Kenya Supreme Court declares the Finance Act 2023 constitutional

Executive summary

The Kenya Supreme Court (the Court) has issued a landmark judgment in an appeal challenging the constitutionality of the Finance Act 2023 (the Act). Signed into law on 26 June 2023, the Act amended various pieces of tax and non-tax legislation.

The constitutionality of the Act was challenged, and the Court of Appeal declared it as unconstitutional. However, the Supreme Court next issued a conservatory order on the Court of Appeal decision, pending a hearing and determination of an appeal brought by the Government of Kenya. (For background, see EY Global Tax Alerts, Kenya Court of Appeal declares the Finance Act, 2023 unconstitutional one year later, dated 5 August 2024, and Kenya Supreme Court stays Court of Appeal's decision declaring the Finance Act, 2023 unconstitutional, dated 26 August 2024.)

The Court has now held that sufficient public participation had been conducted on the Act in accordance with constitutional requirements. The Court also relied on the decision of the High Court of Kenya, which established that when amendments are made as a direct response to feedback obtained during the public participation process there is no requirement for these amendments to be subjected to an additional round of public participation.

Detailed discussion

The Act amended various tax laws, including the Income Tax Act, Value Added Tax Act, Excise Duty Act and the Tax Procedures Act. It also introduced amendments to various non-tax acts such as the Kenya Roads Board Act, the Employment Act, 2007 and the Unclaimed Financial Assets Act.

The enactment process of the Act was challenged by various stakeholders who cited concerns regarding the sufficiency of public participation, the introduction of new provisions at the final stages of the approval of the Finance Bill 2023 and alleged noncompliance with certain statutory provisions.

The Court examined, among other issues, whether Parliament is required to provide detailed reasons for accepting or rejecting views after public participation. The Court held that although it is desirable for Parliament to provide such reasons, failure to do so does not necessarily invalidate the legislative process or the legislation passed. This was because there is no express constitutional obligation to provide reasons for accepting or rejecting public comments.

The Court emphasized that the legislative process is not administrative in nature and therefore does not fall under the purview of Article 47(2) of the Constitution, which requires written reasons for administrative actions.

The Court outlined the considerations it must take into account when declaring a statute unconstitutional. These include ensuring that the legislative process adhered to constitutional requirements, particularly regarding public participation and the inclusion of necessary procedural steps. The Court emphasized that any declaration of unconstitutionality must be based on clear evidence of procedural or substantive violations of the Constitution, ensuring that the legislative process is both transparent and accountable.

Conclusion

The Court's decision upholds tax changes that were introduced by the Finance Act 2023. Taxpayers should therefore continue complying with the provisions of the Finance Act 2023 in their daily operations.