The Supreme Court is set to deliver a crucial ruling this Tuesday that could determine the fate of the Finance Act 2023. The ruling, emailed at 10 am, will decide whether to suspend the previous decision that declared the Act unconstitutional, pending an appeal filed by the Treasury Cabinet Secretary.
Last month, the Court of Appeal made headlines by declaring the Finance Act 2023 unconstitutional, throwing a wrench into the government’s revenue plans. The Act was deemed flawed due to procedural issues during its enactment, with the court pointing out that various sections introduced post-public participation were not subjected to fresh scrutiny.
This ruling not only threatened to cut off a significant stream of revenue but also came on the heels of a major loss for the National Treasury, which had already been denied Sh346 billion after widespread protests led to the rejection of the Finance Bill 2024.
The appellate court’s decision, delivered by Justices Kathurima M’inoti, Agnes Murgor, and John Mativo, specifically targeted amendments made to the Income Tax Act, Value Added Tax Act, Excise Duty Act, Retirement Benefits Act, and Export Processing Zones Act. The court ruled that these changes were unconstitutional due to the lack of renewed public participation, a fundamental requirement in the legislative process.
The Finance Act’s journey through the legal system has been anything but smooth, with 11 constitutional petitions challenging its validity. These cases were initially heard by a three-judge bench led by the late Justice David Majanja, who declared several sections of the Act unconstitutional, including the controversial housing levy. The bench criticized the levy for creating an unfair distinction between formal and informal sectors, labelling it as discriminatory.
However, not all provisions of the Finance Act 2023 were struck down. The bench upheld the 16 percent VAT on insurance premiums, the digital asset tax, and the tax on betting, ruling them as constitutional and within the National Assembly’s mandate. This partial victory for the government was not enough to offset the blow dealt by the invalidation of other critical sections.
In response to the Court of Appeal’s ruling, the government swiftly filed an appeal, seeking to overturn the decision. The government argued that the Court of Appeal’s ruling on the housing levy had been rendered moot by the enactment of the Affordable Housing Act 2024, which presumably addressed the concerns raised by the court.
As the Supreme Court prepares to deliver its ruling, the stakes are high for the government, which is eager to secure the additional revenue streams promised by the Finance Act 2023. The decision will not only impact the Treasury’s coffers but could also set a precedent for how future tax legislation is handled in the country.
All eyes will be on the Supreme Court this Tuesday as the country awaits the outcome of this pivotal case. The ruling could either provide a lifeline for the Finance Act 2023 or solidify the Court of Appeal’s decision, leaving the government to grapple with the fallout.
