Kenya’s High Court declared on Tuesday that a 1.5 percent levy, introduced in an earlier bill to fund affordable housing, violated constitutional principles. The levy was a provision of the Finance Act 2023, which faced legal challenges earlier this summer amidst mass demonstrations against the cost of living crisis in Kenya.

The housing levy was part of the Finance Act 2023 proposed by President William Ruto’s government in June this year. The judges ruled that Section 48 of the Finance Act, which introduces the housing levy on formal employed workers, violates the principle of taxation as it makes an unjustified distinction between people employed in the formal and informal sectors. The court added that the government has failed to provide a reasonable explanation for the imposition of the levy, which makes the bill arbitrary and discriminatory.

Apart from the housing tax, the bill also significantly raised the fuel tax and increased the income tax rate for people falling into higher income brackets. The announcement of these measures resulted in mass demonstrations from the public in July. Those opposed to the decision claimed that the bill would put greater financial pressure on households amidst the rising costs of living in the country. In Kenya, the prices of essential goods such as potatoes and electricity have increased by 23 percent and 44 percent, respectively, year-on-year in October.

However, the incumbent government has argued that the housing levy is essential to providing affordable housing to citizens and urged the High Court to reconsider its decision. In response to the High Court’s ruling, President Ruto said that the law has intentionally targeted the housing sector to create jobs for Kenyans so that more people, especially the young, can be engaged in productive work. He added that his government will make necessary adjustments according to the court’s opinion. It is also expected that the housing levy will ease the fiscal burden of the Kenya government, which has been facing a rising debt-to-GDP ratio and increased financial risks.

The High Court has approved the request for a 45-day stay of the order from the lawyer representing the government. Currently, the government is trying to make a decision on whether to enter the appeal process or amend the law to address the legal issues. The levy is therefore stayed until January 10, 2024.