Court of Appeal Declares Finance Act 2023 Unconstitutional

In a hurry? Here’s a quick summary…

• The Court of Appeal in Nairobi declared the Finance Act, 2023, unconstitutional due to flawed enactment and lack of public participation.
• This ruling creates uncertainty in tax amendments and complicates the fiscal landscape following the withdrawal of the Finance Bill 2024.

In a landmark ruling, the Court of Appeal in Nairobi has declared the Finance Act, 2023, unconstitutional. 

The decision, delivered on July 31, 2024, by Justices M’Inoti, Murgor, and Mativo, was detailed in a 120-page document. 

The court concluded that the enactment process of the Finance Act, 2023, was fundamentally flawed and violated several constitutional provisions.

The court found that the Finance Act, 2023, contravened Articles 220(1)(a) and 221 of the Kenyan Constitution, as well as sections 37, 39A, and 40 of the Public Finance Management Act (PFMA), which outline the budget-making process. 

One of the critical points of contention was the lack of adequate public participation in the legislative process. 

The court emphasised that Parliament is obligated to provide reasons for adopting or rejecting proposals received from the public during the public participation process. 

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The ruling stated, “a declaration is hereby issued that the failure to comply with this constitutional dictate renders the entire Finance Act, 2023, unconstitutional.”

Furthermore, the court upheld the High Court’s finding that specific sections of the Finance Act, 2023—particularly those amending the Kenya Roads Act, 1999—were unconstitutional, null, and void. 

This decision affirms that both houses of Parliament must concur in such legislative actions, which was not observed in this case.

The case was brought before the court by multiple appellants, including Okiya Omtatah Okoiti and several civil society organisations. 

The appellants argued that the Act had been passed without proper adherence to constitutional principles, particularly regarding public participation and legislative procedure. 

This ruling places the various tax amendments introduced by the Finance Act, 2023, in a state of uncertainty. These amendments, which were intended to adjust tax rates and introduce new levies, now hang in the balance as the legal validity of the Act itself has been nullified.

Further complicating the situation is the context in which this ruling was delivered. In June, President William Ruto announced the withdrawal of the Finance Bill 2024, which was supposed to introduce new fiscal measures. 

As a result, the country reverted to the Finance Act, 2023. However, with this Act now declared unconstitutional, there is a lack of clarity on the legal framework governing taxation and public finance in the interim. 

The ruling raises questions about the government’s next steps to address this legal and fiscal conundrum.