New crisis erupts as Ruto faces legal battle over budget

A major government crisis is looming after a new case was filed on Monday challenging the law assented to by President William Ruto, which paved the way for the government to draw money from the Treasury.

As President Ruto signed the Appropriation Act 2024, Katiba Institute and the Institute for Social Accountability filed their cases before High Court Judge Lawrence Mugambi, signalling a new battle over the budget-making process.

The two rights groups argued that Kenya Kwanza government had nothing to anchor the Appropriation Act on as the Finance Act 2024 had been withdrawn.

In addition, the court heard that the government could not rely on the Finance Act 2023 as the Court of Appeal declared it unconstitutional, and the Supreme Court has declined to suspend the orders.

They argued that the president’s refusal to sign the Finance Act 2024 created a Sh376 billion budget gap, which government cannot spend.

They argued that the government could not spend without a corresponding revenue-generation mechanism. According to them, the only way to salvage the situation was to temporarily approve spending to allow time to enact a new law.

They also faulted Parliament for approving a supplementary budget without public participation and following the law.

“President hurriedly assented to the Appropriation Bill 2024, which was unsupported by corresponding revenue, contrary to Article 222, which requires Parliament to temporarily approve spending to allow time to enact a constitutionally compliant Appropriation Act.

“It is over a month into the 2024/25 financial year, yet the country does not have an approved, constitutionally compliant budget and Appropriations Act. Every day of government spending is, therefore, a day of unconstitutional spending,” court papers filed yesterday read.

Last week, Justices Kathurima M’inoti, Agnes Murgor, and John Mativo decreed that the National Assembly violated the law while passing the Finance Act 2023.

What remained now was returning the Ruto administration to President Uhuru Kenyatta’s government’s 2022 tax books so that it could continue pursuing its agenda.

“The enactment of the Finance Act, 2023, violated Articles 220 (1) (a) and 221 of the Constitution as read with sections 37, 39A, and 40 of the Public Finance Management Act, which prescribes the budget-making process, thereby rendering the ensuing Finance Act, 2023 fundamentally flawed and therefore void ab initio and consequently unconstitutional,” the court ruled.

The first hit was the fuel levy, which was increased from eight to 16 per cent. Other hits are the Road Maintenance Levy and electronics taxes.

The appeal was a poisoned chalice for the National Assembly and Speaker Moses Wetang’ula, who challenged the High Court’s verdict on, among others, the Housing Levy. A total of six appeals were filed, with Senator Okiya Omtatah seeking declarations that the Act is unconstitutional.

Justices M’inoti, Murgor, and Mativo also found that 27 sections of the same Act introduced after public participation were unconstitutional and violated the House’s standing orders.

The sections were introduced in the Income Tax Act, Value Added Tax Act, Excise Duty Act, 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.

They were of the view that Parliament should give reasons in writing why it is rejecting proposals from Kenyans as a way of promoting transparency. They said it would be in vain to ask for comments then walk away as if nothing had happened.

Nevertheless, Solicitor General Shadrack Mose moved to the Supreme Court seeking to suspend the Court of Appeal’s judgment. Mose argued that there was a danger of the government grinding to a halt.

However, the Supreme Court declined to intervene. Instead, it directed the applicants led by the Attorney General, Treasury, and Kenya Revenue Authority (KRA) to serve Busia Senator Okiya Omtatah and other respondents with their application by close of business on Monday.

Omtatah, Law Society of Kenya (LSK), and other respondents were granted five days to file their written submissions and responses.

In its appeal, the government argued that due to system and software requirements, it is not logistically or practically feasible to immediately reconfigure State agencies and departments to revert to the Finance Act 2022.

Treasury Principal Secretary Chris Kiptoo, in his supporting affidavit, said implementing the 2022 tax regime requires significant updates to platforms and revenue collection systems, as well as detailed engagements with software providers, all of which necessitate time and resources.

The PS further said in the appeal that the Finance Act 2023’s invalidity creates uncertainty in revenue collection and disrupts the government’s ability to function efficiently.

Additionally, Kiptoo argued that the Court of Appeal erred by overturning its precedents, undermining judicial consistency.

The Treasury PS warned that the government risks a shutdown if the stay is not granted due to the lack of a legal revenue collection framework.