The ruling effectively leaves President William Ruto’s administration without a Finance Act to govern taxation and related financial issues, as the Finance Bill 2024 was also rejected in its entirety.
The Court of Appeal in Nairobi has declared the Finance Act of 2023, unconstitutional. This followed a landmark decision delivered on July 31, 2024, by a panel of three judges: Justices John Mativo, Kathurima M’Inoti & Agnes Kalekye Murgo.
The court had found that the Finance Act, 2023, contravened Articles 220(1)(a) and 221 of the Kenyan Constitution, as well as sections 37, 39A, and 40 of the Public Finance Management Act (PFMA), which outline the budget-making process.
The three-judge bench found that the failure to comply with these constitutional and statutory requirements rendered the entire Act unconstitutional and void from the outset.
One of the critical points of contention was the lack of adequate public participation in the legislative process, with Parliament being obligated to provide reasons for adopting or rejecting proposals received from the public during the public participation process.
A building housing the Judiciary. /FILE
“Accordingly, we hereby issue a declaration that the enactment of the Finance Act, 2023 violated Articles 220 (1) (a) and 221 of the Constitution as read with sections 37, 39A, and 40 of the PFMA which prescribes the budget-making process, thereby rendering the ensuing Finance Act, 2023 fundamentally flawed and therefore void ab initio and consequently unconstitutional,” the ruling read in part.
The court also found that several sections of the Finance Act, 2023, including those amending critical taxation laws such as the Income Tax Act, Value Added Tax Act, and Excise Duty Act, were passed without adhering to constitutionally mandated legislative procedures.
Specifically, the court highlighted the failure to conduct adequate public participation as required by Articles 10 and 118 of the Constitution. As a result, these sections, and by extension the entire Act, were declared unconstitutional, null, and void.
The appeals related to certain sections of the Act that were already rendered moot by the passage of time or subsequent legislative changes were dismissed. The court determined that these issues no longer presented live controversies requiring adjudication.
This ruling places the various tax amendments introduced by the Finance Act, 2023, in a state of uncertainty, and effectively leaves President William Ruto’s administration without a Finance Act to govern taxation and related financial issues.
These amendments, which were intended to adjust tax rates and introduce new levies, now hang in the balance as the legal validity of the Act itself has been nullified.
Further complicating the situation is a vote by members of Kenya’s National Assembly to delete the entire Finance Bill 2024 in its entirety.
On Thursday, July 25, the lawmakers voted to delete all 69 clauses of the controversial bill. This followed a Committee of the Whole House which voted in agreement with President William Ruto’s reservations and recommendations to delete all clauses.
This, plus the latest court ruling, has created a significant void in the legal framework governing taxation in Kenya.
Without a current Finance Act, there is uncertainty about the applicable tax rates and other financial regulations that were previously governed by the now-nullified Act. This uncertainty presents a substantial challenge for both individual taxpayers and corporates, who are now in legal limbo regarding their tax obligations.
Given the current legal ambiguity, individuals and corporates must consult with their legal advisors to understand the potential implications of this ruling on their financial and tax obligations.
The absence of a clear legislative framework could result in varying interpretations of the tax laws, making it essential to seek professional advice on navigating this period of uncertainty.
A bird’s eye view of Parliament as of June 6, 2024. /PARLIAMENT OF KENYA