On January 30th, 2023, the High Court issued a ruling dismissing Constitutional Petitions E338 of 2022, which were consolidated with Petitions E342 of 2022, 372 of 2022, 373 of 2022, and E407 of 2022. The High Court determined that the amendments made to the Finance Act 2022 were legally valid and are now considered part of the laws of Kenya.
The Petitioners challenged multiple provisions that were introduced in the Finance Act 2022. Among these provisions were the removal of Paragraph 32 from the First Schedule of the VAT Act, which had previously exempted the export of taxable services from VAT. Additionally, the Act introduced excise duty on imported ready-to-use SIM cards at a rate of KES 50 per SIM card, as well as a 20% excise duty on other fees charged by digital lenders.
The Petitioners based their arguments on several grounds, including that the new additions were not subject to public participation, violated established principles of tax law and international best practices, and would impose unjustifiable hardship on Kenyan citizens.
The principle of sub judice?
The Petitioners contended that multiple suits regarding the increase of Excise Duty rates were pending before the High Court.
According to the sub judice principle, when the same parties file multiple suits on the same subject matter, all subsequent suits and proceedings are stayed until the primary suit is resolved.
However, the Court ruled in this case that the sub judice principle could not apply since the previous suit, which was still ongoing, did not relate to the subject matter of the current petition.
If the Finance Act 2022 and the impugned sections underwent public participation
The Finance Act 2022 contained new provisions that were not included in the Finance Bill 2022. These included the removal of Paragraph 32 of the First Schedule of the VAT Act, which exempted the export of taxable services, and the introduction of excise duty on imported ready-to-use SIM cards at KES 50 per SIM card, and on other fees charged by digital lenders at 20%.
The Petitioners argued that these provisions were not proposed in the Finance Bill 2022 and, therefore, were not subject to public participation.
It was undisputed that the Finance Bill 2022 had been widely consulted on by various stakeholders before being tabled before the National Assembly.
The Court ruled that the Finance Bill 2022 was meant to determine the means and methods of revenue collection by the Government and the administration of tax laws. Therefore, even though the new provisions were not included in the Finance Bill 2022, they fell within the parameters of the Bill to raise revenue. Thus, any amendments introduced by the National Assembly did not violate the principle of public participation, as long as they fell within the parameters of the Bill. The Court was of the opinion that subjecting every subsequent amendment to public participation would negate and undermine the legislative process.
If the National Assembly’s imposition of the impugned taxes was unconstitutional
The Petitioner contended that the impugned amendments violated the principles of public finance outlined in Article 201 of the Constitution due to their burdensome and oppressive nature. Additionally, the Petitioners argued that charging VAT on exported services amounted to double taxation, as the global practice is to apply the destination principle to VAT chargeability. The Petitioners also claimed that the increase in Excise Duty on alcoholic beverages and its introduction on other fees charged by digital lenders and imported SIM cards would cause undue hardship to consumers. They further argued that excise duty on “other fees” charged by digital lenders was discriminatory against them compared to other financial institutions.
The Court ruled that the National Assembly was authorized by the Constitution to impose taxes as it deems necessary, including determining the rates and types of taxes. The Court could not, therefore, make a determination on the National Assembly’s decision to use the origin principle, as it would infringe on the separation of powers. The Court also dismissed the Petitioners’ allegation of discrimination, stating that there was no evidence presented to support their claim.