Finance Act 2023 was illegally enacted, Azimio and 40 groups tell court

Azimio la Umoja One Kenya and 40 civil society organisations are pleading with the Supreme Court to uphold a decision to declare the Finance Act, 2023, unconstitutional.

In their pitch on the second day of the hearings yesterday, the Law Society of Kenya, Katiba Institute and other 44 parties urged the judges to sustain the Court of Appeal’s ruling on grounds that the Act significantly increased the tax burden and raised concerns about fiscal equity and public accountability. 

Azimio argued that the Act’s enactment was in blatant disregard of constitutional principles.

“The manner in which the Finance Act was passed reflects a troubling lack of transparency and accountability,” said Arnold Ochieng, the coalition’s lawyer.

“The legislative process failed to uphold the basic tenets of democratic governance, particularly concerning the public’s right to participate meaningfully.”

According to the Opposition, the legislative process did not adequately involve the public or provide sufficient information on how the funds raised would be used.

“This lack of clarity and engagement undermines the principles of transparency, which are essential for ensuring that government actions align with public interest and constitutional requirements,” the lawyer said.  

Azimio asserted that the amendments made to the Finance Act after the initial public participation phase were unconstitutional.

The amendments, which affected key tax laws and fiscal policies, were not subjected to the same level of public scrutiny and debate required by the Constitution.

The coalition contends that upholding the Court of Appeal’s ruling is essential for reinforcing democratic principles and ensuring that legislative processes are conducted in a manner that respects public input and constitutional requirements.

The civil society groups argued that some provisions of the Act introduce substantial tax hikes without sufficient justification or consideration of the economic impact on the general population.

“The Act has imposed a higher taxation load on citizens without proper engagement or adequate communication about these changes. Every individual has a right to economic fairness, and such significant tax increases should not be imposed without sufficient public dialogue,” argued senior counsel Charles Kanjama.

He stressed that employees, who have a proprietary interest in their income, are particularly affected by the tax changes.

“Income is a form of property. The Finance Act, by altering tax obligations, affects employees’ ability to meet their needs and live with dignity. This is a matter of economic justice,” he said.

He criticised the government for failing to adequately engage with all affected parties during the passage of the Bill, including the marginalised and illiterate.

On Tuesday, the government told the court that the requirement to give written reasons for rejecting public comments is an unnecessary hurdle.

“The government has blatantly ignored the voices of those who are directly impacted by this Act, including many who are illiterate and unable to participate effectively in the public consultation process,” argued Kanjama.

He emphasised that public participation is not just a formality but a fundamental constitutional requirement designed to ensure that all citizens, regardless of their literacy level, have a say in legislation that affects their lives.

“Views from those most affected by the amendments were neither solicited nor considered, which is a fundamental flaw in democratic governance.”

LSK further argued that the appellate court was right in addressing the concerns on the Affordable Housing Levy.

“While the Affordable Housing Levy is a significant policy issue, the primary concern remains the broader legislative process. The Court of Appeal’s decision to sidestep the mootness of this issue allows us to focus on the more pressing procedural deficiencies,” Kanjama explained.

He asserted that several provisions in the Finance Act required the concurrence of the National Assembly and the Senate to ensure equitable legislative engagement.

“When provisions affect county functions, it is not only appropriate but necessary to involve the Senate. The failure to do so undermines the principles of balanced and inclusive governance,” Kanjama told the Bench.

The LSK representative also highlighted that Parliament had a duty to provide detailed reasons for accepting or rejecting public comments.

“The lack of detailed reasoning deprives the public of transparency and undermines the credibility of the legislative process.”

LSK called for the refund of taxes collected under the now-invalidated Finance Act, 2023.

“Since the Act has been declared unconstitutional, the Kenya Revenue Authority (KRA) has no legal mandate to retain taxes collected under its provisions. We urge the Supreme Court to order the refund of these funds to the taxpayers,” argued Kanjama. He emphasised that retaining these taxes would be illegal and contrary to the principles of constitutional governance.

Katiba Institute, through lawyer Joshua Nyawa, contended that the Act’s enactment violated procedural and constitutional safeguards designed to ensure fair and transparent legislative processes.

He agreed with LSK that the failure to involve the Senate in the passage of sections touching on county functions further underscores the Act’s procedural flaws.

According to the lobby, upholding the Court of Appeal’s decision is crucial for preserving the integrity of the constitutional framework and ensuring that laws are enacted in compliance with established legal standards.

Other civil society groups, including Tribeless Youth and Siasa Place, criticised the government’s appeal, saying it lacked merit and failed to address the fundamental issues identified by the Court of Appeal.

According to the groups, the government’s attempt to reinstate the Act overlooks the procedural irregularities and constitutional violations that prompted the initial court decision.

Prof Githu Muigai, representing the government, contested the Court of Appeal’s handling of the issue of mootness related to the Affordable Housing Levy, asserting that the lower court’s decision was flawed and detrimental to the legislative process.

“The Court of Appeal erred significantly by dismissing the issue of the Affordable Housing Levy as moot,” he said.

He argued that the levy was a critical and ongoing concern for the government and that the Supreme Court’s guidance was essential for ensuring compliance with various constitutional provisions, including Articles 10, 201, 206, and 210.

“The question of how to enact an effective and constitutionally compliant tax statute is not just an academic exercise but a practical necessity for managing the country’s revenue,” he argued.

By declaring the issue moot, Muigai stated, the Court of Appeal failed to address a critical concern that impacts the government’s ability to implement key policies.

Senate involvement

He disputed the assertion made by the civil society groups and Senator Okiya Omtatah that every piece of legislation concerning revenue collection inherently affects counties and thus requires Senate involvement.

“If that argument were correct, then every piece of legislation would necessarily concern counties, which is not the case.”

He argued that the Finance Act’s provisions do not universally impact county functions in a way that would necessitate such involvement.

Muigai also brought up the principle of judicial restraint and the separation of powers among the branches of government.

“The court should not apologise for exercising judicial restraint,” he said.

He emphasised that while the Judiciary must exercise its powers judiciously, there should be a balance that allows Parliament, the Executive, and the Judiciary to coexist harmoniously within the limits set by the Constitution.