July 20, 2018 / 1:29 PM / a year ago

Court blow to tax plans aimed at funding cheap Kenyan housing

NAIROBI, July 20 (Reuters) - Kenya’s High Court has temporarily blocked tax hikes designed to fund a range of government development goals, including the provision of affordable housing.

The court suspended a 0.05 percent tax on bank transfers above 500,000 shillings ($4,967.71) and a two percentage point increase in excise duty on mobile money transfers.

It also suspended a range of other new tax measures in a separate ruling late on Thursday. The suspensions will remain in force until the cases are heard in September.

The moves followed a complaint brought by the Kenya Bankers Association, an umbrella lobby for lenders, which says the transfers tax is hard for banks to enforce.

A separate suit filed by a member of the public argues Finance Minister Henry Rotich cannot impose taxes before parliament has passed the budget.

Rotich told parliament last month the levies would help generate an extra 27.5 billion shillings for the fiscal year starting this month.

He declined to comment on the court rulings during a news conference at the Treasury on Friday.

President Uhuru Kenyatta, sworn in for a second and final term last November, has made universal healthcare, affordable housing, food security and the manufacturing sector his “Big 4” priorities.

However, the tax measures, which also aim to cut the fiscal deficit, have angered many people and groups in the economy.

The “Robin Hood” tax on large bank transfers has particularly worried the financial sector.

Jibran Qureishi, economist for East Africa at Stanbic Bank, said it would stifle tax payments, interbank lending and decimate the fund management industry which has to move around huge volumes of cash between accounts.

“It would had been one step forward, 10 steps backwards, even if the rate cap was repealed and this Robin Hood tax was implemented,” he said. The budget also repealed a cap on commercial lending rates, a move long called for by the banking sector.

Parliament has yet to pass the budget but Rotich had imposed the tax rises from July 1, citing a law that allows him to do so before the budget becomes law.

Qureishi said the finance ministry had failed to consult widely enough before imposing the transfer tax, in what he said was a breach of the constitution.

Analysts said the rulings would make it difficult for the government to balance its books while reducing the budget deficit, which Rotich set at 5.7 percent of gross domestic product this financial year, down from 7.2 percent in the year to the end of June.

Akinwumi Adesina, the president of the African Development Bank (AfDB), said Kenya’s debt was manageable.

“Your debt-to-GDP ratio is roughly about 54 percent, which is very good. And when I look at value, Kenya is not in any risk of debt distress at all,” he told a joint news conference with Rotich. ($1 = 100.6500 Kenyan shillings) (Reporting by Duncan Miriri, Humphrey Malalo and Carlos Mureithi; Writing by Duncan Miriri; Editing by Jon Boyle)

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