Kenya's 2023 finance law ruled unconstitutional

Kenya's Court of Appeal has delivered a significant blow to the government by ruling the Finance Act 2023 and the 1.5 per cent Housing Levy as unconstitutional. The court cited violations of budget-making laws and procedural flaws as the basis for its decision, leaving the country in a state of uncertainty. The Finance Act 2023 included contentious provisions such as increasing the value-added tax on fuel, raising excise duties on money-transfer services, implementing a tax on digital assets, and increasing the top salary tax band. The ruling has raised questions about the government's next steps and its ability to meet budgetary needs. Declan Galvin, Managing Director of Exigent Risk Advisory, discussed the potential legal repercussions, compliance challenges, public trust implications, and alternative revenue collection methods with CNBC Africa. The court ruling has left Kenya's financial landscape in flux, with stakeholders eagerly awaiting clarity on the path forward. The court's decision to declare the Finance Act 2023 and the 1.5 per cent Housing Levy unconstitutional has thrown the government into disarray. The Act, which contained several controversial revenue-raising measures, was deemed to have violated budget-making laws and procedural processes. The ruling has created uncertainty regarding the government's revenue collection framework and its ability to meet financial obligations. Declan Galvin, in a recent interview with CNBC Africa, highlighted the possible scenarios that could unfold in response to the court ruling. Galvin suggested that the government is likely to appeal the decision and escalate the matter to the Supreme Court. By pursuing legal avenues, the government aims to continue revenue collection under existing frameworks. Alternatively, there is a possibility that the government may expedite the passage of a new finance bill to reintroduce the removed provisions in a revised legislative framework. The contentious issue of the 1.5 per cent Housing Levy, despite being declared unconstitutional, continues to be collected by the government through separate legislation. The decision to persist with the levy could face further legal challenges and erode public trust in the government. Galvin emphasized the significance of the housing levy as a revenue source for the government, compelling it to seek legal opinions to justify its continued collection. However, the levy has been met with widespread skepticism and could become a focal point for public dissatisfaction, potentially leading to demonstrations. The ruling has prompted questions about alternative revenue collection methods for the government to meet its budgetary needs. Galvin noted that the government's ability to manage development projects, fiscal policies, debt servicing, and investments is now in jeopardy. With the appeal court's decision exacerbating the government's financial challenges, stakeholders are keenly observing how the government will navigate this crisis. President's austerity measures may offer some relief, but the fundamental issue of revenue collection remains unresolved, leaving Kenya's financial future uncertain. In conclusion, the court ruling on Kenya's Finance Act 2023 has disrupted the country's financial stability and raised concerns about the government's ability to meet its fiscal obligations. The legal repercussions, compliance challenges, public trust implications, and alternative revenue collection methods post-ruling remain central to Kenya's economic outlook. As the government grapples with the fallout of the court decision, stakeholders await decisive actions to address the financial uncertainties looming over the nation.