The High Court has dealt a major blow to Kenya’s new health financing model, ruling that the 2.75% deduction from gross income under the Social Health Insurance Fund (SHIF) constitutes double taxation and is therefore unlawful.
Delivering the ruling on Monday, Justice Chacha Mwita stated that the law permits only income tax to be deducted from gross earnings, and that any additional mandatory deduction from the same income source amounts to taxing citizens twice.
“There can be no other gross income from which the person can again contribute 2.75% to the Fund,” said Justice Mwita. “Such a deduction introduces a negative element of taxation and must be considered double taxation.”
The judge added that the regulations enabling the deduction under the Social Health Authority (SHA) violate tax law by imposing another levy on income that has already been taxed under the Income Tax Act.
Despite the ruling, the court did not issue formal orders to suspend the deductions, noting that the matter is already before the Court of Appeal in Petition E513 of 2024. That ongoing case questions the legality of the SHIF regulations and challenges the constitutionality of multiple laws passed under Kenya’s health sector reform agenda, including the Social Health Insurance Act, Digital Health Care Act, and Primary Health Care Act, all enacted in 2023.
The case was filed by four medical doctors, who argued that the 2.75% deduction places a disproportionate burden on higher-income earners, yet all contributors receive equal health benefits, regardless of their contribution size.
They labeled the policy discriminatory and regressive.
