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Why was the Finance Act 2023 declared unconstitutional?

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Introduction

The Finance Act, 2023, was a significant piece of legislation in Kenya, aimed at amending various tax laws and introducing new fiscal measures. However, its journey through the legislative and judicial processes was fraught with controversy, culminating in its declaration as unconstitutional by the Court of Appeal. This ruling has profound implications for the legislative process, the rule of law, and the fiscal policies in Kenya.

Background of the Finance Act, 2023
Legislative Process and Enactment
Grounds for Unconstitutionality
- 3.1 Procedural Flaws
- 3.2 Substantive Issues
Judicial Review and Rulings
- 4.1 High Court Rulings
- 4.2 Court of Appeal Rulings
Relevant Case Laws
Implications of the Ruling
Conclusion
TLDR

1. Background of the Finance Act, 2023

The Finance Act, 2023, was enacted to amend various tax laws and introduce new fiscal measures aimed at increasing government revenue. It included provisions on income tax, value-added tax (VAT), excise duty, and the controversial Housing Levy, among others. The Act was assented to on June 26, 2023, and was set to commence on various dates as stipulated within the Act.

2. Legislative Process and Enactment

The legislative process for the Finance Act, 2023, involved its introduction in the National Assembly, debates, amendments, and eventual passage. However, the process was marred by allegations of procedural irregularities, including the lack of public participation and the bypassing of the Senate's concurrence, which are constitutional requirements under Kenyan law.

3. Grounds for Unconstitutionality

The declaration of the Finance Act, 2023, as unconstitutional was based on both procedural and substantive grounds.

3.1 Procedural Flaws

Lack of Public Participation

One of the primary grounds for the Act's unconstitutionality was the lack of adequate public participation. Article 10 of the Kenyan Constitution emphasizes the importance of public participation in the legislative process. The courts found that the process leading to the enactment of the Finance Act, 2023, did not sufficiently involve the public, thereby violating this constitutional mandate.

Bypassing the Senate

The Act was also challenged on the grounds that it did not receive the necessary concurrence from the Senate. According to Article 110 of the Constitution, any Bill that affects county governments must be considered by both the National Assembly and the Senate. The petitioners argued, and the courts agreed, that the Finance Act, 2023, had provisions that affected county governments but did not go through the Senate, thus breaching constitutional requirements.

3.2 Substantive Issues

Housing Levy

The Housing Levy was one of the most contentious provisions of the Finance Act, 2023. The High Court found that the levy was discriminatory as it only targeted employed individuals, thereby violating the principle of equality and non-discrimination enshrined in Article 27 of the Constitution. The court also held that the levy amounted to an unfair tax burden on a specific segment of the population.

Violation of Constitutional Principles

The courts also found that certain provisions of the Finance Act, 2023, violated other constitutional principles, including the rule of law and the principles of good governance. For instance, the Act was found to have provisions that were vague and lacked clarity, making them difficult to implement and enforce.

4. Judicial Review and Rulings

4.1 High Court Rulings

The High Court initially suspended the implementation of the Finance Act, 2023, pending the hearing and determination of petitions challenging its constitutionality. In its final ruling, the High Court declared several sections of the Act, including the Housing Levy, unconstitutional. The court emphasized the need for adherence to constitutional principles and the rule of law in the legislative process.

4.2 Court of Appeal Rulings

The Court of Appeal upheld the High Court's decision, declaring the entire Finance Act, 2023, unconstitutional. The appellate court's judgment, delivered by a three-judge bench comprising Justices Kathurima M'Inoti, Agnes Kalekye Murgor, and John Mativo, cited fundamental flaws in the enactment process. The court found that the Act's passage violated constitutional requirements for public participation and Senate concurrence.

5. Relevant Case Laws

Okiya Omtatah Okoiti & Others v. National Assembly & Others (Civil Appeal No. E003 of 2023)

This case was pivotal in the judicial review of the Finance Act, 2023. The petitioners, including Busia Senator Okiya Omtatah, argued that the Act was unconstitutional due to procedural and substantive flaws. The High Court and the Court of Appeal both ruled in favor of the petitioners, declaring the Act unconstitutional.

Law Society of Kenya v. Attorney General & Others

The Law Society of Kenya (LSK) also filed a petition challenging the Finance Act, 2023. The LSK argued that the Act violated constitutional principles, including public participation and the rule of law. The courts found merit in these arguments and declared the Act unconstitutional.

6. Implications of the Ruling

The declaration of the Finance Act, 2023, as unconstitutional has several implications:

Legislative Process: The ruling underscores the importance of adhering to constitutional requirements in the legislative process, including public participation and Senate concurrence.
Fiscal Policies: The government will need to revisit its fiscal policies and find alternative ways to raise revenue without violating constitutional principles.
Legal Precedents: The ruling sets a significant legal precedent for future legislative processes and the enactment of fiscal measures.

Conclusion

The Finance Act, 2023, was declared unconstitutional due to procedural flaws and substantive issues that violated the Kenyan Constitution. The courts emphasized the importance of public participation, Senate concurrence, and adherence to constitutional principles in the legislative process. This ruling has far-reaching implications for Kenya's legislative and fiscal policies, reinforcing the need for transparency, accountability, and the rule of law.

TLDR

The Finance Act, 2023, was declared unconstitutional by the Court of Appeal due to procedural flaws, including lack of public participation and bypassing the Senate, and substantive issues such as the discriminatory Housing Levy. This ruling underscores the importance of adhering to constitutional principles in the legislative process.

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