The latest court ruling that found the Finance Act, 2023 — the legislation used to levy taxes in the country — unconstitutional adds to the growing list of fresh headaches President William Ruto is grappling with, even after he managed to temporarily quell youth protests.
On Wednesday, Court of Appeal judges Kathurima M'Inoti, Agnes Murgor and John Mativo upheld a High Court ruling that the Finance Bill was unconstitutional , a move that could put the final nail in the government's efforts to raise revenue to run its operations. They said the process leading to the passage of the law was fundamentally flawed and in violation of the Constitution.
This means that the current administration faces uncertain times over new tax measures, including the controversial housing levy, which has been implemented since 1 July 2023.
The President is currently grappling with how to balance fulfilling lofty pre-election promises with a tight budget, after bowing to pressure from Gen Z to withdraw a Finance Bill that would have helped his government raise Sh346 billion.
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To make matters worse, the Kenya Kwanza leader is under the microscope, his every move closely watched by a restive population reeling from hard economic times amid high cost of living and runaway unemployment.
Aware of the enormity of what he faces, the President revisited the move to scrap the controversial Finance Bill, which contained several tax-raising measures.
"I had budgeted for development, but a lot of propaganda was put on the Finance Bill. Some MPs voted no and all the development I had planned was stopped," Dr Ruto said during his coastal tour.
"They said the Finance Bill had taxes on cancer treatment and on land, but it was all propaganda and lies. Now I have to go back and make a new one. These people are really making it difficult for me," he added.
Backlash from young people
President Ruto rode the hustler wave to power, with the UDA leader making populist campaign promises including a reduction in the cost of living to win the hearts and minds of restive voters.
But having set a precedent by withdrawing the 2024 Finance Bill, a move to introduce new taxes or increase existing ones is a development that the current government could struggle with, judging by the backlash it has witnessed from young people, hampering service delivery in the process.
As part of the austerity measures, the Head of State has issued a directive that only critical and essential services should be funded using no more than 15 percent of the budget.
The President and his government are now caught between a rock and a hard place: to introduce new taxes, increase existing ones and face renewed protests, or introduce stimulus packages.
After co-opting members of the opposition into his government, he said his administration would look for ways to raise revenue and pay the country's debts.
Despite revising its revenue target downwards to Sh2.5 trillion from Sh2.768 trillion in the financial year ending June 30, 2024, the Kenya Revenue Authority only managed to collect Sh2.22 trillion, missing the revised target by Sh276 billion.
The Treasury expected to raise about Sh302 billion in projected revenue from the Finance Bill to fund the Sh3.9 trillion budget, alongside borrowing.
The move to drop the Finance Bill to quell the youth-led protests has already seen the government make budget cuts of Sh177 billion and borrow an additional Sh169 billion to bridge the budget gap.
Some of the areas set to suffer serious budget cuts include the recruitment of 46,000 JSS teachers, universal healthcare, the fertiliser subsidy programme to turn around agriculture and some of the multi-billion dollar capital projects.
Resistance to austerity measures
But the austerity measures announced by the President have met resistance from county governments, with governors and senators unwilling to cede an inch of the Sh400.1 billion allocated to the devolved units as shareable revenue.
President Ruto last month returned the County Allocation and Sharing of Revenue Bill, which was based on expected revenue from the rejected Finance Bill, to Parliament to be reduced accordingly.
He directed the Treasury to immediately table amendments to the Revenue Allocation Act, 2024 in Parliament to reflect the reduced revenue from the rejected Finance Bill.
Kisumu Governor Anyang Nyong'o said the cut was a scheme to kill devolution, noting that any reduced funding to counties would amount to a travesty of justice to devolved governments whose share of revenue is based on the audited national accounts.
"How can the President purport to base the failed Finance Bill on the division of revenue allocations calculated on a budget from three years ago?" the governor posed.
Nairobi Governor Johnson Sakaja said that reducing county allocations would be a breach of the law, adding that the division of revenue bill, which has already been signed by the President, cannot be amended. The bill divides spending between the national and county governments.
"The law is very clear that if there is a shortfall, the national government will bear it," said Governor Sakaja.
Aside from boosting the economy and revenue collection, ensuring the sweeping reforms demanded by the youth will be another landmine for the President.
The UDA leader will already be walking a tightrope with his pledge to slay the dragon of corruption, which will mean stepping on the toes of many friends and foes.
He pledged not to allow the trial of corruption and economic crime cases to take more than six months as part of efforts to end the wanton theft of public resources coupled with the extravagant lifestyles of public officials.
Dr Ruto said he would propose amendments to several corruption-related laws to speed up the investigation and prosecution of corruption and economic crimes cases.
He cited the Evidence Act and the Criminal Procedure Code as some of the laws that need to be amended to help in the fight against graft.
But already, the Senate and National Assembly are reading from different scripts on the Conflict of Interest Bill, 2024, a bill aimed at preventing corruption in public procurement, which is exploited by government officials to influence the award of lucrative tenders to their companies, those linked to their relatives and associates.
Senators are accused of watering down the bill, giving officials a free pass to openly grab government contracts.
Another headache for the Head of State is how to placate the lieutenants he has fired from the Cabinet.
With promises to form a lean government and include the opposition in his broad-based administration, the room for manoeuvre is shrinking by the day.
While in Kilifi County, the Head of State promised to give the former Gender and Culture Cabinet Secretary Aisha Jumwa a plum job in the government.
"I want to tell you that I will not leave my sister Aisha Jumwa out of my government. She is my sister, she will go with me, I will not leave her. She will come back and work with me alongside Blue Economy and Mining Cabinet Secretary (nominee) Hassan Joho and his Investment and Trade counterpart Salim Mvurya," Dr Ruto said in Watamu.
Ruto: I will not leave Jumwa behind
This comes at a time when advisers and hundreds of civil servants could be the first casualties of the austerity measures announced by the President.
To make matters worse, President Ruto has also suspended the recruitment of Chief Administrative Secretary (CAS) positions, which many politicians had lined up to benefit from.
The President could also face uncertain times over the vetting of his 20 cabinet nominees, with a section of Azimio threatening to shoot down the approval of the nominees, a move that could send him back to the drawing board.
Civil society and a section of church leaders have also joined in questioning the suitability of most of the nominees, and with the relationship between the president and his deputy Rigathi Gachagua at an all-time low, the battle to get his nominees through could go down to the wire.
"As party leader, I have given instructions to the Wiper MPs that when the names of the four cabinet nominees come before parliament for scrutiny, the Wiper members must vote no," said Wiper leader Kalonzo Musyoka.
But even after including the opposition, Dr Ruto faces a tough balancing act in appeasing his strongholds and the newcomers, especially in sharing the shrinking national cake.
