The Supreme Court has intervened to halt the Court of Appeal's ruling that declared the Finance Act 2023 unconstitutional.
On Tuesday, August 20, the apex court issued a stay order, temporarily overturning the lower court's decision that had nullified the Finance Act in its entirety.
This decisive move by the Supreme Court grants the government a crucial reprieve, allowing it to continue enforcing the Finance Act 2023 while the legal battle progresses.
The Court of Appeal's previous judgment, handed down in July, had deemed the Finance Act 2023 “fundamentally flawed and therefore void ab initio and consequently unconstitutional.”
This ruling sparked widespread uncertainty among employers and taxpayers, who have been grappling with confusion over applicable tax bands and financial regulations.
The Supreme Court's stay order specifically targets Order No.6 from the Court of Appeal, which had provided Kenyans a temporary relief from the contentious Finance Act 2023. This Order effectively halted the implementation of the Act, leaving a void in the tax landscape as the Finance Bill 2024 was withdrawn and the previous legislation was invalidated.
In its latest ruling, the Supreme Court highlighted that public interest heavily favoured the preservation of the status quo pending a final determination. The court pointed to the importance of maintaining legal clarity and stability for both employers and taxpayers amid ongoing judicial reviews.
The Supreme Court has also mandated that the consolidated appeal be scheduled for mention before the Deputy Registrar.
The court has set a timeline for further proceedings, with virtual hearings scheduled for 10th and 11th September, 2024, starting at 9 am on each day.
Finance bills, presented to Parliament at the start of each financial year, are crucial tools for the government to outline its revenue-raising strategies, including tax increases and new levies.
The 2023 Finance Act faced intense scrutiny and legal battles, primarily due to contentious measures such as a significant increase in the value-added tax on fuel, the introduction of a housing tax, and a hike in the top personal income tax rate.
These changes sparked a wave of political opposition and violent street protests. In response, a three-judge bench of the Court of Appeal declared that the Finance Act 2023 was unconstitutional due to the government's failure to comply with constitutional requirements.
The aftermath of the court’s ruling has been marked by widespread confusion. Banks, employers, and other sectors are grappling with uncertainty over which tax regimes to apply.
On August 20, it was reported that banks have increased the excise duty on money transfer charges to 20 per cent, up from 15 per cent. This adjustment, intended to comply with the ongoing legal and regulatory turmoil, will be retroactively applied from August 1. Customers will see a backdated five per cent increase on transactions charged at the old rate.
The banks have issued notifications to customers about these changes, reflecting the chaotic response to the evolving tax landscape.
Questions have arisen regarding the Energy and Petroleum Regulatory Authority (EPRA)'s decision not to lower fuel prices following the court ruling, which had anticipated a reduction in fuel costs due to the nullification.
Critics have sharply criticised the government for allegedly disregarding the court's directives. The court had mandated a reduction in the value-added tax on petroleum products from 16 per cent to 8 per cent, and the removal of new pay-as-you-earn (PAYE) tax bands—32.5 per cent for incomes between Ksh500,000 and Ksh800,000, and 35 per cent for earnings above Ksh800,000.
Despite these orders, the anticipated changes have not yet been reflected in the tax and fuel pricing adjustments. However, now the government has legal standing to continue using the Finance Act 2023, until the appeal at the apex court is heard and determined.
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