Kenyan Court Upholds Ruto’s Tax to Fund Affordable Housing

Kenya’s High Court upheld the validity of a tax measure that President William Ruto is using to raise funding for affordable housing, boosting his attempts to steady the nation’s finances. 

The court last year declared that a mandatory 1.5% levy imposed on employees and matched by their employers was “discriminatory and unfair” because it only applied to those with formal jobs. It also found that the legal framework needed to institute the tax hadn’t been put in place. 

After the government failed to have the ruling overturned on appeal, legislators passed a new law that made the levy applicable to all taxpayers and established a new housing fund. Ruto assented to the legislation in March, sparking six legal challenges signed by multiple petitioners.

Judges Olga Sewe, John Chigiti and Josephine Mongare ruled in Nairobi on Tuesday that the new law was valid and the petitioners had failed to convince them otherwise. The petitioners plan to appeal the judgment. 

The Treasury collected 54.2 billion shillings ($420 million) from the levy between March and June 2024 and targeted raising 63.2 billion shillings in the 12 months through June 2025. 

The government aims to build 200,000 affordable homes annually. About 124,000 units are at different stages of completion across the nation and those projects have created more than 160,000 jobs, Ruto said over the weekend. 

The government has limited options to raise alternate funding to finance construction. The East African nation, which is already viewed as being at high-risk of debt distress, walked back on plans to raise other new taxes following street protests in which at least 60 people died. 

That’s left a $2.7 billion hole in the budget and the deficit is now projected to reach 4.3% of gross domestic product in the current fiscal year, up from a previously projected 3.3%. 

The construction industry contracted 2.9% in the three months through June. A number of road contractors have abandoned projects because the government has increasingly failed to settle its arrears, resulting in a slowdown in consumption of cement, bitumen, iron and steel, according to the statistics office.