Employers and employees alike have been thrown into disarray following the Court of Appeal ruling staying the conservatory orders issued by the High Court suspending the coming into effect of the Finance Act 2023.

The notice by the Kenya Revenue Authority informing the public of its appointment Cabinet Secretary, Ministry of Lands, Public Works, Housing and Urban Development through as the collecting Agent of the Affordable Housing Levy (AHL) and requiring the employers to collect and remit the AHL for July 2023 serves to add into the disarray especially for employers who had already paid July salaries to their workers by the time the Court of Appeal ruling was issued on 28th July 2023.

Background of the Finance Act 2023

The Finance Act 2023 introduced several new taxes and levies, including the Affordable Housing Levy (AHL), which requires employers to deduct 1.5% of an employee's gross monthly pay and match it with an equal amount as the employer's contribution.

Following public outcry and protests against the Finance Act 2023, several petitions were filed in the High Court challenging the constitutionality of the Act. On July 10, 2023, the High Court issued conservatory orders suspending the implementation of the Finance Act 2023 pending the hearing and determination of the petitions.

Court of Appeal Ruling

However, on July 28, 2023, the Court of Appeal issued a ruling staying the conservatory orders issued by the High Court, effectively allowing the implementation of the Finance Act 2023 to proceed pending the hearing and determination of the appeal.

This ruling has created confusion among employers, especially those who had already processed and paid July salaries without deducting the AHL, based on the High Court's conservatory orders.

Implications for Employers

The Kenya Revenue Authority's notice requiring employers to collect and remit the AHL for July 2023 has raised several questions:

  1. Are employers required to retroactively deduct the AHL from employees who have already been paid their July salaries?
  2. If so, how should this be implemented, especially considering that some employees may have already spent their salaries?
  3. What are the legal implications for employers who fail to comply with the KRA notice?

Legal Considerations

From a legal perspective, several considerations come into play:

1. Retroactive Application

The principle of non-retroactivity of laws is a fundamental legal principle. Laws should generally not be applied retroactively, especially when they impose new obligations or liabilities. However, the Court of Appeal ruling has created a unique situation where a law that was temporarily suspended has been reinstated.

2. Employer's Duty

Employers have a duty to comply with tax laws and regulations. Failure to deduct and remit statutory deductions can result in penalties and interest charges. However, employers also have a duty to their employees to ensure that deductions are made in accordance with the law.

3. Employee Rights

Employees have a right to be informed of any deductions from their salaries. Retroactive deductions, especially without prior notice, may infringe on this right.

Recommendations for Employers

Given the current situation, employers are advised to:

  1. Seek legal advice on how to proceed, especially regarding the retroactive application of the AHL for July 2023.
  2. Communicate with employees about the situation and any potential deductions that may be made.
  3. Consider the practical implications of retroactive deductions, especially for employees who have already spent their July salaries.
  4. Engage with the KRA and other relevant authorities to seek clarification on the implementation of the AHL for July 2023.

Conclusion

The Court of Appeal ruling staying the conservatory orders issued by the High Court has created a complex legal situation for employers. While the Finance Act 2023 is now in effect, the retroactive application of the AHL for July 2023 raises significant legal and practical questions.

Employers are advised to seek legal advice and engage with relevant authorities to ensure compliance with the law while also protecting the rights and interests of their employees.

For more information or legal advice on this matter, please contact Wacuka Kihenjo & Co. Advocates.