(Bloomberg) -- Kenyan tax authorities can keep collecting a raft of taxes introduced last year pending the hearing of a consolidated petition at the Supreme Court.
The East African nation’s top court issued a conservatory order suspending a ruling by an appeal court on July 31 that said the set of taxes known as the Finance Act 2023 was unconstitutional. The Supreme Court said it would listen to consolidated appeals on Sept. 10 and 11.
Last year, Kenya enacted the taxes that included doubling value-added tax on fuel, higher excise duties on fees charged for money-transfer services and a hike in the rate for the top salary-tax band to 35% from 30%.
“Public interest tilts in favor of granting conservatory and stay orders” to maintain stability in the budget and appropriation process pending the determination of the appeal, according to all seven Supreme Court judges including Chief Justice Martha Koome.
Enactment of that tax law triggered 11 petitions in the High Court, mostly challenging constitutionality of the legislative process and some of the provisions. The government was forced into abandoning a separate tax law that sought to introduce yet more measures that lead to deadly street protests.
Quashing the levies introduced last year slashes government revenue by about 214 billion shillings ($1.66 billion), according to Treasury Principal Secretary Chris Kiptoo. That would mean revising the budget to cut expenditure, he said in court filings.
Since taking office almost two years ago, President William Ruto has aggressively pushed to increase domestic revenue in line with an International Monetary Fund financing program.
This fiscal year, the National Treasury seeks to raise record revenue but had to scale back spending plans by 3% after protests that led to the death of at least 61 people.
Two ratings agencies have downgraded Kenya, citing the uncertainty surrounding its ability to diversify revenue streams. Further delays could also cause a mountain of unpaid liabilities to contractors, suppliers and pension funds to balloon.
Annulling taxes adds “another degree of uncertainty to revenue expectations” and may lead to a wider budget deficit, according to BancTrust & Co. Investment Bank. Kenya’s financing gap is seen at 5.8% of gross domestic product this fiscal year due to implementation risk on the proposed spending cuts, it said in a research note.
