Finance Act 2023 Struck Down: Government’s Revenue Plans in Jeopardy
In a significant legal setback for the government, the Court of Appeal has declared the Finance Act 2023 unconstitutional, null, and void. This decision came after a three-judge bench comprising Justices Kathurima M’Inoti, Agnes Murgor, and John Mutivo ruled that Parliament had bypassed necessary public participation when introducing new sections to the Act.
The ruling now threatens the government’s plan to raise nearly Ksh.300 billion to finance the national budget.
The court’s decision marks yet another challenge for President William Ruto’s administration, which has faced numerous legal hurdles over the past year. Key provisions of the Finance Act, including changes to the Value Added Tax (VAT) and new tax bands for Pay As You Earn (PAYE), have now been nullified.
The VAT on fuel, which had been increased from 8% to 16%, and higher PAYE rates for high earners, will no longer be enforced.
The Kenya Revenue Authority (KRA) had reported an increase in revenues by Ksh.241 billion between July 2023 and June 2024, attributing part of this rise to the Finance Act 2023. However, with the Act now voided, the government faces a potential revenue shortfall of up to Ksh.300 billion.
The court highlighted that several sections of the Act were added without public input, violating the constitutionally mandated legislative process. The ruling emphasized the importance of public participation in law-making, declaring the entire Finance Act 2023 fundamentally flawed and unconstitutional.
This decision follows closely on the heels of another financial blow to the government, where President Ruto withdrew the Finance Bill 2024, leading to a projected revenue loss of Ksh.344 billion. The cumulative effect of these legal defeats could severely impact the government’s fiscal strategy.
Despite the court’s ruling, it declined to mandate tax refunds, stating that such considerations were not within its purview. Additionally, the provisions related to the housing levy tax in the Finance Act 2023 were deemed irrelevant due to the enactment of the Affordable Housing Act of 2024.
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Finance Act 2023 Struck Down: Government’s Revenue Plans in Jeopardy
