Why Finance Bill 2023 faces legal minefields

On May 4, 2023, the Finance Bill, 2023 was tabled before Parliament for the first reading. The National Treasury aims to expand the country’s tax base by increasing taxation to get the government more revenue.

The Bill, however, faces multiple legal minefields if passed as it is.

First, the Treasury could have a run-in with the Judiciary over the tax dispute deposit plan. The Finance Bill 2023 proposes changes to the Tax Procedure Act to introduce a requirement that a party in a dispute with KRA deposits a portion of the amount as part of a strategy to encourage out-of-court settlements amid complaints that the KRA is unable to collect billions pending the conclusion of suits that take years to conclude.

“Provided that where a party is not the Commissioner, that party shall deposit with the Commissioner an amount equivalent to twenty percent of the disputed tax before filing the appeal,” the Finance Bill stated in part.

If the court decides in favour of the taxpayer, the KRA would be required to credit the amount or security within 30 days after the determination of the appeal, according to the proposal.

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The proposal, however, conflicts with a February 17, 2023 order by Deputy Chief Justice Philomena Mwilu that prohibited such preconditions on suits to be heard in court.

“A declaration be and is hereby made that the order for the security of costs made in civil application No.37 of 2017 delivered on December 8, 2017, is unreasonable as it impedes the appellant’s access to justice by imposing a condition precedent before a matter can be heard contrary to Articles 48,50 and 159 of the Constitution of Kenya,” the lady Justice said following an appeal by Westmont Holdings SDN BHD against three respondents including the Central Bank of Kenya(CBK), Kamlesh Mansukhlal Pattni and Uhuru Highway Development Company.

The appeal followed an application by the CBK that Westmont Holdings deposits security for costs in the sum of Sh87,620,000, on the basis that it had been awarded costs by the High Court.

The Court of Appeal allowed CBK’s application and ordered the appellant to deposit Sh20,000,000 as security for costs, failure to which the appeal would be struck out.

Aggrieved by the ruling of the court, the Westmont filed the instant appeal before the Supreme Court, claiming that the order for security for costs violated various provisions of the Constitution including Article 48 (access to justice), Article 50 (right to a fair hearing), Article 159 (duty of the court to disregard technicalities in dispensing justice), and Article 259 (duty of the court to promote the purpose, values, and principles of the Constitution and to advance the rule of law, human rights, and fundamental freedoms).

In the 2022 Finance Bill, former Treasury Cabinet Secretary Ukur Yatani had proposed a 50 per cent deposit, a proposal that MPs were very keen to shut down on the premise that it would harm businesses.

Another legal storm that may be brewing is the Treasury's proposal to safeguard the pension perks of VIPs.

The Treasury also faces a brush with the law following its plans to protect the retirement benefits of retired Deputy Presidents, retired Vice Presidents, retired Prime Ministers, and other senior officers, including Speakers of Parliament, even if they violated the law.

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In a controversial proposal in the Finance Bill 2023, the State is proposing to repeal provisions of the Retirement Benefits (Deputy President and State Officers) Act that outlined circumstances where benefits may not be paid to the officers including retired Chief Justice and Deputy Chief Justice.

“The Retirement Benefits (Deputy President and State Officers) Act, 2016 is amended by inserting the following new sections immediately after section 4 4A. (1) A person who— (a) holds an appointive or elective office in the Government; and (b) previously held a position to which pension and other benefits accrue under this Act, shall, upon retirement or ceasing to hold that office entitled under this Act, be paid- (i) a monthly pension equal to eight percent of the monthly salary of the entitled person’s last monthly salary while in office; and (ii) a lump sum payment on retirement as calculated as a sum equal to one year’s salary paid for each term served in office,” the Finance Bill 2023 reads in part.

Currently, the benefits could be discontinued in instances where a person was guilty of gross misconduct; was in willful violation of the constitution; had been convicted and imprisoned for more than three years; or had continued to engage in activities of a political party after ceasing to hold office.

“The proposed repeal would mean that retired Deputy Presidents, retired Vice Presidents, retired Prime Ministers, and other senior officers, including Speakers of Parliament, retired Chief Justice, and Deputy Chief Justice would not be denied their prescribed retirement benefits under any of the circumstances currently outlined by the Act,” analysts at KPMG said in a note.

“This may be viewed as a departure from the spirit of Chapter 6 of the Constitution on leadership and integrity. Government officials will not have any motivation to comply since if the proposal is passed into law they are protected from consequences of violation of their constitutional duty ", the analysts added.

This proposed amendment comes in the wake of growing pressure from members of the ruling Kenya Kwanza coalition to have the retirement benefits of former top officers including retired President Uhuru Kenyatta, former Prime Minister Raila Odinga, and former Deputy President Kalonzo Musyoka for engaging in active politics.

Conservationists could also go to court to challenge the Treasury’s proposal to introduce excise duty on imported Articles of plastic.

The Finance Bill, 2023 proposes to impose a 10 percent excise duty on imported plastics.

“The First Schedule to the Excise Duty Act, 2015, is amended…by inserting the word “Imported” immediately before the tariff description “Articles of plastic of tariff heading 3923.30.00 and 3923.90.90,” reads the Finance Bill, 2023 in part.

The imposition of excise duty on articles of plastic was first introduced in the Finance Act of 2021. Now, the Finance Bill seeks to exempt locally manufactured plastic from excise duty, a move that could potentially increase the local distribution of plastics within the country.

While exempting the plastics produced locally from excise duty will make locally produced plastics affordable and increase consumption, it could result in environmental pollution.

In recognition of the role that plastics play in the pollution of the environment, in 2017, Kenya banned the use of plastic bags.

Kenya is obligated by the Constitution to protect the environment and ensure that every person has access to a clean and healthy environment.

Article 42 of the Constitution of Kenya says this of the matter, “Every person has the right to a clean and healthy environment, which includes the right to have the environment protected for the benefit of present and future generations through legislative and other measures...”

By passing the Finance Bill, 2023 as it is and allowing the distribution of cheap plastics within the country, the Kenyan government will be failing in the environmental protection duties that it owes its citizens.

The United Nations estimates that there will be more plastic in the ocean than fish unless governments take the initiative to manage the use of plastics.

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