Ruto hangs on Uhuru's law to raise funds after court's big blow

President William Ruto. Finance Act 2023 declared unconstitutional, hence new headache on taxes. [File, Standard]

The Court of Appeal Wenesday gave the Kenya Kwanza government a new headache on raising taxes after declaring the Finance Act 2023, unconstitutional.

President William Ruto’s government was clutching onto the Act to raise funds to run its agenda after withdrawing Finance Act 2024 following waves of protests from Gen Zs.

With Justices Kathurima M’inoti, Agnes Murgor and John Mativo decreeing that the National Assembly violated the law, what is left now is taking the government to President Uhuru Kenyatta’s tax books to oil its agenda.

“The enactment of the Finance Act, 2023 violated Articles 220 (1) (a) and 221 of the Constitution as read with sections 37, 39A, and 40 of the Public Finance Management Act which prescribes the budget-making process, thereby rendering the ensuing Finance Act, 2023 fundamentally flawed and therefore void ab initio and consequently unconstitutional,” the court ruled.

The first hit is the fuel levy which was increased from 8 to 16 per cent. Others are the Roads Maintenance Levy and taxes on electronics.

The bench headed by Justice M’noti found that the National Assembly had jumped the gun as MPs passed the Act without estimates of revenue being gazetted and included in the Appropriation Bill.

At the same time, the court indicted the August House for passing the Act for a second reading without the then Treasury Cabinet Secretary Njuguna Ndung’u presenting the budget proposal.

The court said the final product had no legal foundation to stand on; therefore, it was unconstitutional. “The only option is for the National Assembly to follow the path carefully delineated by the Constitution and the PFMA. Any other path, no matter how expedient it may be, is not only unconstitutional but it is littered with substantive procedural flaws and highly impermissible unconstitutional transgressions all of which will end with an illegal outcome. Nothing good can come out of an illegality, no matter how attractive it may be,” they ruled.

The Judges agreed with the group opposed to the Act, including Busia Senator Okiya Omtatah that National Assembly Speaker Moses Wetang’ula erred by ruling that the National Assembly was at liberty to prioritise the Finance Bill before Ndung’u presented the budget statement.

According to the bench, High Court Judges David Majanja, Lawrence Mugambi and Christine Meoli were wrong in finding that courts should not interfere with government policies. They were of the view that only when government institutions act within the law judges would be slow to interfere.

The appeal was a poisoned chalice for the National Assembly and Speaker Wetang’ula who challenged the High Court’s verdict on, among others the Housing Levy. Six appeals were filed, with Okiya seeking declarations that the Act is unconstitutional.

Justices M’inoti, Murgor and Mativo also found that 28 sections of the same Act that had been introduced post public participation were unconstitutional and a violation of the house’s standing orders.

The sections were introduced in the Income Tax Act, Value Added Tax Act, Excise Duty Act, Miscellaneous Fees and Levies Act, Kenya Revenue Authority Act, Retirement Benefits Act, Alcoholic Drinks Control Act of 2010, Special Economic Zones Act and Export Processing Zones Act.

They were of the view that parliament should give written reasons why it rejected proposals from Kenyans as a way of promoting transparency. They observed that it would be in vain to ask for comments then walk away as if nothing had happened.

In the case, the court heard that those who opposed Finance Act 2023 were never given a reason why Members of Parliament never considered their voices.

“It would be strange indeed if the principles of participatory democracy and consultation are to operate only when the public are invited to give their views, then they vanish at the crucial stage when the general principles of the original statute are being converted into operational standards and procedures, only to re-surface at the stage of the implementation of the provisions impacting on specific individuals without any explanation as to why their views were rejected,” the court ruled.

They however declined to rule on the Housing Levy after finding government had amended the law this year. In the meantime, the court affirmed that the National Assembly did not need concurrence from the Senate to enact finance laws.

The six cases challenged Kenya Kwanza’s Sh3.6 trillion budget. After Parliament’s majority had their way by passing the Finance Bill into law, it defended the same to have been legal and above board.

Its lawyer George Murugara argued that taxation is a policy decision that rests with the legislature. He argued that courts had no powers to interfere with the exercise or the outcome of the process.

The cases were filed by Omtatah, Peter Agoro, Paul Saoke, Clement Onyango and Association of Alcoholic Beverages, Law Society of Kenya, Eliud Matindi, Victor Okuna, Azimio, Kenya Human Rights Commission and Katiba Institute among others.