What the lifting of ban on Finance Act 2023 means for your daily lived experience
by Antony Mutunga
Tax payers are wailing. In June, as Members of Parliament passed the Finance Act 2023 that would later be approved by President William Ruto on June 26, it was clear that a majority of Kenyans are in for a bad experience.
Through the law, the government hopes to raise its 3.6trillion budget, a move that will result in Kenyans digging deeper into their pockets because of new tax measures.
It was hoped that a lawsuit by Okiyah Omtatah,
senator of Busia, that saw the High Court of Kenya stop its implementation would see light of the day. After about a month in court, the Court of Appeal has lifted the ban that was suspending the implementation pending the appeal.
This move was after Prof Njuguna Ndung’u, Treasury Cabinet Secretary through Justin Muturi, Attorney General moved to the Court of Appeal arguing that the suspension was costing the government millions.
According to the Treasury Cabinet Secretary, the government loses half-a billion shillings daily and it stands to lose approximately Sh211 billion in the current financial year. He went on to add that the suspension will make it difficult for the current administration to implement its first budget as planned and some projects will have to be suspended, if the government is not allowed to raise revenue as proposed.
As a result, the bench of three judges; Justices Mohammed Warsame, Kathurima M’Inoti and Hellen Omondi made a ruling that the order prohibiting the implementation of the Finance Act 2023 is hereby lifted pending the hearing and determination of the appeal. The Judges said that the Finance Act has a life span of 90 days beyond which the next budgetary cycle is set in motion.
“We have no doubt in our mind that the Finance Act and the Appropriation Act are interdependent. While the former provides for generation of the funds, the latter provides for the expenditure. There can be no expenditure where the mode of generation of the funds has not been provided for,” the judges said.
Prior to moving to the Court of Appeal, the Treasury Cabinet Secretary had urged the High Court to lift the suspension on the argument that the government would be forced to borrow in order to bridge the gap and allow it operate. “As there are no saving provisions in the Finance Act, 2023, the repealed provisions of the Finance Act 2023 have the effect of affecting revenue collection leading to service disruptions for already
budgeted revenue,” said Prof Njuguna Ndung’u
In their ruling the three-sitting bench explained that since the petitions challenge both the entire Act and the specific provisions, the court can consider suspending the specific provisions whose implementation has an irreversible effect and cannot be refunded. They also added that tax is a continuous and annual mechanism and the members of the public can get a rebate for overpaid taxes and levies when making subsequent tax payments.
“This is in contradistinction with a blanket suspension of the Act. Thirdly, the Appropriation Act which was enacted on the backdrop of the Finance Act is in place and is not under constitutional challenge. Lastly, had the trial Judge considered the substantial and irreversible public interest in this matter, the court would have been hesitant to suspend the whole Act,” the judges said.
The decision comes after months of anti-government protests over the high cost of living and the increase in taxes through the Act. Following the decision by the court, various firms have already acted on the tax measures in the Act. For example, Safaricom has adjusted its M-Pesa, call, SMS, data and home fibre charges to align with the revised excise duty in the Finance Act 203. However, the case is far from over, as Senator Okiya Omtatah among other petitioners have moved to the Supreme Court to have the Finance Act 2023 declared unconstitutional.
The following are some of the immediate consequences to Kenyans after the Court of Appeal judgement.
The 1.5% Housing Levy is now applicable unless there is an appeal and stay order at the Supreme Court.
High-income earners of more than Sh500,000 a month will be charged tax at 32.5% for monies up to Sh800,000.
Those above Sh800,000 will be charged 35 per cent on the extra cash. Previously the maximum tax on salary was 30 per cent.
The court ruling also sets the energy and petroleum regulatory authority free to impose the VAT Charge of 16% on fuel.
Despite the previous stoppage, EPRA had already imposed the levy meaning a litre of petrol will continue retailing at Sh194 in Nairobi until the next review mid-next month.
The turnover tax now moves to 3% from the previous 1%. This will be charged to all businesses earning between Sh1 million and Sh25 million per year. The previous upper limit was Sh50 million.
Digital content creators will also be charged a withholding tax of 5%.
The government had planned to collect Sh311 billion through the Finance Act of 2023 which introduced new taxes and higher levies for existing ones.
Some of that may have been missed in the 27 days before the lifting of the conservatory orders. Employees who had already been paid their July salaries they may be required to pay back the housing levy and any extra taxes in subsequent months.
Employers are required to remit tax deductions on the 9th of the subsequent month.