Following the nullification of Finance Act 2023, employers are seeking clarification from the Kenya Revenue Authority (KRA) on how they should pay their taxes.
- •Through the Federation of Kenyan Employers (FKE), employers say they are unable to remit taxes because the Kenya Revenue Authority (KRA) has not yet configured its systems to comply with the court of appeal Judgment.
- •In July, the Court of Appeal held that, among other things, the enactment process of the Finance Act, 2023 was fundamentally flawed, rendering it unconstitutional prompting the government to seek redress in the Supreme Court.
- •The High Court had declared unconstitutional the amendments to the Kenya Roads Board Act, 1999, the Unclaimed Assets Act and the Statutory Instruments Act, and the Housing Levy.
“The Federation of Kenya Employers (FKE) regrets that our members and indeed all taxpayers in Kenya are unable to remit taxes in accordance with the Judgment for reasons that the Kenya Revenue Authority (KRA) has not yet configured its systems to comply with the court of appeal Judgment,” said Jacqueline Mugo, CEO Federation of Kenyan Employers.
“We ask KRA to urgently clarify to employers and all taxpayers in Kenya on how they should pay their taxes in view of the Court of Appeal Judgment. We also note that 9th of August 2024 was the last day for remittance of July 2024 taxes and our members may face penalties if KRA does not immediately address this concern.”
What Experts Think of the Current Mixup
According to audit firm Deloitte, the unconstitutionality of the Finance Act, 2023, owing to the Court of Appeal’s judgment, places Kenya in uncharted waters, particularly considering the context of the rejection of the Finance Bill, 2024.
“Legally, tax amendments introduced via the Act are no longer in force and their implementation should be halted with effect from 31 July 2024. The legislative framework governing taxation in Kenya ought to be the tax laws in force as of 2022 as amended by the Finance Act, 2022,” says the audit firm in an advisory.
The Government has appealed the Court of Appeal decision at the Supreme Court seeking for stay orders which were not granted immediately but are still under consideration. If the Supreme Court grants a stay of the Court of Appeal (CoA) decision, the Finance Act, 2023 provisions would continue to apply pending the determination of the appeal. If a stay is not granted then the changes introduced by the Finance Act, 2023 would be inapplicable.
“The Kenya Revenue Authority (KRA) should expeditiously update the iTax system to avert administrative challenges in complying with the Court ruling,” says Deloitte.
“Considering the recent frequent changes in tax laws, recent events surrounding the withdrawal of the Finance Bill, 2024, and now, the CoA’s decision on the Finance Act, 2023, it means that taxpayers have to contend with further unpredictability,” Deloitte added.
“This decision contributes to the growing jurisprudence on taxation and the legislative process in Kenya. Importantly, it emphasizes that Parliament must not only conduct adequate public participation in the law-making process but also give reasons for adopting and rejecting public input and further that introducing substantive new provisions to a bill after public participation is unconstitutional,” the global law firm Clyde & Co. said after the verdict.
Of even greater concern other than the immediate effects of the nullification, and in light of the withdrawal of Finance Bill 2024, is the message the bills’ fates show to investors on Kenya’s tax stability and business environment.
“This makes the business environment very unstable, costly for the taxpayers, and defeats the canons of certainty and convenience, which are key to a good tax system. The unpredictability is likely to reduce investor confidence in the Kenyan economy. To enhance predictability, and in line with the National Tax Policy, we recommend moving away from the numerous annual tax changes,” Deloitte said in its analysis.
