Under its newly established Social Health Authority (SHA), Kenya is rolling out social health insurance financed by both tax revenues and individual/household premium contributions.
The High Court in Nairobi has declined a request by four medics to protect workers from what they termed as double taxation through the mandatory contribution to the State-owned Social Health Insurance Fund (SHIF).
This decision came even as the judge observed that the 2.75 per cent monthly deduction from workers' gross salary after the payment of income tax amounted to double taxation.
However, the court stopped short of making an official declaration to that effect.
Justice Chacha Mwita struck out the petition citing the fact that the legality of the health laws the Social Health Insurance Act, 2023, the Digital Health Care Act, 2023 and the Primary Health Care Act, 2023 is already the subject of two separate cases pending at the High Court and the Court of Appeal.
“A perusal of the pleadings and prayers in this petition as well as those in the other pending petitions shows that the issues raised are crosscutting. Determination of the issues in the earlier petition regarding the legality of the regulations would have a direct bearing on the outcome of this case. This court must, therefore, defer to the court handling that petition,” said the judge.
The petitioners Dr Clarence Eboso Mweresa, Dr Darwin Ambuka, Dr Cherono Siele and Dr Bosibori Ondari argued that implementing SHIF through mandatory registration, a fixed percentage deduction from gross income and unequal payment structures had effectively converted the contribution into an income tax.
They further argued that Parliament had unlawfully delegated the power to tax to the Cabinet Secretary for Health.
According to the petitioners, the directive by the Health Cabinet Secretary requiring employers to enrol workers in SHIF and deduct contributions from their salaries violated Section 27 of the Social Health Act which provides that registration should be voluntary.
They contended that once income tax is deducted, the net income is personal property and should not be subjected to additional gross-percentage statutory deductions for SHIF.
Although the judge struck out the petition, he noted that gross income defined as the total amount received for work or investment should not be taxed more than once.
“There can be no other gross income from which a worker can again contribute 2.75 per cent to the Fund under the Social Health Insurance Act,” he said.
“By providing that a person to contribute 2.75 per cent of their gross income to the Fund after paying income tax from the same gross income, the regulation introduces a negative element of taxation double taxation which would, as a result, render such a regulation unlawful. However, since the issue of the legality of the regulations is pending in Petition E513 of 2024, I will not say more on the issue,” the judge added.
He further observed that any statutory deduction based on a person’s gross income after income tax amounts to double taxation, charge, or levy as the same gross income is taxed more than once.
“I must point out that the mandatory 2.75 per cent contribution to the Fund is indeed problematic. Every citizen is required to pay income tax under the Income Tax Act, which is a percentage of the person’s gross income. After paying that tax, the remaining net income is the individual's property,” said the judge.
The medics filed the public interest case in November last year arguing that the Social Health Insurance Act made registration as a SHIF contributor mandatory for every Kenyan citizen.
In response, the Social Health Authority and the Attorney General stated that SHIF was enacted to fulfil Article 43 of the Constitution which relates to the enforcement of economic and social rights.
They contended that the article envisions that such obligations would be met through taxes raised by the state and not by compelling citizens to take over the state’s responsibilities.
Further, the government said the new scheme was intended to ensure the realisation of Universal Health Coverage through the establishment of three funds: the Primary Health Care Fund, SHIF, and the Emergency, Chronic, and Critical Illness Fund.
The respondents maintained that the 2.75 per cent contribution from both employees and the self-employed was not discriminatory.
“Contributions made under SHIA are not taxes,” they asserted.
They also argued that the petition was premature and violated the doctrines of separation of powers and exhaustion, noting that the matters raised were essentially policy decisions of the Executive and Legislature.
