When the Court of Appeal declared the Finance Act 2023 unconstitutional, it ignited a wave of jubilation across the nation. Citizens, long burdened by escalating taxes, celebrated a rare victory against government overreach. Yet, this judicial triumph is not without its complications.....CLICK HERE TO READ THE FULL ARTICLE>>>
As the dust settles, the real test lies in how President William Ruto’s administration will grapple with the fallout from the court’s verdict, which has left a Ksh510 billion chasm in the national budget for the current fiscal year.
The Kenya Kwanza administration, far from accepting the ruling with grace, has launched a counter-offensive. On Thursday, the National Treasury filed a notice of appeal with the Supreme Court, challenging the Court of Appeal’s decision.
The Treasury argues that overturning the Finance Act 2023 threatens to slash Ksh164 billion from its anticipated revenue—a critical blow to an already strained fiscal framework.
The stakes are extraordinarily high. The Finance Act 2023 has been instrumental in reshaping Kenya’s tax landscape. It imposed a series of tax hikes, including doubling VAT on fuel from eight to 16 per cent and introducing new income tax bands for high earners.
These measures were designed to boost government revenue amid a backdrop of economic challenges, including a depreciating shilling and rising bank lending rates.
With the Act now voided, the government faces not only the loss of this revenue but also the logistical nightmare of reverting to previous tax laws, which could further complicate revenue collection and fiscal planning.
The National Treasury’s appeal highlights several key concerns.
Firstly, it argues that the Court of Appeal’s judgement presents a near-insurmountable challenge to effective government operation. The Treasury’s contention is that the ruling undermines the financial stability of the country by eroding Ksh164 billion worth of revenue already integrated into the 2024/25 budget. The implications of such a significant shortfall are profound, potentially leading to a cascade of budget cuts and increased borrowing.
Additionally, the Treasury contends that the court’s decision precipitates a constitutional crisis. By invalidating the Finance Act 2023, the court has ostensibly created a scenario where the government must rely on outdated legislation, thus obstructing its ability to lawfully collect and allocate funds.
This, according to the Treasury, could trigger a series of legal and administrative challenges, including potential government shutdowns if stay orders are not secured.
The Treasury also argues that the court’s ruling disregards overriding public interest. It asserts that maintaining government stability and preventing disruption are paramount, especially for citizens dependent on public services.
The potential for widespread legal challenges and operational paralysis threatens to undermine the very stability that the Finance Act 2023 was designed to protect.
As the government grapples with these challenges, the implications for ordinary Kenyans are significant. The reversal of the Finance Act 2023 means the reintroduction of higher taxes on essentials like mobile data, airtime, and rentals.
The rollback also affects the VAT on cooking gas and essential goods, which could impact household budgets.
On the other hand, certain taxes, such as the Housing Levy, remain intact, having been insulated from the broader legal challenges.
The financial strain on the government is compounded by the loss of Ksh346 billion in new tax revenue anticipated from the now-defunct Finance Bill 2024.
This bill, which sought to reverse some of the 2023 cuts, has been scrapped due to public outcry. As a result, the Treasury has been forced to propose expenditure cuts and increase borrowing targets in a supplementary budget currently under parliamentary scrutiny.
The National Assembly’s Majority Leader, Kimani Ichung’wah, has indicated that further budget cuts may be imminent, given the government’s diminished capacity to generate revenue....CONTINUE READING>>
