Supreme Court Halts Court of Appeal’s Ruling, Keeping Finance Act 2023 in Force Amid Legal Dispute
The Supreme Court has stepped in to suspend the Court of Appeal’s judgment that had deemed the Finance Act 2023 unconstitutional.
On Tuesday, August 20, the highest court in the land issued a stay order, temporarily reversing the lower court’s decision that had annulled the Finance Act entirely.
This pivotal action by the Supreme Court provides a crucial lifeline to the government, allowing continued enforcement of the Finance Act 2023 as legal proceedings unfold.
The Court of Appeal’s earlier ruling in July labeled the Finance Act 2023 as “fundamentally flawed, thus void ab initio and unconstitutional.”
This decision triggered widespread uncertainty among employers and taxpayers, confusing applicable tax rates and financial guidelines.
The Supreme Court’s stay order specifically addresses Order No.6 from the Court of Appeal, which had temporarily shielded Kenyans from the controversial Finance Act 2023.
This order had effectively frozen the Act’s implementation, creating a regulatory gap as the Finance Bill 2024 was withdrawn and prior legislation was nullified.
In its latest directive, the Supreme Court underscored that public interest strongly favors maintaining the status quo until a final ruling is reached.
The court emphasized the need for legal consistency and stability for both employers and taxpayers amid ongoing judicial reviews.
The Supreme Court has also directed that the consolidated appeal be mentioned before the Deputy Registrar.
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The court has outlined a timeline for further proceedings, scheduling virtual hearings on September 10 and 11, 2024, starting at 9 am each day.
Finance bills introduced to Parliament at the start of each fiscal year are key instruments for the government to detail its revenue strategies, including tax hikes and new levies.
The 2023 Finance Act encountered fierce criticism and legal challenges, largely due to contentious measures like the significant increase in value-added tax on fuel, a new housing tax, and a higher top personal income tax rate.
These changes fueled political backlash and violent street protests.
In response, a three-judge panel at the Court of Appeal ruled the Finance Act 2023 unconstitutional due to non-compliance with constitutional requirements.
Following the court’s judgment, confusion has spread across multiple sectors.
Banks, employers, and other industries are now grappling with uncertainty over which tax policies to implement.
On August 20, reports indicated that banks had increased excise duty on money transfer charges to 20%, up from 15%.
This adjustment, aimed at aligning with the ongoing legal and regulatory turmoil, is retroactively applied from August 1.
Customers will now face a backdated 5% increase on transactions previously charged at the old rate.
Banks have notified customers about these changes, highlighting the disorderly reaction to the shifting tax framework.
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Questions have arisen about why the Energy and Petroleum Regulatory Authority (EPRA) has not reduced fuel prices following the court ruling, which had anticipated lower costs due to the Act’s nullification.
Critics have harshly rebuked the government for allegedly ignoring court orders.
The court had directed the reduction of value-added tax on petroleum products from 16% to 8% and the removal of new pay-as-you-earn (PAYE) tax bands—32.5% for incomes between Ksh500,000 and Ksh800,000, and 35% for earnings above Ksh800,000.
Despite these orders, the expected adjustments in tax and fuel prices have not yet materialized.
However, the government now has legal grounds to continue applying the Finance Act 2023 until the Supreme Court delivers its final verdict on the appeal.
Supreme Court Halts Court of Appeal’s Ruling, Keeping Finance Act 2023 in Force Amid Legal Dispute
