Bosses Directed To Stop Housing Levy Deductions On Employees After Court Ruling

The Federation of Kenya Employers has directed that all employers in Kenya cease deducting employees' salaries for the Housing Levy following the ruling by the Court of Appeal which deemed it unconstitutional.

In a statement, the employers body noted that all employers should comply with the court order and halt the mandatory deductions pending the hearing and determination of the Appeal.

"In light of the court order, we advise our members, not to deduct the levy unless the Court of Appeal rules otherwise after the hearing of the substantive appeal or in the alternative, should the government challenge the said ruling in the Supreme Court, the said Court reverses the ruling delivered today," stated FKE.

"The Federation shall continue to monitor any developments in this matter. Our commitment is to keep you informed promptly of any changes or updates."

FKE CEO Jacqueline Mugo speaking during the release of the Skills Needs Survey report on November 21, 2023. /FKE KENYA

Before it was declared unconstitutional by the High Court and now upheld by the Court of Appeal, the controversial housing development levy contained in the Finance Act, 2023 was fiercely opposed to the point that the government struggled severally to explain why it was deducting 1.5 per cent from all salaried Kenyans in support of President Ruto's Affordable Housing Programme.

Employees began being charged a 1.5 per cent tax on their gross salary starting July 2023, with employers expected to match the 1.5 per cent housing deduction with proceeds going towards the National Housing Development Fund (NHDF).

In dismissing the application, the Court of Appeal noted that the levy was introduced without a legal framework.

According to FKE, the Court of Appeal indicated that its decision was based on public interest, which in the case was in favour of halting the deduction pending the hearing and determination of the Appeal.

In the Court of Appeal ruling, a three-judge bench comprising justices Lydia Achode, John Mativo and Mwaniki Gachoka declined a plea by Cabinet Secretary National Treasury and Planning Njuguna Ndungu, Attorney General Justin Muturi and Kenya Revenue Authority to suspend the High Court Judgement pending the hearing of their appeals.

While dismissing the four applications seeking a stay lodged in court by the state, the judges noted that the High Court held that the Housing Levy was introduced without a legal framework.

"It also held that the levy was targeting a section of Kenyans. In our view, the public interest lies in awaiting the determination of the appeal. This is because if the stay sought is granted at this stage, should the appellate court affirm the impugned decision, then some far-reaching decisions that will have been undertaken pursuant to the impugned laws may not be reversible," the appellant judges stated.

"Public interest in our view tilts favour in not granting the stay or the suspension sought. Public interest tilts in favour awaiting the determination of the issues raised in the intended appeals. We find and hold that none of the 4 consolidated applications satisfies both limps. Accordingly, civil applications Nos. E577 of 2023, E581 of 2023, E585 of 2023 and E596 of 2023 are hereby dismissed."

As many had anticipated, President William Ruto declared that his government would appeal the Appellate Court's decision.

"We are going to appeal the decision. We will make the requisite law so that our agenda to create employment for jobless youths who have finished school but have nowhere to go is realized through the housing projects," the President said while speaking in Meru County.

"It is the first time in the Republic of Kenya that we have an administration that has a clear and demonstrable plan to create jobs for millions of young Kenyans."

The declaration now means that the Attorney General is likely to move to the Supreme Court to challenge the decision.

However, with the High Court and the Court of Appeal nullifying the Housing Levy, it could be likely that the Supreme Court would make a similar decision, marking another historic instance of a government policy being thrown out by all three of Kenya's top courts.