Reverse ruling on Finance Act 2023: AG, Treasury urge Supreme Court

The government has pleaded with the Supreme Court to overturn a recent ruling that declared the Finance Act 2023 unconstitutional.

Attorney General and Treasury Cabinet Secretary said the Appeal Court decision will cause fiscal instability in the country.

In their joint request made yesterday before a full bench of the apex court led by Chief Justice Martha Koome, the appellants highlighted the dire consequences of invalidating the Finance Act.

Githu Muigai, representing the AG and the CS Treasury during the hearing of appeals on Finance Act 2023, told the judges that the Act is crucial for the country’s economic stability and that its invalidation could precipitate a fiscal crisis.

“Your Honors, the Finance Act 2023 is not merely a set of legislative changes. It is a critical component of our national economic framework. Invalidating this Act could precipitate a fiscal crisis of unprecedented magnitude, jeopardizing our entire financial system,” he said.

• .

  Keep Reading

• 
  Mbadi at pains to explain why counties will get Sh20b less
• 
  Mbadi at pains to explain why counties will get Sh20b less
• 
  Finance Act 2023 was illegally enacted, Azimio and 40 groups tell court
• 
  IMF acid test for Mbadi's plan to cut taxes in the next budget

Muigai warned that without the provisions in the Act, the country's ability to manage its budget and meet its national debt obligations would be severely compromised.

This, in turn, could lead to a national debt default, impacting not just government operations but also the livelihoods of ordinary Kenyans.

“The Finance Act affects our borrowing capacity as a nation. If it were invalidated, our ability to manage national debt and secure necessary funds would be severely compromised. This is not a hypothetical scenario; it is a real risk that could destabilize our economy,” Muigai told the seven judges.

He emphasized the breadth of the potential fallout: “Consider ‘mama mboga,’ the vegetable vendor who relies on economic stability to sell her goods. Consider businesses that depend on predictable fiscal policies. The reach of this Act extends far beyond boardrooms and finances. It touches every citizen’s daily life.”

Criticising those who focused solely on the academic aspects of the case, Muigai argued that such an approach missed the broader, more practical impacts of the ruling.

“While legal and theoretical discussions are important, they must not overshadow the tangible, far-reaching effects of a decision against the act. The real-world consequences are profound and pervasive,” Muigai said.

AG and Treasury CS also argued that the Court of Appeal's ruling not only disrupts the implementation of key policies but also sets a concerning precedent for the separation of powers between the judiciary and the legislature.

Another key argument presented by Githu was the issue of the Affordable Housing Levy, which the Court of Appeal had deemed moot.

Muigai contended that the Court of Appeal’s decision to avoid addressing the constitutional issues related to the levy was a significant oversight.

He said the appellant court avoided addressing critical constitutional questions related to this levy and urged the Supreme Court to provide a definitive ruling on these legal issues.

"Court of appeal in declaring the issue moot avoided the Constitutional issues that had been raised in regard to the same. This court should therefore make a decision on the legal issues that had been raised with finality," Muigai said.

In addition to Muigai’s arguments, lawyer Ray Odanga provided further insights into the case.

Odanga contended that the Court of Appeal erred in its conclusion that the Finance Act did not require the concurrence of the speakers of both houses of Parliament.

He argued that certain sections of the Act, such as those related to housing and liquor licensing, pertain to county functions and therefore should have involved the Senate.

Odanga’s argument centers on the constitutional requirement for the concurrence of both houses of Parliament on bills touching on county functions.

He posited that the Finance Act included provisions affecting counties, and as such, the Senate’s involvement was necessary.

According to Odanga, the Court of Appeal’s failure to recognize this requirement undermines the legislative process and the constitutional framework governing bills with implications for county governments.

Mahat Somane also part of the AG and Treasury CS legal team argued that while courts can review the legality of government policies, their role should be limited and not involve substituting their preferred policies for those enacted by elected officials.

He emphasized that judicial review should not extend to dictating policy preferences.

"Indeed we accede that the Courts can test the Legality of Policy decisions by Government but the same is circumscribed and very limited. No matter how much a court disagrees with a policy it should not substitute it with "its preferred policy", Mahat stated.

Kimani Kiragu addressed the issue of public participation, arguing that the requirement to give written reasons for rejecting public comments is an unnecessary hurdle.

"A good number of citizens are illiterate and may give their comments orally and the dichotomy of treatment is irrelevant and has no support in any statutory document," Kiragu told the supreme court judges.

He pointed out that many citizens provide oral feedback and that the current framework inadequately addresses this reality.

Kiragu argued that the Finance Act, being complex and time-bound, should not be subjected to the same public participation standards as other legislation.

"There is no need to re-subject new proposals or amendments brought to a bill at the Committee Stage to Public Participation as determined by the Court of Appeal because the MPs are the indirect representatives of the people," Kiragu said.

He proposed four broad principles for assessing public participation: the nature of the legislation, the timeframe for passing it, the need for holistic constitutional interpretation, and the binding nature of Supreme Court decisions.

Kiragu added that the requirement for giving written reasons on memoranda submitted has no Constitutional basis.

"Democratically elected officials rank higher than "The People" when it came to the Finance Act and courts attempted to change that hierarchy," he said.

Issa Mansur, representing the National Assembly, defended the jurisdiction of the supreme courts to hear the appeal over the Finance Act.

"On whether the court has jurisdiction to hear and determine Appeals Nos. E032 and E033 of 2024? Yes it does," Mansur stated.

On the issue of concurrence, Mansur noted that the Finance Act is a money bill and under Article 114 of the constitution, which does not fall under the Senate's mandate.

He argued against applying public participation requirements to amendments, citing the Standing Orders of the National Assembly, which govern the handling of such amendments.

Mansur also contested the need for written reasons during public participation, arguing that the committee considered all submitted memoranda and that the requirement was impractical.

"On the need for written reasons during Public Participation, the committee considered all the submitted memoranda. The court of appeal did not identify the manner in which the National Assembly failed to meet the required standard," Mansur stated.

Gaya Ochieng, representing the Kenya Revenue Authority (KRA), agreed that the court has jurisdiction but supported the argument that the amendments to the Finance Act resulted from public participation forums rather than being introduced on the floor of Parliament.

"The amendments did not emanate from the floor of Parliament but from public participation forums. National Assembly just adopted," Ochieng told the judges.

The respondents on the other hand, led by Senator Okiya Omtatah and activist Eliud Matindi, asked the Supreme Court to dismiss the government’s appeals on the contested Finance Act as they are not merited.

Omtatah, a prominent advocate of constitutional adherence and public accountability, argued that the Finance Act’s provisions were flawed in their approach to taxation and public participation.

"The power to tax is granted by the people, and any budgetary process must reflect this principle," Omtatah asserted.

He emphasized that the government must provide a clear justification for raising funds, specifying what each amount will be used for and how it will be allocated.

The senator highlighted a critical issue with how public participation was handled.

He pointed out that those affected by the amendments to the Finance Act were not given the same opportunity for public input as those impacted by the unamended clauses.

"If this approach continues, we violate the principle of equality," Omtatah warned, stressing that every segment of the affected population must be given an equal chance to contribute to the decision-making process.

Omtatah’s arguments also addressed procedural deficiencies in the legislative process.

He noted that Parliament’s rejection of public suggestions should be accompanied by a clear explanation, as required by Article 73 of the Constitution.

"This transparency helps ensure that legislative decisions are not unduly influenced by external factors and are made with public interests in mind," he stated.

Further complicating matters, Omtatah raised concerns about the legality of the taxes imposed by the Finance Act.

"Taxes can only be collected under a valid law," he explained. "If a law is declared invalid, the funds collected under it cannot be retained."

On his side Matindi criticized the appellants for failing to adhere to established rules, suggesting that the Supreme Court should strike out the petitions due to non-compliance.

He also addressed the mootness of the Housing Levy issue, noting that the Affordable Housing Act had repealed the relevant section of the Finance Act 2023, rendering the dispute moot.

On the matter of amendments and public participation, Matindi pointed out discrepancies between the published bill subjected to public scrutiny and the final version of the Act that was signed into law.

He argued that wholly new clauses introduced after public participation had been completed could not stand, as they were not subject to the same level of scrutiny and input.

The case stems from a decision of the Court of Appeal that recently invalidated the Finance Act, citing concerns related to violated constitutional principles, including public participation and transparency in the legislative process.

This decision sparked a swift reaction from the government, which believes that the Act's benefits outweigh the legal concerns cited by the lower court.

Court of Appeal judges Kathurima M'inoti, Agnes Murgor and John Mativo declared the law unconstitutional.

The judges found various sections introduced post-public participation to amend the Income Tax Act, Value Added Tax Act, Excise Duty Act, Retirement Benefits Act and Export Processing Zones Act were unconstitutional as they were not subjected to fresh public participation.

The declaration threatened to deny the National Treasury more revenue, barely months after the government lost a provisional Sh346 billion after month-long countrywide protests led to the rejection of the Finance Bill 2024 in July.

The National Treasury and the AG then moved to the Supreme Court where the judges suspended the Court of Appeal decision pending the determination of the appeal.

The hearing will resume this morning where the other 47 respondents opposing the appeal led by Victor Okuna are to make their arguments