Explainer: What happens if Parliament rejects Finance Bill 2024 in totality

Parliament

Out of 349 members of the National Assembly, 115 voted No.


Photo credit: File I Nation Media Group

What you need to know:

  • MPs can reject the Finance Bill in totality at either one of two stages.
  • The Bill can also be rejected at the Committee of the Whole House stage.

The Treasury has presented its worst-case scenario should the Finance Bill be rejected in totality in the National Assembly, warning of key expenditure cuts in an enforced adjustment to government spending plans.

According to the Exchequer, the rejection of the Bill would open a Sh200 billion revenue hole resulting in cuts of the same magnitude, which would impact key expenditures, including school feeding, cash transfers to the poor, and the hiring of medical interns.

“If the revenue measures contained are not approved by the National Assembly, there will be a likely revenue shortfall of approximately Sh200 billion,” said Prof Ndung’u.

MPs can reject the Finance Bill in totality at either one of two stages- Second and Third Reading stages.

However, MPs passed the Bill and the accompanying report of the Finance and National Planning Committee at the Second Reading on Thursday, moving the tax proposals to their next stage of approval.

MPs can still reject the Bill at the next stage known as the Committee of the Whole House where the legislators can stop the Bill’s Third Reading after the consideration of the proposed changes on a clause-by-clause basis.

According to the Kenya Law Reform Commission, the deferring of the Bill, which is usually for not less than six months is technically ‘killing the Bill’.

The government would be required to reintroduce the Finance Bill after six months with new provisions, which would be different from the submitted proposals.

But even without a new Finance Bill, the government would still have means of raising revenues as represented by already existing tax laws and regulations.

“Our position has always been the same—that nothing suggests that we have to have a new Finance Bill every year. No gap would appear from the rejection of the Bill as the previous Finance Act of 2023 and other tax laws would continue being in place. In the case of rejection, the government would have to redraft the Bill, come up with new provisions, and begin the process of making it into law from the start,” Jackline Kagume, a lawyer and programme lead for the Law and Economy at the Institute of Economic Affairs told the Business Daily.

However, the government would find itself unable to legislate a new Appropriation Act—the written law that guides spending in the absence of a Finance Act.

This is following a High Court ruling last year which underlined that the revenue-raising measures must first be approved before the Appropriation Bill is introduced to the house.

In such a scenario, the government would only have access to about half of the presently approved spending estimates in the absence of an Appropriations Act.

While the government could be forced to abandon new tax measures that are set to generate Sh302 billion in additional tax measures and likely result in high borrowing to meet its spending plans, the Exchequer could still grow taxes from improved efficiency in collection and an expansion in the number of taxpayers.

“Nothing suggests that the Treasury cannot realise higher revenues even without the new tax proposals in place from improved efficiency in tax collection, the expansion of the tax base, and even from higher consumption in the economy,” added Ms Kagume.

The government has traditionally proposed new tax measures every year to support its annual spending plans making the debate on the Finance Bill a topic of regular discourse.

The Finance Bill 2024 is now expected to enter the Committee Stage next week during which amendments will be considered and voted on a clause-by-clause basis.

The Finance and National Planning Committee has moved amendments to the Bill as presented by the Treasury, including the repeal of the 2.5 percent motor vehicle circulation tax and value-added tax on bread.

In their place, however, the Kuria Kimani-chaired committee has recommended the lifting of the fuel levy from Sh18 to Sh25 a litre as part of interventions to recapture the forgone taxes.

MPs can still toss out the Bill by deferring or calling off its Third Reading after the committee stage report.