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Why was the Finance Act 2023 declared unconstitutional?

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The Finance Act, 2023 was declared unconstitutional by the Court of Appeal in Kenya due to fundamental flaws in its enactment process. The court found that the Act breached several constitutional provisions, including the requirement for both houses of Parliament to concur in legislative actions.

Introduction
The Finance Act, 2023
The Court of Appeal Ruling
Case Laws
Conclusion
TLDR

Introduction

The Finance Act, 2023, was a piece of legislation that aimed to amend various tax and duty laws in Kenya. However, it faced significant legal challenges, culminating in its declaration as unconstitutional by the Court of Appeal. This decision has had a significant impact on the Kenyan economy and has raised important questions about the legislative process in Kenya.

The Finance Act, 2023

The Finance Act, 2023, was enacted by the Kenyan Parliament on June 26, 2023. It introduced several new taxes and levies, including a housing levy, a digital service tax, and an increase in the value-added tax (VAT) rate. The Act also amended several existing tax laws, such as the Income Tax Act and the Excise Duty Act.

The Court of Appeal Ruling

The Court of Appeal, in a judgment delivered on Wednesday, July 18, 2023, ruled that the Finance Act, 2023, was unconstitutional. The court found that the Act had been enacted in violation of the Constitution and the Public Finance Management Act, 2012.

The court's decision was based on the following grounds:

Lack of Concurrence by Both Houses of Parliament: The court found that the Finance Act, 2023, had been passed by the National Assembly but had not been considered by the Senate, as required by the Constitution. The court held that the Senate's concurrence was essential for the validity of the Act.
Violation of the Public Finance Management Act, 2012: The court found that the Finance Act, 2023, had been enacted in violation of the Public Finance Management Act, 2012. The Act requires that all revenue measures be introduced in the Budget Speech and that the National Assembly must approve the Budget before any revenue measures can be implemented. The court found that the Finance Act, 2023, had been introduced without following this procedure.

Case Laws

Several case laws are relevant to the Court of Appeal's decision to declare the Finance Act, 2023, unconstitutional. These include:

Okiya Omtatah Okoiti and 51 Others v The Cabinet Secretary for the National Treasury and Planning and 6 Others, Constitutional Petition No. E181 of 2023: In this case, the High Court found that the housing levy, as framed in the Finance Act, 2023, was unconstitutional. The court held that the levy was discriminatory because it only applied to employed persons and that it was not a fair or equitable way to raise revenue for affordable housing.
National Assembly and its Speaker vs. Okiya Omtatah Okoiti and others, Civil Appeal No. E003 of 2023: This case involved a challenge to the Finance Act, 2023, on the grounds that it had been enacted in violation of the Constitution and the Public Finance Management Act, 2012. The Court of Appeal upheld the High Court's decision, finding that the Act was unconstitutional.

Conclusion

The Court of Appeal's decision to declare the Finance Act, 2023, unconstitutional is a significant development in Kenyan law. It highlights the importance of following the proper legislative process and the need to ensure that all laws are consistent with the Constitution. The decision has also raised important questions about the role of the Senate in the legislative process and the need for greater transparency and accountability in the management of public finances.

TLDR

The Finance Act, 2023, was declared unconstitutional by the Court of Appeal in Kenya due to flaws in its enactment process, including the lack of concurrence by both houses of Parliament and violation of the Public Finance Management Act, 2012.

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