kwanza administration, which touted the levy and accompanying housing program as a top policy achievement.
Losing billions in projected annual funding could slow plans to construct 200,000 affordable homes every year.
