Unprecedented Times: The Aftermath of the Court of Appeal’s Invalidating of the Finance Act 2023

The Court of Appeal of Kenya has declared the Finance Act 2023 unconstitutional, leaving the nation in uncharted waters regarding its financial and taxation framework. This landmark ruling on July 31 has sent shockwaves through the legislative and executive branches, exposing the vulnerabilities and procedural oversights in the country’s budget-making process.

A Sacred Ritual Disrupted

The process of raising funds through public taxes and allocating them to priority sectors each year is a fundamental ritual entrenched in Kenya’s constitutional and legal framework. The annual Finance Act is pivotal in this process, as it adjusts previous clauses to align with the government’s policy priorities. Historically, Kenya has always had a current Finance Bill to address its financial issues—until now. The Finance Act 2023, initially faced with fierce opposition, remained in use until it was abruptly invalidated by the Court of Appeal.

The Court’s Landmark Ruling

The Court of Appeal’s ruling in Civil Appeal No. E021 declared the enactment of the Finance Act 2023 violated several constitutional articles and sections of the Public Finance Management Act (PFMA), 2012. Specifically, the court found the Act’s budget-making process fundamentally flawed, lacking the necessary public participation as mandated by Articles 10 and 118 of the Constitution. Consequently, the Act was deemed void ab initio, plunging Kenya into a fiscal and legislative void.

Taxation and Legislative Competence Under Scrutiny

This ruling has significant implications for taxation and legislative competence. Key sections of the Finance Act 2023, including amendments to Value Added Tax, Excise Duty Tax, and Income Tax, were found to have bypassed constitutional legislative processes. Parliament’s failure to adhere to these sacrosanct procedures has exposed its incompetence and zeal to pass laws without proper oversight. This is not the first time the Kenya Kwanza Administration has faced challenges regarding unconstitutional laws, as seen with the Housing Levy in 2023.

Moot Cases and Current Controversies

Certain sections of the appeals targeted specific parts of the Finance Act 2023 that had become moot due to the passage of time or prior court rulings. These sections no longer presented controversies requiring adjudication. However, the broader implications of the ruling on Kenya’s legal and fiscal framework remain profound.

Implications for Taxpayers

The invalidation of the Finance Act 2023 has left individual and corporate taxpayers in a state of limbo. President Ruto’s rejection of the Finance Bill 2024, following spirited Gen-Z protests, further complicates the situation. With the bill returned to Parliament and all articles deleted as of July 25, 2024, taxpayers are now puzzled about their tax obligations. Legal and tax consultants have advised caution to avoid rash decisions that could lead to non-compliance. Despite the uncertainty, the obligation to pay taxes remains as long as one operates within Kenyan jurisdiction.