Kenya's Supreme Court reinstates Finance Act 2023

On October 29, 2024, Kenya's Supreme Court reinstated the long-awaited 2023 Finance Act ruling, giving the government the green light to collect taxes, including a 16 per cent Value Added Tax (VAT) on fuel and a 1.5 per cent housing levy. This decision comes after public protests earlier prompted President William Ruto to withdraw the initial finance bill. To delve into the implications of this ruling, Declan Galvin, Managing Director at Exigent Risk Advisory, joined CNBC Africa to discuss public reactions and the Act's economic impact on Kenya's revenue goals. The Supreme Court ruling, which declared the 2023 Finance Act constitutional, clears the path for the government to enforce tax collection measures that were previously put on hold due to legal challenges. Declan Galvin noted that while the decision was expected given early signals from the Supreme Court, the prolonged duration before the ruling was a point of surprise for many. The acceptance of the key provisions of the bill, including the controversial fuel VAT and housing levy, grants the government the authority to proceed with revenue collection. Public sentiment towards this ruling remains mixed, with lingering frustration and animosity prevalent among Kenyan citizens. Although the protests and unrest have somewhat diminished since June, a sense of dissatisfaction still looms. The potential for organized rallies or demonstrations against the Act's implications is a possibility that could materialize in the coming days. The economic ramifications of enforcing the 2023 Finance Act are substantial. Kenya faces significant fiscal challenges, highlighted by a 240 billion Kenyan shillings deficit. The Act, while aiding in revenue generation, including through measures like the 16 percent fuel VAT and 1.5 percent housing levy, does not alleviate all fiscal pressures. The government had initially looked to the 2024 finance bill to address shortcomings in the 2023 Act. Nonetheless, the clarity provided by the Supreme Court's ruling offers a more stable operational framework for governmental financial management. An area of contention lies in the introduction of new taxation measures, such as the top salary tax band and the digital asset tax. These measures aim to target high-income earners and digital entrepreneurs, intending to broaden the tax base rather than increase taxes on existing taxpayers. However, skepticism persists among taxpayers who feel burdened by additional levies without visible benefits from the government in return. Looking ahead, the implementation of the 2023 Finance Act is expected to have implications for Kenya's economic growth, investment climate, and fiscal stability. The legal clarity provided by the Supreme Court decision offers a roadmap for fiscal management, instilling confidence among investors, both local and foreign. While the Act may not significantly alter the economic landscape, its enforcement signals the government's ability to navigate legal challenges and maintain stability in fiscal operations amidst societal unrest. In conclusion, the Supreme Court's validation of the 2023 Finance Act marks a milestone in Kenya's financial governance, paving the way for sustained tax collection and fiscal management. The Act's impact on public sentiment, economic activities, and investor confidence will unfold in the coming months, shaping Kenya's economic trajectory.