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The Effect of the Court of Appeal's Lifting of Suspension Orders Against the Finance Act 2023

The Kenya’s Court of Appeal on 28 th July 2023 lifted the suspension orders against Kenya’s new Finance Act 2023 (the CoA Determination). The long and the short of the CoA Determination is that, presently, the Finance Act 2023 will be operative. We analyse some of the key changes that will become operative immediately:

(i) Withholding Tax and Value Added Tax due dates

The proposed changes of remitting WHT and VAT on the 5th working day after the deduction is made will now be effected. In the previous regime, the remittance was due on the 20th day of the month following the month in which the deduction was made.

(ii) Pay As You Earn

The Finance Act 2023 had proposed that, effective 1st July 2023, individuals earning income between KES 500,000 and KES 800,000 per month be taxed at a higher rate of 32.5% and for individuals earning KES 800,001 and above per month be taxed at a higher rate of 35%.

Following the Court of Appeal determination, the KRA issued an advisory communicating that these PAYE changes will be backdated to 1st July 2023. By the time of the CoA Determination and KRA advisory, some employers had already processed their July 2023 payrolls with the old PAYE regime, and they may have to consider recovering the extra payments made to employees which should have been remitted as PAYE.

Additionally, the increase in PAYE rates may result in a violation of the provisions of the Employment Act, which provides that the deductions that an employer can make from the wages of an employee shall not, at any one time, exceed two-thirds of the wages. This may become the case for employees whose total deductions, under the former PAYE regime, were already at the maximum allowable ‘two-thirds’ threshold, and the consequential increase in PAYE rates would lead to deductions being above the two-thirds allowable by law.

(iii) Housing levy

The controversial housing levy will now be deductible at the rate of 1.5% by the employee and a similar percentage contributed by the employer on the gross monthly salary. As is with the PAYE, the employer has the obligation to make both the employer’s and employee’s deductions and remit the same to the National Housing Development Fund by the 9th working day of the following month in which the deductions are made.

Similarly, considering that some employers had already processed their July 2023 payrolls by the time of the CoA Determination (and therefore without factoring Housing Levy deduction), it would present an uncomfortable situation where the employers would have to recovery these sums from employees in future payments.

The Housing Levy, being a new tax and thereby a new deduction to an employee’s wage, is also likely to lead to upsetting the provision of the Employment Act requiring that any deductions from an employee’s wage must not exceed two-thirds.

Other changes

All other proposals in the Finance Act 2023 including; introduction of the Digital Asset Tax (at the rate of 3% of the transaction value), reduction of the threshold for remittance of turnover tax from the higher mark of KES 50 million to include businesses within KES 1-25 million and the introduction of the Digital Content Monetisation Tax at the rate of 5% for residents and 20% for non-residents, take effect immediately after the CoA Determination.

The Battle in Court

The Respondents in the court matter have also moved to the apex court, the Supreme Court, seeking to get orders vacating the CoA Determination. At the same time, the substantive petition against the Finance Act 2023 will also be heard and determined by the High Court. We expect that there will be other new developments that may upset the new regime as the judicial processes progress towards a final determination of the matter. We will update you of all progress.

Please note that this is not legal advice and is intended primarily for information purposes. If you require tailored advice or further information, please contact us on


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