Kenya’s Court of Appeal okays implementation of Finance Act

The Ministry of Finance and Economic Planning in Kenya has received the green light to proceed with the implementation of the highly controversial Finance Act of 2023. The ruling delivered by the Court of Appeal puts to rest weeks of uncertainty over the new law that outlines a number of tax measures for the Kenyan economy. This decision comes as a significant relief for the government, particularly the National Treasury, which has been under pressure to raise capital, especially with a substantial debt payment looming in 2024. The tax measures introduced in the Finance Act are aimed at building capital to address this impending debt repayment. However, for individual Kenyans, the implementation of these measures may result in adjustments, particularly affecting disposable income. Among the key changes are adjustments to the payee tax band, withholding tax payments, revised turnover taxes, and a new tax on the transfer of businesses as going concerns. Jesse Ludenyo, Lead Investment Analyst at Amana Capital, explained the implications of these tax measures in an interview with CNBC Africa. He highlighted that the widening of the turnover tax bands and the increased VAT on fuel are likely to impact the cost of living and business operations in Kenya. While the government aims to raise significant revenue through these measures, there are concerns about the sustainability and overall impact on the economy. The controversial housing levy, which is set to deduct 1.5% from taxpayers' income, has also raised apprehension among the public. Additionally, the government's efforts to reduce the levy from the initial 3% to 1.5% have not entirely alleviated concerns. Despite introducing measures such as zero-rating VAT on LPG products to cushion the impact, the general increase in VAT on fuel is expected to have spillover effects on the economy. From a debt perspective, the tax measures are projected to help the government collect substantial revenue. President William Ruto's administration has expressed a commitment to reducing expensive debt. The government's focus on cutting back on foreign borrowing and increasing local debt reflects efforts to manage the cost of debt repayment. The proposed strategies align with recommendations from the International Monetary Fund (IMF) and aim to create a more sustainable debt structure for the country. Overall, the decision by the Court of Appeal to allow the implementation of the Finance Act provides clarity on the government's financial strategy. While the tax measures may pose challenges for individual Kenyans and businesses, the government's efforts to address debt sustainability and enhance revenue generation are crucial for long-term economic stability.