Supreme Court Halts Court Of Appeal Ruling Nullifying Finance Act 2023

The Supreme Court of Kenya on Tuesday, August 20 issued conservatory orders temporarily halting the Court of Appeal's decision that declared the Finance Act 2023 unconstitutional.

The interventional move by the apex court now grants the government a crucial reprieve, allowing it to continue enforcing the Finance Act 2023 while the legal battle progresses. 

Its judges, while issuing the order, considered the uncertainty regarding the revenue-raising measures and the difficulty that may arise in the operations of the two levels of government.

"We are not convinced that the consequences of declaring the entire finance act as unconstitutional would be reversible should the appeal before us be successful," said the Judges.

Chief Justice Martha Koome and the judges of the Supreme Court of Kenya. /JUDICIARY

The Court of Appeal's previous judgment, handed down in July, 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.

This ruling sparked widespread uncertainty among employers and taxpayers, who have been grappling with confusion over applicable tax bands and financial regulations.

The Supreme Court's stay order thus specifically targets Order No.6 from the Court of Appeal, which had provided Kenyans with a temporary relief from the contentious Finance Act 2023. This Order effectively halted the implementation of the Act, leaving a void in the tax landscape as the Finance Bill 2024 was withdrawn and the previous legislation was invalidated.

In addition, the Supreme Court added that public interest tilts in favour of granting the order sought by the National Treasury to maintain stability in the budget and appropriation process pending the determination of the appeal.

The Supreme Court has thus mandated that the consolidated appeal be scheduled for mention before the Deputy Registrar. 

The court has set a timeline for further proceedings, with virtual hearings scheduled for September 10 and 11, 2024, starting at 9 am on each day.

Finance bills, presented to Parliament at the start of each financial year, are crucial tools for the government to outline its revenue-raising strategies, including tax increases and new levies.

The 2023 Finance Act was met with intense scrutiny and legal battles, primarily due to contentious measures such as a significant increase in the value-added tax on fuel, the introduction of a housing tax, and a hike in the top personal income tax rate. These changes sparked a wave of political opposition and violent street protests. 

The three-judge bench of the Appellate Court had found that the failure to comply with these constitutional and statutory requirements rendered the entire Act unconstitutional and void from the outset.

"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.