Finance Act, 2023 is unconstitutional, Court of Appeal rules

The Court of Appeal has ruled that the Finance Act, 2023 is unconstitutional, citing fundamental flaws in its enactment process.

In a judgment delivered on Wednesday by a three-judge bench led by Judge Kathurima M'Inoti, alongside Judges Agnes Kalekye Murgo and John Mativo, the court found that the enactment of the Finance Act, 2023 breached several constitutional provisions.

Specifically, the process violated Articles 220(1)(a) and 221 of the Constitution, as well as sections 37, 39A, and 40 of the Public Finance Management Act (PFMA), which outlines the budget-making process.

As a result, the judges ruled that failing to comply with these constitutional and statutory requirements rendered the entire Act unconstitutional and void from the outset.

“We uphold the finding by the High Court that concurrence of both houses in the enactment of the Finance Act, 2023 was not a requirement under Article 114. Having found that the process leading to the enactment of the Finance Act, 2023 was fundamentally flawed and in violation of the Constitution, sections 30 to 38, 52 to 63 and 23 to 59 of the Finance Act, 2023 stand equally vitiated and therefore unconstitutional,” read the judgement.

The judges noted that the issues addressed in the appeals were of significant public interest and thus did not award costs.

However, the court rejected a request for a refund of taxes collected under the Act, on the grounds that it was not included in the original petition before the High Court and that legislative acts are presumed constitutional until proven otherwise.

“The prayer seeking the refund of taxes collected be accounted for and refunded to the taxpayers is refused on grounds that: (a) it was not pleaded in the Petition before the High Court, therefore it is improperly before this Court; and (b), legislative enactments enjoy a presumption of constitutionality up to the moment they are found to be unconstitutional in terms of Article 165 (3) of the Constitution,” read the judgement.

The case was brought by several appellants, including Okiya Omtatah and various civil society organisations.

The Law Society of Kenya, one of the appellants, argued that the Act was passed without proper adherence to constitutional principles, particularly concerning public participation and legislative procedures.

“A declaration be and is hereby issued that various sections of the Finance Act No. 4 2023, introduced post-public participation to amend the Income-tax Act, Value Added Tax Act, Excise Duty Act and Miscellaneous Fees and Levies Act, Kenya Revenue Authority Act, Retirement Benefits Act, Alcoholic Drinks Control Act of 2010, Special Economic Zones Act and Export Processing Zones Act are unconstitutional, null and void, for not having been subjected to fresh public participation and having been enacted in total violation of the constitutionally laid down legislative path,” read the judgement.

The court emphasised that Parliament must provide reasons for adopting or rejecting proposals from the public during the legislative process.

“Parliament is obligated to provide reasons for adopting or rejecting any proposals received from members of the public during the public participation process; (b) a further declaration is hereby issued that the failure to comply with this constitutional dictate renders the entire Finance Act, 2023 unconstitutional,” the Court declared.

Further, 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 judges also dismissed appeals challenging specific parts of the Act, including the Affordable Housing Levy and Statutory Instruments Act sections, stating these issues no longer have any real impact.

“The appellants' appeals in Civil Appeal Nos. E003 of 2024 and E080 of 2024 against the findings that section 84 (the Affordable Housing Levy) and sections 88 and 89 (the Statutory Instruments Act) are unconstitutional are hereby dismissed on grounds that the said issues have been caught up by the doctrine of mootness, therefore, they present no live controversies,” read the judgement.