Judges keep VAT on fuel, M-Pesa tax to November

Taxes on fuel and M-Pesa transfers and an Sh18 levy on a litre of kerosene, introduced through a set of laws that were declared illegal by the High Court last year, will still be remain in place for the next three months.

The High Court last October gave lawmakers till Thursday midnight to ensure that the 23 laws, including the Finance Act 2018, the Tax Laws (Amendments) and the Statute Law (Miscellaneous Amendment), have the backing of the Senate or be abolished.

The court had found they were passed by the National Assembly without the Senate’s nod.

But Court of Appeal judges Agnes Murgor, Jessie Lesiit and Pauline Nyamweya Tuesday extended the order to November 5, when they will deliver their judgment.

This means that consumers will continue paying the taxes for the next three and half months, offering relief to the Kenya Revenue Authority that is struggling to meet revenue targets in the wake of coronavirus economic hardships.

Attorney-General Kihara Kariuki had argued that some government programmes and operations in key sectors such as security, the Big-Four agenda and taxation measures, would be paralysed if the decision was not overturned.

Mr Kihara added that the decision had serious implications on tax collection and business activities in the country, health services and provision of Huduma identification cards.

The Finance Act of 2018 contained the bulk of the taxes that are at risk of being nullified.

These include the eight percent VAT that was introduced in September 2018 on petrol and diesel prices that had led to public anger and strikes.

The government, under pressure to hit IMF-mandated fiscal deficit targets, had faced a fuel dealers’ strike, anger among commuters and a lawsuit after transport and fuel prices jumped when a 16 percent VAT on all petroleum products entered into force in September 2018.

Plans for the tax on fuel had been postponed several times since 2013. President Uhuru Kenyatta later cut the VAT to eight percent instead.

The affected Act also introduced higher taxes on M-Pesa and other money transfer services.

The excise duty on mobile money transfer fees rose from 10 percent to 12 percent, prompting firms like Safaricom to increase the cost of transferring cash.

Safaricom had opposed the tax rise on mobile phone-based transfers, arguing that it would mostly hurt the poor, most of whom do not have bank accounts and rely on services such as M-Pesa.

Low-income households suffered a double blow after the introduction of the anti-adulteration levy of Sh18 on a litre of kerosene through the Finance Act 2018.

The levy was meant to discourage companies or individuals from mixing either petrol or diesel with kerosene and selling it to unsuspecting motorists.

Another law affected by the judgment is the National (Amendment) Health Laws.

Though health is a devolved function, the National Assembly adopted the Bill and passed it without involving the Senate.

The law gave Kenya Medical Supplies Authority exclusive right to supply medicine and medical equipment to the county governments.

The contentious Computer Cyber Crime Act, meant to tame bloggers and other Internet users, was also affected by the judgment.

The Act recommends a fine of Sh20 million or a prison term of 10 years, or both, for harassing a person through the Internet by making posts that are indecent or grossly offensive.

The Statute Law (Miscellaneous Amendments) Act, 2018, which provided for the establishment of the National Integrated Identity Management System or Huduma Namba, is also at risk.

The other contentious laws are the Public Trustee Amendment Act, Building Surveyors Act, Tax Laws Act, the Kenya Coast Guard Service Act, Supplementary Appropriation Act, Equilisation Fund Appropriation Act, the Finance Act No 10 of 2018 and the Capital Markets Act.

The High Court said the passage of the 23 laws was contrary to the Constitution, a number of the laws related to counties and devolution.

The Senate moved to court to contest the National Assembly’s decision to make laws in exclusion of senators.