LSK challenges Finance Act 2023, asks court to stop collection of new taxes
Law Society of Kenya President Eric Theuri in Nairobi on July 18, 2023. LSK has gone to court to challenge Finance Act 2023.
The Law Society of Kenya has gone to court to challenge Finance Act 2023, arguing that it violates sections of the Constitution and should be declared illegal and null.
This follows government orders for its implementation, following a Court of Appeal last week ruling that set aside a High Court order suspending the law.
Under a certificate of urgency, LSK urged the Constitutional and Human Rights Court to stop government agencies and representatives, including the KRA from collecting new taxes.
The petition names the National Assembly, Kenya Revenue Authority (KRA) and the Attorney General as the first, second and third respondents in the suit.
“The process of enactment of the impugned legislation [Finance Act 2023] was fraught with blatant procedural and substantive illegalities. The respondents intentionally made a mockery of the process of public participation which led to the enactment of an unfair, unsustainable and illicit legislation,” it says.
“Taxation by a state is necessary for the life of a nation because it sustains the public welfare and public good. Nevertheless, the power to tax is very delicate, vulnerable to abuse by those in authority; therefore, the Constitution imputes safeguards to protect against such abuse.”
It also argues that the Finance Act 2023 will "overburden" citizens in an already “harsh economy”. At the same time, employers and employees will bear a heavy burden due to the law and this could lead to “lower the rate of employment in a country which is already grappling with low rates of employment.”
The petitioner further argues that the housing levy is discriminatory and illegal, and its implementation will increase the burden on citizens.
“The said housing levy is discriminatory contrary to Article 27 of the Constitution as it only obligates those in formal employment to contribute to the scheme without a corresponding duty on persons in informal employment to contribute yet persons in the informal subsector are the target population of the scheme,” the petition states.
“The housing levy is uncertain in terms of eligibility criteria as well as the administrator of the fund making it impossible for the beneficiaries of the fund to 17 be known or Kenyans to know the government agency that will administer the fund in violation of Article 10 of the constitution,” LSK adds.
In June, Busia Senator Okiya Omtatah and four others, filed a suit at the Constitutional and Human Rights Division of the High Court in Nairobi, challenging the Finance Act 2023.
They urged the court to nullify 13 provisions of the Bill, while also asking that the court prohibit the National Assembly Speaker from transmitting to the President the Finance Bill 2023 if it contains the 13 sections they want to be struck out.
The petitioners also asked Chief Justice Martha Koome to formulate a bench with an uneven number of judges to hear the petition.
One of the sections the petitioners were concerned about was the three percent housing levy, arguing that there is “already a law which allows people to voluntarily join an affordable housing scheme”. They said this levy and the additional taxes in the Finance Act 2023 “threatens socio-economic rights” of Kenyans.
Senator Omtatah and the four petitioners argued that the Act contains about 30 sections that contravene the Constitution on taxation matters.
They argued that Kenyans would suffer immensely should the Bill be passed as is.
President William Ruto signed the Bill into law on June 26, paving the way for its implementation on July 1.
But on June 30, High Court judge Mugure Thande stopped the National Treasury from implementing the Finance Act 2023, throwing into limbo the president's plan to raise billions of shillings through far-reaching tax proposals to fund his maiden budget.
Later, Treasury CS Prof Njuguna Ndung'u filed an appeal, arguing that the government was losing half a billion shillings a day as a result of the freeze. Prof Ndung'u said the freeze would make it difficult for the government to implement the 2023/24 budget as planned and some projects will have to be suspended if it is not allowed to raise revenue as proposed.
On July 28, the Court of Appeal lifted the High Court freeze order, paving the way for the implementation of the Act.
Following this ruling, financial institutions adjusted their rates to align with the revised excise duty in the Finance Act 2023. Safaricom adjusted M-Pesa, call, data, SMS and home fibre charges, with its mobile money transfer charges increasing while charges on call, data and SMS charges were reduced.
Government agencies also sought to implement provisions of the Act that affected them, with the State Department for Housing and Urban Development releasing a statement on August 2 urging employers to deduct and remit the taxes as per the Act and stating that the Housing Levy would be backdated to July 1 when the Act was initially supposed to take effect.
High-income earners were also dealt a blow after the taxman backdated the new higher income tax rates on their earnings to July 1. The Act has pay-as-you-earn at 32.5 per cent for individuals with salaries of between Sh500,000 and Sh800,000 monthly. Those who earn more than Sh800,000 per month will pay 35 per cent.
