After the High Court declared some provisions of the Act unconstitutional, in November last year, six appeals and three cross-appeals were lodged. The appellate court, in a judgment rendered on July 2024, declared the entire law unconstitutional.
In a ruling given today, the Supreme Court has suspended the Court of Appeal’s decision to nullify the Finance Act, 2023. The Supreme Court has issued conservatory orders that temporarily suspend sections of the Court of Appeal’s decision.
Stability In Budget
The ruling now allows the government to continue collecting taxes using the extended law. The topmost court is citing public interest, adding that the suspension would maintain a level of stability in the ongoing budgeting & 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,” said the Supreme Court judges.
Finance Act, 2023 has been a bone of contention, with petitioners going back and forth on the law’s constitutionality. This they say came about since no proper public participation was conducted.
Why GOK Challenged The Appeal
In an aggrievated move, the government- led by Treasury CS, the AG, the National Assembly and the KRA- lodged appeals at the Supreme Court, late last year. Today’s decision comes in response to appeals filed by the four, against the Court of Appeal’s decision.
They told the court that the challenge of the Court of Appeal verdict is problematic since the Finance Bill 2024 was also withdrawn. Hence the government must rely on the Finance Act, 2022 for revenue collection in the upcoming financial year.
Additionally, they also argued that the nullification would result in a revenue drop of KSh 240 billion. The dent left would not be recovered unless the stay orders were issued urgently, to avoid a recurring deficit, posing a real and immense challenge to the monetary policy.
A Constitutional Crisis
The State on its part argued that the decision to scrape the Act could result in a constitutional crisis. This would consequently hinder the government’s ability to lawfully collect and distribute funds potentially culminating in a government shutdown. Further, the financial interruptions and deficits will compel the government to borrow money, 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.
KRA told the apex court that eTims, the electronic system for tax collection, is already procured and installed, and making the law null and void would force the government to reinstate the old system. This would be detrimental, costly, and impractical.
More taxes on the way
Responding to the argument, the respondents said that granting the request won’t serve the public interest. Should the appeal fail, Kenyans were in danger of facing unconstitutional taxes over an unknown period.
They emphasized that there is no chance for individuals to reclaim taxes paid under the Finance Act, of 2023.
The respondents, more than 50 in number, told the court that under Article 208 of the Constitution, there exists a Contingency Fund. The fund meant for emergencies or unforeseen eventualities would cover government expenditures meanwhile and thus no shutdown would occur.
Supreme Court Verdict on Finance Bill 2023
Making their final statement, the Supreme Court judges 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.”
What it Means
This means Kenyans will continue paying all taxes contained therein in the contested law, including 16% VAT on fuel (fuel levy), that Kenyans have protested in vain.
The consolidated appeal is set to be mentioned before the deputy registrar of the court to ensure compliance with earlier directions on filings. The Supreme Court’s suspension of the Court of Appeal’s decision to declare the entire Act unconstitutional is effective from today. The highest court has further directed that the main appeal be set, virtually, on 10th and 11th September 2024.
