(Bloomberg) -- Kenya’s Supreme Court ruled that a set of tax measures introduced in the 2023 budget wasn’t entirely unlawful, throwing a lifeline to President William Ruto’s government that’s struggling to make ends meet.
The actions contained in the Finance Act 2023 included doubling value-added tax on fuel to 16% and a hike in the rate for the top salary-tax band to 35% from 30%. With them, the government sought to raise as much as 214 billion shillings ($1.66 billion) in the fiscal year that ended in June.
“We hereby set aside the Court of Appeal’s finding declaring the entire Finance Act 2023 unconstitutional,” the seven-judge bench said in an emailed ruling. However, it upheld that some sections of the law touching on roads and unclaimed financial assets remained illegal.
In July, an appeals court said the taxes approved last year were unconstitutional and the process to enact them was “fundamentally flawed.”
That raft of measures is different from another set that Ruto’s government sought to launch this fiscal year that would have raised about 344 billion shillings. The aggressive push for more revenue to shore up public finances has irked Kenyans, who took to the streets earlier this year and stormed parliament in protest over heavy taxation, corruption and wastage.
More than 60 people were killed in those demonstrations, compelling Ruto to forego the tax measures and creating a gaping hole in budget financing. When he came to power two years ago, the president vowed to increase domestic revenue to reduce reliance on borrowed funds.
A $600 million disbursement from International Monetary Fund facilities has been delayed for months as it became apparent that Kenya would struggle to ramp up income and meet program targets. The lender’s board is meeting Wednesday and will combine two reviews of the $3.6 billion four-year deal expiring in April.
Kenya’s Treasury sees its budget-financing gap widening to 4.3% of gross domestic product in the year to end-June 2025 from an earlier estimate of 3.3%. The Treasury plans to take on about $2.8 billion in foreign loans and borrow $3.2 billion locally to fill that hole, despite its debt being classified as at high risk of distress.
©2024 Bloomberg L.P.