Win for President Ruto as Kenya's Supreme Court reinstates Finance Act

The Supreme Court has suspended a Court of Appeal decision nullifying the Finance Act, 2023.

In a ruling that now allows the government to continue collecting taxes using the extended law, the apex court cited public interest, saying the suspension would help maintain stability in the ongoing budgeting and appropriation process.

“In view of the public interest in the matter, we direct that the consolidated appeal herein be set down for hearing within the shortest time possible after the delivery of this ruling,” Justices Martha Koome, Philomena Mwilu, Smokin Wanjala, Njoki Ndung’u, Isaac Lenaola, William Ouko and Mohammed Ibrahim said.

The Finance Act 2023 has been the subject of litigation, with petitioners challenging the law's constitutionality, which they said came about without proper public participation.

In November 2023, the High Court declared some provisions of the Act unconstitutional.

This prompted the filing of six appeals and three cross-appeals at the Court of Appeal, and in a judgment rendered on July 31, 2024, the appellate court declared the entire law unconstitutional.

Aggrieved by the court’s decision, the government— led by Treasury Cabinet Secretary, the Attorney General, the National Assembly and the Kenya Revenue Authority— lodged appeals at the Supreme Court of Kenya.

In a notice of motion filed before the apex court, the State sought a stay of execution of the Court of Appeal decision pending the hearing and determination of the appeal.

The appellants told the court that the contested decision of the Court of Appeal results in a problematic scenario where the government must rely on the Finance Act, 2022 for revenue collection in the upcoming fiscal year, as Finance Bill, 2024 was withdrawn.

Additionally, the appellants said the nullification of Finance Act, 2023 would result in a revenue shortfall of Ksh240 billion, which would not be recovered unless the stay orders were issued urgently.

This, they argued, posed a real and immense challenge to the monetary and fiscal policy of the country.

Moreover, the State argued that decision to nullify the Act could trigger a constitutional crisis by impeding the government’s ability to lawfully collect and distribute funds.

They believed this disruption could lead to interruptions or halts in essential public services, potentially culminating in a complete government shutdown.

The applicants suggested that the government might be compelled to borrow money to address the fiscal deficit, which could substantially raise public debt and inflation.

They also claimed that the decision would leave the government vulnerable to numerous legal challenges, including lawsuits from stakeholders impacted by the disruptions in financial operations.

On its part, KRA told the supreme judges that eTims, the system for tax collection, had already been procured and installed and annulling the law would force the government to reinstate the old system, which would be costly and inconveniencing.

In pleading their case, the respondents argued that granting the requested orders would not serve the public interest.

They contended that if the consolidated appeal failed, Kenyans could face unconstitutional taxes for an extended period.

Furthermore, they emphasize that there is no chance for individuals to reclaim taxes paid under the Finance Act, 2023.

Additionally, the over 50 respondents told the court that Article 208 of the Constitution established the Contingency Fund for emergencies or unforeseen eventualities and therefore the government is not handicapped in meeting its fiscal obligations.

While making its decision, the Supreme Court said, “On our part therefore, taking into account the uncertainty regarding the revenue-raising measures and difficulty that may arise in the operations of the two levels of governments as posited by the applicants, coupled with the far-reaching implications of the declaration of the entire Finance Act, 2023 as unconstitutional, we are persuaded that the consolidated appeal may be rendered nugatory.

Besides, prima facie, we are not convinced that the consequences of such a declaration would be reversible should the consolidated appeal be successful.”

TAXES

The decision means Kenyans will continue paying all taxes contained in the contested law, including 16 percent value-added tax on fuel.

The consolidated appeal is set the be mentioned before the deputy registrar of the court for purposes of ensuring compliance with earlier directions on filings.

The case will he heard virtually on September 10 and 11, 2024 from 9am each day.