On Friday, August 2, the Supreme Court of Kenya delivered a blow to the National Treasury by rejecting its plea for a stay on the nullification of the Finance Act 2023.
This decision has placed the country’s economic stability in a precarious position, further deepening the fiscal uncertainty that has gripped Kenya following recent legislative upheavals.
The Court’s refusal to grant a stay means that the Finance Act 2023, which had been declared unconstitutional by the Court of Appeal, remains void.
This ruling comes at a particularly inopportune moment for Kenya, which is already grappling with the withdrawal of the Finance Bill 2024.
With the Finance Act 2023 nullified, and no clear alternative revenue plan in place, the government faces the daunting task of managing its finances amidst a substantial Ksh510 billion gap in the national budget for the current fiscal year.
The Supreme Court’s decision not only rejected the Treasury’s request but also certified the matter as urgent, scheduling it for hearing during the August court recess.
This swift action by the Apex Court points to the gravity of the situation and the need for a timely resolution.
The court's ruling mandates that the Treasury and other relevant parties submit their motions and responses within a tight timeframe, further adding to the pressure on all involved.
The National Treasury, under considerable strain, had sought a stay to prevent immediate implementation of the Court of Appeal's decision, hoping to buy time for the administration to adjust its fiscal strategies.
The Finance Act 2023, which had introduced several contentious tax hikes, including a significant increase in VAT on fuel and new income tax bands, was seen as a crucial component of the government's revenue-raising efforts. However, its invalidation has left a gaping hole in the fiscal framework, exacerbating Kenya’s already delicate economic situation.
The ruling has ignited a firestorm of debate across the nation. For many Kenyans, the Court of Appeal’s decision was a rare victory against perceived government overreach.
Citizens who have been burdened by increasing taxes celebrated the judgement as a win for ordinary taxpayers. Yet, the joy of this judicial triumph is tempered by the practical implications of the ruling, which has left the government scrambling for solutions.
The Treasury argues that the Finance Act 2023 was critical to achieving its revenue targets, and its nullification would result in a loss of approximately Ksh164 billion. This shortfall could significantly impact the government's ability to fund essential services and infrastructure projects.
The stakes are undeniably high. The Finance Act 2023 was designed to address Kenya's mounting fiscal pressures through increased taxation. The Act had proposed substantial changes, including a doubling of VAT on fuel from 8 per cent to 16 per cent and the introduction of new income tax bands aimed at high earners.
These measures were intended to boost government revenues, but their unpopularity among the populace, coupled with the recent court rulings, has thrown the administration’s financial plans into disarray.
As the country waits for the Supreme Court’s final ruling on the appeal, the government must navigate a complex landscape of fiscal uncertainty.
Experts suggest that, in the absence of the Finance Act 2023, the administration may revert to the Finance Bill of 2022, but this would not fully address the revenue shortfall.
The transition could also face significant challenges, given the evolving economic context and the need for legislative adjustments.
The current situation highlights the intricate balance between tax policy, judicial oversight, and public sentiment. The Finance Act 2023's journey from introduction to nullification reflects broader themes of governance and accountability in Kenya.
The court’s decisions are not merely legal determinations but are deeply intertwined with the country’s economic health and public trust in its institutions.
