What next after the Court of Appeal invalidates the entire Finance Act 2023?

The budget making process is a ritual repeated each year with the process entrenched in constitutionality and the law to safe guard it from illegal, random or whimsical approaches to raising and spending public funds.

Every year, when the Finance Bill is enacted it subsequently deletes or adjusts certain clauses within the preceding Finance Act to align itself to the policy priorities of the government in power. The Finance Act in each year, therefore, is a sacred instrument in running the government until the next financial year. 

Since Kenya’s independence, never has she failed to have a current finance bill to address its financial issues, that is, until this year when the bill was abandoned in the face of fierce opposition from the public. The Finance Act 2023 that was meant to be repealed therefore stayed, to avoid a lacuna, and was in use until the rug was pulled under it on Wednesday. 

An enormous ruling by the Court of Appeal

On July 31, the Court of Appeal, in a landmark ruling, declared the Civil Appeal No. E021 merited.

 The Court; “Accordingly hereby issues a declaration that the enactment of the Finance Act, 2023 violated Articles 220(1) and 221of the Constitution as read with sections 37, 39A, and 40 of the PFMA (Public Finance Management Act, 2012) which prescribes the budget making process, thereby rendering the ensuing Finance Act, 2023 fundamentally flawed and therefore void ab initio and consequently unconstitutional.” 

With this few words, the Finance Act 2023 was thrown under the bus, literally! The subsequent effect is that there's is no current Finance Act to govern taxation and government fiscal matter as the Finance Bill 2024 was recently also rejected in its entirety. These are indeed interesting times… Kenya has waded legally into unchartered waters.

What are the consequences for Tax and Legislative Competence? 

The court's ruling was in response to long and extensive deliberations over appeals filed by over 40 parties challenging the legality and adherence to the constitution of multiple sections of the Act. 

After hearing through the pleadings, submissions and deliberations of the appellants, the Court of Appeal found out that there were certain key sections of the Finance Act 23 that were unconstitutional. 

Several sections including those amending critical taxation such as the Value Added Tax, Excise Duty Tax and Income Tax were passed without following the laid down constitutional parameters within the legislative process. 

Key among these was failure to conduct a public participation exercise as required under Articles 10 and 118 of the constitution. The resultant effect was that the whole Finance Act was to be unconstitutional and hence null and void.

An Incompetent House 

Parliament was put on the spot for matters competence or the lack thereof! It was obvious that in their singlemindedness and zeal to pass the Finance Bill 2023, they failed to observe the sacrosanct edicts pronounced by the constitution of Kenya in matters of legislating laws. 

This has come to haunt the Kenya Kwanza Administration on a number of laws passed that have been declared unconstitutional such as the particular matter that touched on the Housing Levy in 2023.

Rule of Moot 

Essentially, if a case is moot, it currently has no basis for controversy, argument or discussion and hence any ruling by the court on it would have no actual or practical impact. 

Certain sections of the appeals, targeted specific sections of the Finance Act 23 that had been rendered moot by the passage of time or courts pronouncing themselves on the same over time. These matters therefore no longer presented current controversies requiring adjudication. 

What next for individual and corporate taxpayers?

This decision has thrown into limbo the legal framework governing taxation in Kenya. The spirited Gen-Z protests made President Ruto throw out the Finance Bill 2024 just when he was about to assent to it. 

He rejected it in toto and returned it back to parliament with the advice to delete every article which was subsequently done on 25th July 2024. Both corporate and individual taxpayers must be really puzzled at the turn of events and more so if they persist in days to come. 

What would be their tax obligations? A keen observation on the legal debates and more so an imminent appeal by the government is in the offing. 

In the immediate coming days all tax payers should refrain from random decisions on their tax obligations, however, they should follow the advice of legal and tax consultants to avoid shooting oneself on the foot. One thing they should be sure of is that tax is obligatory as long as they exist within this jurisdiction.

How will this end?

Some observers are theorizing thus: there will be uncertainty about applicable tax rates and expenditure areas because technically the country finds itself, even if for a few hours or days, without a basis for raising and spending funds. 

This would be unfathomable, nightmarish and indeed a bed of anarchy if it would persist. The State is created by the Constitution and its basis of operation is entrenched in law, it would, therefore, be height of disorder for the government that runs the State to go against the very precepts that created it. 

The case as a matter of urgency will be headed to the Supreme Court to look for a stay order, as it looks for means and ways to be heard, remember the Judiciary itself is a part of the government, and probably hope for time to rectify its shortcomings and if possible take its time in court to the fullest. 

Some have asked; what about Finance Act 2022? I do not think, even for a moment, that the Finance Act 2022 would be an option, it stands repealed and a relic of the former Jubilee Administration.

The Court of Appeal's decision to declare the Finance Act, 2023, unconstitutional once more uncovered the sheer incompetence and lack of adherence to legal and procedural fidelity to the constitutionalism rife within the other arm of government, Parliament. 

As the country goes to sleep today, the Judiciary has shown sparks of the independence which still exists within it in having space to determine each case on its merits. 

Even if a stay is granted in days to come over this ruling, public institutions that bastardize the noble jobs bestowed on them by the constitution now know that the spotlight will shine on them however long it takes.