The Treasury has won a major relief after the Supreme Court reinstated the Finance Act 2023, allowing the government to continue collecting higher taxes using the law amid financial challenges.
The decision has stopped the top rate for Pay As You Earn (Paye) reverting to 30 percent and the VAT on fuel going back to eight percent.
The Act introduced new taxes and raised others, including doubling VAT on petroleum products to 16 percent and additional raids on payslips of those earning from Sh500,000 per month.
It introduced a new tax band of 32.5 percent for income of between Sh500,000 and Sh800,000. For income exceeding Sh800,000, a new top tax band of 35 percent was also introduced.
The Treasury had pleaded with the apex court to reverse a decision by the Court of Appeal, arguing that the government would lose Sh214 billion if the judgment is upheld.
The full bench of the Supreme Court presided by Chief Justice Martha Koome found that Parliament adhered to the required legislative process of public participation and concurrence, when enacting the Finance Bill, 2023.
The Court of Appeal had quashed the entire Act, declaring it unconstitutional on the basis that the legislative process that led to its enactment was fundamentally flawed and in violation of the Constitution.
However, the Supreme Court judges said the legislative process was followed in accordance with the constitutional edicts.
“In particular, we find that the Bill underwent the concurrence process under Article 110(3) of the Constitution; the Bill being a money Bill did not require consideration by the Senate and the Bill was subjected to public participation, which was adequate and satisfactory taking into account the circumstances of enacting a Finance Act,” the apex court said.
CJ Koome, Deputy Chief Justice Philomena Mwilu and Justices Mohammed Ibrahim, Smokin Wanjala, Njoki Ndung’u, Isaac Lenaola and William Ouko said the Court of Appeal ought to have gone a step further and fashioned a remedy to suit the peculiar circumstances of the case.
“It was not enough to merely make a declaration of invalidity and leave it at that,” said the judges.
The judge said where courts declared an Act unconstitutional, the judges must consider the effect of that declaration and, where necessary, suspend the application of that unconstitutionality for a prescribed time to allow for Parliament to change the law by either making it achieve its purpose without being unconstitutional or by removing the unconstitutional provision.
They added that the court must clearly set out what provision is unconstitutional by juxtaposing the offending provision against the constitution and the court must clearly and with precision explain the finding of unconstitutionality.
The judges, however, declared sections 76 and 78 of the Act amending Section 7 of the Kenya Roads Act and Section 87 of the Act amending Section 28 of the Unclaimed Financial Assets Act, 2011 as unconstitutional as they were neither incidental to nor directly connected to a money Bill.
The judges said while there is no express obligation on Parliament to provide reasons for accepting or rejecting proposals or views made during a public participation exercise, as a matter of good practice, it must nonetheless put in place reasonable measures to ensure it considers and treats the proposals, views, suggestions, and comments received during such an exercise.
The apex court pointed out that the National Assembly’s Departmental Committee on Finance and National Planning’s report on the consideration of the Finance Bill met the threshold for public participation exercise conducted on the Finance Bill, 2023.
To address the thorny issue of what amounts to reasonable public participation, the judges threw the ball back to Parliament saying the legislators ought to put in place a legislative framework to regulate the process of public participation as envisaged under the constitution.
The judges further said Parliament ought to put in place measures to ensure that all versions of a Bill, at every stage of the law-making process, are accessible to the public for their information and scrutiny.
“As a matter of good practice, Parliament should put in place reasonable measures for the consideration of proposals, views, suggestions, and comments received during a public participation exercise,” said the judges.
The apex court was told the quashing of the Act by the appellate court would also lead to adverse consequences as the benefits intended to be conferred to the public through revenue generated from taxes, will be lost.
The Supreme Court judges said it was important to note that a Finance Bill is required to implement the budget of the nation and sets out the revenue raising measures for the national government.
The judges further said Parliament ought to put in place measures to ensure that all versions of a Bill, at every stage of the law-making process, are accessible to the public for their information and scrutiny.
“As a matter of good practice, Parliament should put in place reasonable measures for the consideration of proposals, views, suggestions, and comments received during a public participation exercise,” said the judges.
The apex court was told the quashing of the Act by the appellate court would also lead to adverse consequences as the benefits intended to be conferred to the public through revenue generated from taxes, will be lost.
The Supreme Court judges said it was important to note that a Finance Bill is required to implement the budget of the nation and sets out the revenue raising measures for the national government.
