Court of Appeal Declares Finance Act, 2023 Unconstitutional

The Finance Bill, 2023 was published on 23 April 2023 and underwent readings in the National Assembly, followed by public participation and a committee report. It was passed with amendments on 23 June 2023 and assented into law on 26 June 2023, with various provisions coming into effect on different dates from 1 July 2023.

The effect of the Finance Act was to amend 12 laws of Parliament, including the Income Tax Act, Value Added Tax Act and the Excise Duty Act. Following its enactment, 11 Constitutional petitions were filed in the High Court, challenging the Finance Act’s legislative process and constitutionality. These petitions were consolidated on 7 August 2023 into one Petition (Petition No. E181 of 2023, Okiya Omtata and Others Vs the Cabinet Secretary for the National Treasury and Planning and Other) and were heard and decided together (the High Court Petitions).

On 28 November 2023, a three-Judge bench of the High Court issued a Judgement declaring some sections of the Finance Act unconstitutional and at the same time declared some sections of the Finance Act constitutional.

The High Court in making its determination held that:

1. the Finance Act qualified as a money bill under Article 114 of the Constitution and held that amendments that were extraneous to a money bill were unconstitutional;
2. the estimates of revenue and expenditure included in the budget process were appropriately included as part of the Appropriation Bill 2023 and the Appropriation Act 2023 both published in June.
3. although there had been a failure of the National Assembly’s Speaker to seek concurrence from the Senate Speaker before introducing the Bill, the failure did not invalidate the resultant Finance Act given that agreement/concurrence on the nature of the Bill was not required under the Constitution of Kenya 2010 (the Constitution);
4. sufficient public participation on the Bill had been conducted, and while there was no express obligation for Parliament to provide written reasons for adopting or rejecting public proposals coming out of the public participation process, doing so would have enhanced accountability and transparency; and
5. the Housing Levy introduced through the Finance Act as an amendment of the Employment Act lacked a comprehensive legal framework and was discriminatory, violating multiple constitutional provisions.

It is this judgment of the High Court that was the subject of the appeal at the COA for which the COA has rendered its judgment. At the time of publication of this alert, we understand that the National Treasury and the Attorney General’s office are seeking stay orders pending hearing and determination of the appeal to the Supreme Court. If these orders are granted, it may be the case that the Finance Act will continue applying until the matter is determined. We will keep you, our clients, updated on this issue in the coming days.

Notably, the COA has ultimately held that the entire Finance Act is unconstitutional due to the failure by Parliament to provide reasons for adopting or rejecting proposals received from members of the public during the public participation process.

The COA addressed various issues in rendering its judgment. In this legal alert, we have set out a highlight of the salient issues considered by the COA in rendering the Judgment.

Click here to download and read the full alert.

Should you have any questions regarding the information in this legal alert, please do not hesitate to contact,  Daniel Ngumy or Kenneth Njuguna.

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Contributors
1. Priscilla Githinji – Principal Associate
2. Salma Khamala – Principal Associate
3. John Kiragu – Associate
4. Abdulrahman Faiz – Trainee Lawyer