Background:

This appeal revolves around the Finance Act, 2023, which was challenged on various constitutional grounds. The litigation commenced when multiple constitutional petitions were filed contesting the legislative process and specific provisions of the Act.

Key Points:

Publication and Legislative Process:

The Finance Bill, 2023 was published on April 28, 2023, and passed through the legislative process in the National Assembly, culminating in its passage on June 23, 2023, and receiving presidential assent on June 26, 2023.

The Act amended 12 legislations, including the Income Tax Act, VAT Act, Excise Duty Act, and others.

Constitutional Petitions:

A total of 11 constitutional petitions were filed, which were consolidated into Petition No. E181 of 2023, led by Okiya Omtatah and others.

The petitions primarily challenged the constitutionality of the Act and the legislative process.

High Court Judgment:

The High Court declared sections 76, 77, 78, 84, 87, 88, and 89 of the Act unconstitutional.

However, it upheld the constitutionality of sections 30 to 38 and 47 of the Act.

Appeal:

The National Assembly and the Speaker of the National Assembly appealed against the High Court’s decision.

The appeal raised issues regarding the classification of the Act as a money Bill, the application of the pith and substance test, the constitutionality of the Affordable Housing Levy, and the procedural requirements for introducing Bills in Parliament.

The Doctrine of Mootness:

• Definition and Application of Mootness:

The Court noted that a case is considered moot when it ceases to present a justiciable controversy due to supervening events, making any adjudication of the case or declaration on the issue of no practical value or use.

Courts generally decline jurisdiction over moot cases unless a compelling constitutional issue requires the formulation of controlling principles to guide the bench, the bar, and the public, or when the case is capable of repetition yet evading judicial review.

• Application to the Current Case:

The appeals were argued to be moot due to the enactment of the Affordable Housing Act, 2024, which received presidential assent and commenced, thus addressing the issues raised in the appeal. Additionally, the Statutory Instruments (Amendment) Bill, 2024, was introduced, further rendering the appeals moot regarding certain sections of the Act .

The Court determined that the issues related to sections 84, 88, and 89 of the Act had become moot due to the subsequent legislative developments, specifically the enactment of the Affordable Housing Act and the introduction of the Statutory Instruments (Amendment) Bill.

• Exceptions to Mootness:

The Court acknowledged that there are instances where exceptions to the doctrine of mootness might apply, particularly when the matter, though technically moot, raises issues of significant importance to the operation of government or involves a legal point that requires resolution without delving into the merits or factual matrix.

However, in this case, the Court found no compelling reason to exercise discretion to hear the matter despite its mootness, as it was not demonstrated that any order the Court might make would have a practical effect on the parties or others.

Court of Appeal Findings:

The Court of Appeal reviewed the arguments and the High Court’s findings, focusing on whether the impugned provisions were unconstitutional and whether the legislative process complied with constitutional requirements.

The Court made several key findings:

1. Declaration of Unconstitutionality: The Finance Act, 2023, was found to have violated Articles 220(1)(a) and 221 of the Constitution, along with sections 37, 39A, and 40 of the PFMA. This rendered the Act fundamentally flawed, void ab initio, and therefore unconstitutional.
2. Public Participation Requirements: The Court declared that Parliament must provide reasons for adopting or rejecting proposals received from the public during the participation process. Failure to comply with this requirement rendered the entire Finance Act, 2023, unconstitutional.
3. Unconstitutionality of Specific Sections: Sections 76 and 78 of the Finance Act, 2023, which amended section 7 of the Kenya Roads Act, 1999, were upheld as unconstitutional, null, and void.
4. Concurrence of Both Houses: The Court upheld the High Court’s finding that concurrence of both houses in the enactment of the Finance Act, 2023, was not required under Article 114.
5. Fundamental Flaws in Enactment Process: Sections 30 to 38, 52 to 63, and 23 to 59 of the Finance Act, 2023, were vitiated and deemed unconstitutional due to the flawed enactment process which violated the Constitution.
6. Interest to the Public: The Court noted that the issues raised in the consolidated appeals were of great public interest, transcending the interests of the parties involved, and therefore made no order as to costs.

Key Tax Mechanisms Declared Unconstitutional:

• VAT on Fuel:

The VAT rate on fuel was doubled from 8% to 16%, leading to a substantial rise in fuel prices nationwide. The Court has now ruled this increase unconstitutional, reverting the VAT on fuel back to 8%.

• Electronic Tax Invoice Management System (E-TiMS):

The Finance Act 2023 mandated businesses to use the E-TiMS for VAT management. This requirement has been declared unconstitutional.

• PAYE Tax Bands:

New tax bands for PAYE were introduced, taxing individuals earning between Sh500,000 and Sh800,000 per month at 32.5% and those earning over Sh800,000 per month at 35%. These changes have now been invalidated.

• SME Tax Rate:

Small and medium-sized enterprises (SMEs) earning between Kshs. 1 million and Kshs. 25 million were to be taxed at a rate of 3% on their sales revenue. This provision has been declared unconstitutional.

• Excise Duty for Alcohol Manufacturers:

The requirement for alcohol beverage manufacturers to remit excise duty collections within 24 hours has been ruled unconstitutional.

• Affordable Housing Levy:

The Affordable Housing Levy remains constitutional as it is now supported by the Affordable Housing Act, 2024.

Conclusion

This Judgment underscores the importance of adherence to constitutional principles in legislative processes and provides critical guidance on the application of public participation and legislative concurrence.

In light of potential appeals to the Supreme Court and considering the public outcry against the Finance Bill of 2024, the Court of Appeal’s decision effectively reinstates the provisions of the Finance Act of 2022.