High Court judge Chacha Mwita has opined that the deduction of 2.75% from the gross salaries of Kenyan workers under the Social Health Insurance Fund (SHIF) is illegal and a double taxation.
In his judgment on a petition at the High Court, Justice Mwita held that deducting SHIF contributions from an employee’s gross income, after income tax has already been applied, is a violation of tax law.
“I must point out here that the mandatory 2.75% contribution to the Fund is indeed problematic. Every citizen is required to pay income tax under the Income Tax Act, being a percentage of the person’s gross income.
“Income refers to money a person earns for doing work, or money received from one’s investments. Income tax is paid from the person’s gross income, and after paying income tax from that gross income, what remains is net,” said Justice Mwita.
Further, the judge noted that gross income should only be subjected to income tax, as clearly defined by law, and no additional deductions should be made from it thereafter.
Additionally, he noted that any other tax deducted is double taxation, a charge or a levy.
“In that regard, by providing that a person contributes 2.75% of his/her gross income to the Fund after paying income tax from the same gross income,
“The regulation introduces a negative element of taxation, which is double taxation and would, as a result, make such a regulation unlawful,” explained the judge.
Also Read: Select Kenyan Workers Should Not Make SHIF Contributions- World Bank Report
High Court on the Way Forward
The judge explained that taxing the same income twice, first through income tax and again through SHIF contributions, adds an unlawful financial burden on employees and contravenes established tax principles.
However, Justice Mwita did not issue any formal orders on the matter, citing an ongoing appeal case touching on the same issue at the Court of Appeal.
“A perusal of the pleadings and prayers in this petition as well as the pleadings and prayers in petition E513 of 2024, shows that the issues raised in the two petitions are crosscutting.
“It is the view of this court that the appropriate course to take is to decline this petition so that the issues pending in the civil appeal and petition E513 of 2024 can be resolved.
“Consequently, and for the above reasons, this petition is struck out,” he said.
The petition challenging the deductions was filed by four medical doctors, addressing growing concerns among salaried professionals over the implementation of the Social Health Insurance Act (SHIA).
They sought that “upon hearing of the petition, the court find, and a declaration be issued that the income of any person after payment of income tax under the Income Tax Act is absolutely the person’s private property and is protected under the constitutional right to property.”
The SHIF deductions took effect in July 2024, implementing a 2.75% deduction of gross monthly income for salaried employees.
The move replaced the previous National Health and Insurance Fund (NHIF) system where Kenyans made contributions based on salary brackets.
Also Read: KRA Clarifies Insurance Relief on SHIF Contributions
World Bank Warning on SHIF
A World Bank’s Public Finance Review Report (PFRR) released on Tuesday, May 27, called on Kenya to reconsider its approach to financing Universal Health Coverage (UHC), especially the mandatory contributions to the Social Health Insurance Fund (SHIF) for certain categories of workers.
The bank highlighted growing concerns about the long-term viability of Kenya’s current UHC funding strategy.
In addition, the World Bank pointed out that Kenya’s largely informal economy presents a major challenge to relying on contribution-based mechanisms like SHIF.
With most workers operating outside formal employment structures, consistent collections remain difficult.
According to the report, SHIF is projected to raise just Ksh67 billion annually, far short of the KSh157 billion needed to fully support the country’s UHC goals.
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