Kenya Supreme Court Temporarily
Kenya Supreme Court: In a pivotal legal development, the Supreme Court of Kenya has issued a stay order, temporarily halting the Court of Appeal’s decision to nullify the Finance Act 2023. This significant intervention allows the government to continue enforcing the Finance Act while the legal proceedings unfold. The Court of Appeal had previously ruled the Finance Act unconstitutional, creating widespread confusion among taxpayers, employers, and financial institutions.
On August 20, the Kenya Supreme Court, recognizing the potential disruptions caused by the Court of Appeal’s ruling, decided to intervene. The stay order effectively reverses the lower court’s decision for the time being, allowing the government to continue implementing the contentious Finance Act 2023 until a final determination is made. This ruling is seen as a crucial reprieve for the government, which now has a temporary legal foundation to enforce the tax measures outlined in the Act.
Court of Appeal’s Ruling: The Nullification of Finance Act 2023
In July 2023, the Court of Appeal declared the Finance Act 2023 “fundamentally flawed” and therefore “void ab initio,” branding it unconstitutional. The ruling sent shockwaves through various sectors, leading to uncertainty over which tax regimes to apply. This decision was primarily driven by the government’s failure to meet constitutional requirements during the Act’s passage through Parliament.
The Finance Act 2023 had introduced a host of new taxes and levies, including a significant hike in the value-added tax (VAT) on fuel and a controversial housing tax, which faced intense public scrutiny. The Court of Appeal’s nullification of the Act was seen as a victory for those who opposed these measures, particularly given the widespread protests and opposition that the Act had provoked.
Critics argued that the government had rushed the legislation through Parliament without adequate public participation and debate, a key requirement under Kenya’s constitution. The Court of Appeal sided with this view, finding that the government’s process in enacting the Finance Act 2023 did not meet the necessary constitutional thresholds.
Supreme Court’s Stay Order: A Bid to Maintain Stability
On August 20, the Supreme Court stepped in with a stay order targeting Order No. 6 from the Court of Appeal. This order temporarily relieved Kenyans by halting the implementation of the Finance Act 2023, leaving a void in the tax landscape. With the Finance Bill 2024 withdrawn and the previous legislation invalidated, the situation created confusion among banks, employers, and taxpayers.
Chief Justice Martha Koome, in her ruling, highlighted that public interest heavily favours maintaining the status quo while the appeal is heard. She emphasized the need for legal clarity and stability for both employers and taxpayers during this period of judicial review.
The Supreme Court acknowledged the significant impact that the nullification of the Finance Act would have on the economy, particularly in terms of tax collection and fiscal stability. By staying the Court of Appeal’s ruling, the Supreme Court aims to prevent further disruption while the legal issues are fully resolved.
Impact of the Stay Order on Taxpayers and Employers
The Supreme Court’s decision to stay the nullification of the Finance Act 2023 has significant implications for taxpayers and employers. It means that the government can continue to enforce the tax measures outlined in the Act, including the contentious VAT increase on fuel, the introduction of the housing tax, and higher income tax rates.
Employers and taxpayers, who were left in limbo following the Court of Appeal’s ruling, now have a reprieve. However, this does not erase the uncertainty that has gripped the country since the Finance Act’s passage. The stay order provides only a temporary solution, and the long-term implications will depend on the outcome of the ongoing legal proceedings.
For many businesses, the Supreme Court’s decision offers a brief period of stability, allowing them to continue operating under the current tax framework without the need to make immediate adjustments. However, the prospect of further changes looms large, and companies are likely to remain cautious in their planning and financial strategies until the final ruling is delivered.
Virtual Hearings Scheduled for September 2024
In its ruling, the Supreme Court also set a timeline for further proceedings. The consolidated appeal will be mentioned before the Deputy Registrar, with virtual hearings scheduled for September 10th and 11th, 2024. These hearings are expected to be crucial in determining the fate of the Finance Act 2023.
The scheduled hearings will allow both sides of the legal battle to present their arguments in detail. The government will likely argue that the Finance Act 2023 is essential for the country’s fiscal health, while the opposing parties will continue to challenge the Act on constitutional grounds. The outcome of these hearings could have significant implications not only for the Finance Act 2023 but also for the broader landscape of tax legislation in Kenya.
Banks and Financial Institutions: Grappling with Regulatory Chaos
The aftermath of the Court of Appeal’s ruling and the subsequent Supreme Court intervention has been chaotic for banks and financial institutions. On August 20, it was reported that banks had increased the excise duty on money transfer charges from 15% to 20%. This adjustment, intended to comply with the evolving legal landscape, will be retroactively applied from August 1. Customers are expected to see a backdated 5% increase on transactions charged at the old rate.
Banks have notified customers about these changes, reflecting the ongoing challenges in adapting to the shifting tax environment. The increase in excise duty is just one example of how institutions are navigating the uncertainty created by the legal battles surrounding the Finance Act 2023.
The banking sector is particularly sensitive to changes in tax policy, and the fluctuating legal status of the Finance Act 2023 has created significant challenges. Banks must balance the need to comply with current laws while also preparing for potential reversals or adjustments shortly. This uncertainty complicates financial planning and risk management, increasing costs and complexity for both banks and their customers.
Energy and Petroleum Sector: Uncertainty in Fuel Prices
The legal turmoil has also impacted the Energy and Petroleum Regulatory Authority (EPRA). Following the Court of Appeal’s ruling, fuel prices were expected to drop due to the anticipated reduction in VAT on petroleum products from 16% to 8%. However, these changes have not yet been reflected in the market.
Critics have sharply criticized the government for allegedly disregarding the court’s directives. Despite the Court of Appeal’s ruling, the government has not implemented the expected reduction in fuel prices, leaving consumers uncertain.
The Supreme Court’s stay order now gives the government legal standing to continue using the Finance Act 2023 until the appeal is heard and determined. This means that the controversial tax measures, including the VAT on fuel and new income tax bands, will remain in place for now.
The energy sector, like the banking industry, is deeply affected by tax policy changes. Fuel prices are a key component of the economy, influencing everything from transportation costs to the prices of goods and services. The ongoing legal uncertainty around the Finance Act 2023 has left businesses and consumers in a difficult position, unsure of what to expect regarding future fuel costs.
Political Opposition and Public Outcry
Since its inception, the Finance Act 2023 has been a source of intense political opposition and public outcry. The Act’s provisions, particularly the VAT increase on fuel and the housing tax, have sparked widespread protests and violent demonstrations nationwide.
The Court of Appeal’s nullification of the Act was seen as a victory for those who opposed these measures. However, the Supreme Court’s intervention has once again put the government in a position to enforce the contentious provisions, further fueling the political debate.
The legal battle over the Finance Act 2023 is far from over. With the Kenya Supreme Court stay order in place, the next phase of the battle will unfold in the virtual hearings scheduled for September. The outcome of these hearings could have far-reaching implications for the government’s revenue-raising strategies and the country’s tax landscape.
Political opposition to the Finance Act 2023 remains strong, with critics arguing that the tax measures disproportionately affect low- and middle-income Kenyans.
On the other hand, the government contends that the Act is necessary to fund essential public services and infrastructure projects. As the legal process continues, the political debate will likely intensify, with both sides mobilizing public support for their positions.
Looking Ahead: The Future of the Finance Act 2023
As the legal battle continues, employers, taxpayers, and financial institutions remain uncertain. The Supreme Court’s stay order provides temporary relief, but it also prolongs the uncertainty surrounding the Finance Act 2023.
All stakeholders will closely watch the September virtual hearings. The outcome will determine whether the Finance Act 2023 will be permanently reinstated or if the government will need to rethink its approach to drafting new legislation that meets constitutional requirements.
For now, the Finance Act 2023 remains in force, and its provisions continue to shape the tax landscape in Kenya. However, the Supreme Court will pronounce its constitutionality in the coming months.
In the meantime, businesses and individuals must navigate the complexities of a tax environment that is anything but stable. The legal battle over the Finance Act 2023 reminds us of the importance of adhering to constitutional requirements in the legislative process and the far-reaching consequences when those requirements are not met.
The next few months will be crucial in determining the future of tax policy in Kenya, with significant implications for the economy and the lives of ordinary Kenyans.
