By THEDISPATCH.DIGITAL TEAM, NAIROBI
The Supreme Court on Friday August 2, dealt the government of President William Ruto a significant blow when it rejected its plea to suspend the nullification of the Finance Act 2023 by the Coaurt of Appeal. This decision exacerbates Kenya’s economic instability, deepening fiscal uncertainty following recent legislative upheavals.
The Court’s refusal means the Finance Act 2023, remains void as previously declared unconstitutional by the Court of Appeal. This ruling comes at a challenging time for Kenya, already contending with the withdrawal of the Finance Bill 2024.
With the Finance Act 2023 invalidated and no clear alternative revenue plan, the government faces the daunting task of managing finances amidst a Ksh510 billion gap in the national budget for the current fiscal year. The Supreme Court certified the matter as urgent, scheduling it for hearing during the August court recess. The court’s ruling mandates that the Treasury and other relevant parties submit their motions and responses within a tight timeframe, adding further pressure.
The National Treasury had sought a stay to prevent the immediate implementation of the Court of Appeal’s decision, hoping to buy time to adjust its fiscal strategies. The Finance Act 2023 introduced contentious tax hikes, including a significant increase in VAT on fuel and new income tax bands, seen as crucial for revenue-raising efforts. Its invalidation has left a substantial gap in the fiscal framework, exacerbating Kenya’s delicate economic situation.
The ruling has ignited nationwide debate. For many Kenyans, the Court of Appeal’s decision was a rare victory against perceived government overreach. Citizens burdened by increasing taxes celebrated the judgement as a win for ordinary taxpayers. However, this judicial triumph is tempered by the practical implications, leaving the government scrambling for solutions.
The Treasury argues that the Finance Act 2023 was critical to achieving revenue targets, and its nullification would result in a loss of approximately Ksh164 billion, significantly impacting the government’s ability to fund essential services and infrastructure projects.
The stakes are high. The Finance Act 2023 aimed to address mounting fiscal pressures through increased taxation, including a doubling of VAT on fuel from 8 percent to 16 percent and new income tax bands for high earners. These measures were intended to boost revenues, but their unpopularity, coupled with court rulings, has disrupted financial plans.
As the country awaits the Supreme Court’s final ruling on the appeal, the government must navigate a complex fiscal landscape. Experts suggest that, without the Finance Act 2023, the administration may revert to the Finance Bill of 2022, but this would not fully address the revenue shortfall and could face significant challenges given the evolving economic context and the need for legislative adjustments.
This situation highlights the delicate 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 deeply intertwined with the country’s economic health and public trust in its institutions.
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