High Court holds KRA's plan to raise Sh400bn from higher excise duty

Case to be mentioned on october 12

In Summary

Ufanisi center is a community based organisation which operates within Korogocho in Ruaraka constituency.

Its membership are mainly self-employed youth who depend on matatus and boda bodas to move their various merchandise to markets

An attendant fueling a car/FILE
An attendant fueling a car/FILE

Kenya Revenue Authority has suffered a second blow in less than a week after the High Court put on hold its plan to raise at least Sh400 billion from adjusted excise duty.

Mondays's ruling comes barely a week after another High Court Judge declared sections of the Income Tax Act illegal, invalidating the introduction of Minimum Tax that imposed a one per cent levy on total sales from the beginning of January this year. 

The fresh excise order could have seen fuel prices go up by at least Sh1 per litre starting October 1. 

KRA planned to implement a notice that sought to adjust excise duty on various household goods including fuel and water using the average inflation rate for the 2020/2021 financial year of 4.97 per cent.

This would have pushed the price of a litre of Super Petrol from the current Sh134.72 to Sh135.80, diesel from Sh115.5 to Sh116 and kerosene to just above  Sh111, a move that would have further added to consumers social-economic pain. 

Apart from fuel, the taxman was planning to increase excise duty on other 30 commodities including food items, alcoholic and nonalcoholic products in line with the Finance Act, 2021, further pushing up the cost of living. 

The monthly Consumer Price Index released by the Kenya National Bureau of Statistics (KNBS) shows inflation rose to 6.57 per cent in August compared to 6.55 per cent in July. 

Consumers could have also paid Sh5.77 more for a litre of beer while prices for spirits could have gone up by Sh13.20.

Consequently, the price of a packet of 20 cigarettes could have surged by Sh3.20 in line with the rise in excise tax from Sh66.20 to Sh69.40, while the duty on bottled water could have risen to Sh3.31 to Sh3.47 per litre.

The price of a packet of 20 cigarettes will increase by Sh3.20 in line with the rise in excise tax from Sh66.20 to Sh69.40, while the duty on bottled water will rise from Sh3.31 to Sh3.47 per litre.

High Court Judge Justice James Makau issued the interim order following an application by a group of youth from Korogocho under the banner name UFANISI Centre. 

Issuing the interim order, he said there will be a real danger to Kenyans in further increase of fuel prices if KRA adjusts the excise duty.

The Judge in suspending the decision said the youth have established that have an arguable case with the likelihood of success.

“If the interim order is not granted, petitioners and Kenyans will stand prejudiced. The respondents have not demonstrated what prejudice they will suffer,” said the judge.

Through their lawyer Kenneth Amondi, the group said the adjustment of excise duty is a burden to already overtaxed Kenyans who are also reeling from the social-economic pressures of Covid-19. 

“The same was devoid of proper public participation at a time when Kenyans are hurting from the economic consequences of the Covid-19 pandemic thereby compromising the peoples' entitlement to social justice,” the group said. 

UFANISI filed the case in court last week to oppose the adjustment.

Kenyans applauded the court's decision as a relief, with Twitter hashtag #TaxBurdenRelief trending top 20 in the country for the better part of Monday.

A Twitter user @TerryMasinde urged National Treasury to stop tormenting citizens, attributing the tax burden to reckless borrowing.

''The Judiciary is the only remaining sane arm of government. Forcing more taxes on households will lead to civil unrest,'' Jane Mulwa Twitted.

Even so, Tax experts are worried that the government is determined to up revenues as promised to the International Monetary Fund (IMF) hence will look for another loophole. 

The court's decision is only temporary hence no celebrations. The government is faced with two options, to increase taxes or borrow more. Either way, consumers will pay,'' Barrack Kengo, a tax consultant told the Star on phone. 

His sentiments were echoed by another tax expert Joel Buyu who holds that the government will always find a way to compensate to appease creditors.

''Last week, Kenya promised to apply 'compensating measures' to fill the void left by the court's decision to squash minimum tax. That is a tell-tell sign that it will always find a way to honour pledges to the international creditors,'' Buyu said.