The High Court has handed consumers a temporary reprieve after it suspended implementation of new tax measures.
In a setback to Treasury’s bid to finance its Sh2.55 trillion budget, the court ruled that some taxes contained in the 2018-2019 Finance Bill should be shelved.
The affected taxes include excise duty imposed on mobile money transactions, bank transactions for amounts over Sh500,000, kerosene, bottled water and chocolate.
These are some of the items whose prices went up from July 1 after Treasury Cabinet Secretary Henry Rotich assigned them additional duties in his budget speech.
Some mobile money service providers and banks had already notified their customers of the changes in taxation.
Safaricom’s M-Pesa had adjusted its tariffs in line with Mr Rotich’s directive.
“Pursuant to The Finance Bill 2018 and The Provisional Collection of Taxes and Duties Act, we have made... adjustments to our M-Pesa tariffs,” said Safaricom in an advertisement.
High Court judge Wilfrida Okwany in her verdict said the Government would not incur losses when the implementation of the new taxes was frozen.
“I am satisfied from the material presented before me by the petitioner there is a likelihood of success and I find that it will be necessary to preserve the subject matter while awaiting hearing and determination of the petition on the constitutionality of the Finance Bill 2018,” ruled Justice Okwany.
The judge issued a disclaimer over the eventual judgement.
“If the case is heard and the court finds that the implementation of the Bill is constitutional, there will be no prejudice to the respondents since the bill will be immediately implemented, said Justice Okwany.
"If on the other hand the court at the end finds it is unconstitutional there will be no practical way of compensating Kenyan taxpayers.
“I reiterate that I am inclined to grant the application at this stage for the above reasons.”
The case was filed by activist Okiya Omtatah, who was seeking orders to suspend the implementation of these new tax measures.
The judge had earlier in the day issued separate orders suspending the Robin Hood tax that was to be imposed on bank transactions above Sh500,000.
According to the new tax measures, those sending Sh500,000 and more through banks and other financial institutions would surrender 0.05 per cent of their cash to the taxman, as the Government sought to take from the rich to finance one of President Uhuru Kenyatta’s Big Four agenda items, universal healthcare.
The case was filed by the Kenya Bankers Association. In his budget speech, Rotich proposed to increase excise duty on mobile money transactions to 12 per cent from 10 per cent. This is likely to hit the poor the most.
“Mr Speaker, our economy has a well-established financial sector in the region with significant sums of money transferred monthly. In order for the Government to get a fair share of revenue from these financial activities and to finance critical Government programmes, I propose to introduce a Robin Hood tax of 0.05 per cent on any amounts of five hundred thousand shillings or more transferred through banks and other financial institutions,” said Rotich.
Justice Okwany reiterated that the implementation of the excise duty on money transferred by banks was an important issue that could not be left to guesswork or individual interpretation by the financial institutions.
“The applicant has raised the issue of ambiguity. The law in question calls the attention of the respondents to make a clarification (so that it's not left) to the subjective interpretation of those who are supposed to implement it,” said Okwany.
She added that the court took notice of the fact that the impugned Bill was still in its initial stages as it had yet to be legislated into law.
The association named the Kenya Revenue Authority and the Attorney General respondents.
[Faith Karanja, Dominic Omondi and Kamau Muthoni]