The government scored a major victory after the Supreme Court upheld the Finance Act 2023 on Tuesday, offering the National Treasury a lifeline to continue collecting Ksh 214 billion in taxes from Kenyans. The reprieve was significant after President William Ruto was forced to throw out the Finance Bill 2024, which sought to raise another Ksh 346 billion, following deadly protests spearheaded by Generation Z, who stormed Parliament on June 25 after MPs defied public opinion and passed tax measures considered punitive.
On July 31, while ruling in the case of National Assembly & Another v Okiya Omtatah Okoiti & 55 Others, the Court of Appeal agreed with the petitioners that the National Assembly did not give reasons for rejecting or adopting proposals received from the public during the public participation process and instead introduced tax raising measures that were never part of the initial Bill.
Since estimates of revenue were not included in the Appropriation Bill, 2023 and the Appropriation Act, 2023, the process leading to the enactment of the Appropriation Act, 2023 and the Finance Act did not comply with the constitutional requirements.
The 2010 Constitution expressly provides that the estimates of revenue and expenditure should be submitted to the National Assembly two (2) months before the end of each financial year.
The Court held that 18 new provisions introduced by the National Assembly to the Finance Bill after public participation were unconstitutional since they did not go through the entire legislative stages of first reading, second reading, and public participation. Omtatah, the Busia Senator, and the other petitioners moved to court after the Finance Act led to a significant increase in VAT on fuel and introduced a housing levy, among other controversial measures.
Under the Affordable Housing Levy law, every employer is required to contribute 1.5 per cent of an employee’s monthly gross salary to the levy. Employees will contribute the remaining 1.5 per cent of their monthly gross salary to make up the 3 per cent. The High Court had previously ruled that the housing levy was unconstitutional.
On its part, the Court of Appeal ruled that Parliament failed to provide reasons for accepting or rejecting public proposals during the public participation process, which is a constitutional requirement. This failure rendered the entire Finance Act, of 2023 unconstitutional. It also averred that the process leading to the enactment of the Finance Act, of 2023 was fundamentally flawed and violated the Constitution. As a result, various provisions of the Act were deemed unconstitutional.
This has, however, now been overturned by a full bench of the Supreme Court led by Chief Justice Martha Koome, allowing the government to continue implementing revenue-raising measures contained in the Act.
The judgment addressed several critical issues related to the legislative process and in particular, the process of legislating Finance Acts in Kenya as well as the standard and test of public participation in financial and tax legislations.
The Supreme Court equally provided guidance on what a court should do when declaring an act of parliament unconstitutional to avert lacuna in law and administrative crisis. Having considered all these factors, the Supreme Court declared the entire Finance Act 2023 as constitutional, save for specific provisions of the said Act, thereby setting aside the Court of Appeal’s decision.
“We hereby set aside the Court of Appeal’s finding declaring the entire Finance Act 2023 unconstitutional,” the Supreme Court said in its ruling.
