In a pivotal legal development, Kenya’s Supreme Court has nullified a Court of Appeal decision that had previously voided the 2023 finance law, a key legislative framework underpinning President William Ruto’s tax agenda. The court’s verdict reinstates the law, marking a significant victory for the Ruto administration and reinforcing the government’s revenue-generation mechanisms amidst fierce public opposition.
The 2023 finance law, passed after Ruto took office in September 2022, introduced contentious tax measures including a notable increase in fuel’s value-added tax (VAT), a new housing levy, and higher personal income tax rates for Kenya’s top earners. These measures spurred widespread public backlash and catalysed mass protests last year. Citizens, facing increased living costs, voiced strong objections to what they viewed as punitive tax hikes, while opposition leaders orchestrated several rounds of protests across Kenya. The unrest turned deadly in June and July 2024, claiming more than 60 lives, ultimately pressuring the Ruto administration to retract a subsequent 2024 finance bill.
Despite this retraction, Ruto’s government maintained its reliance on the 2023 law to meet revenue needs. The recent Supreme Court ruling, therefore, brings much-needed clarity to the administration’s fiscal approach and strengthens Ruto’s hand as he navigates Kenya’s economic challenges.
Following the Court of Appeal’s July ruling that deemed the 2023 finance law unconstitutional, the Supreme Court issued a stay, allowing for continued tax collection under the disputed law while awaiting the final appeal. This week, Kenya’s highest court unequivocally reversed the lower court’s finding, declaring the finance law constitutional and affirming its legal standing. “We hereby set aside the Court of Appeal’s finding declaring the entire Finance Act 2023 unconstitutional,” the Supreme Court stated, underlining the state’s authority in enacting fiscal reforms essential to Kenya’s macroeconomic stability.
Ruto, an ardent proponent of tax reform, has consistently argued that revenue from the 2023 finance law is essential for funding critical development projects and servicing the nation’s substantial public debt burden, one of East Africa’s largest. His administration contends that these measures will help spur economic growth in Kenya’s emerging markets, justifying the increase in tax rates as a necessary measure to secure fiscal independence and reduce reliance on international borrowing.
The International Monetary Fund (IMF) has closely monitored Kenya’s financial policies, setting loan benchmarks contingent upon the government’s adherence to fiscal discipline and debt reduction. The IMF Executive Board is slated to discuss the next tranche of funding for Kenya this week, following reports that the country has met targets set out in the IMF’s programme review. The Supreme Court’s decision to uphold the 2023 finance law could ease Kenya’s path to securing additional IMF support, enabling continued access to critical funds and bolstering investor confidence.
Nevertheless, Ruto’s victory in the Supreme Court may reignite public discontent as citizens continue to grapple with rising living costs. The tax burdens imposed by the 2023 finance law have drawn significant criticism from various social and political factions, with critics asserting that the tax increases disproportionately impact the middle and lower-income classes. The reinstatement of the law is likely to test the administration’s ability to balance revenue needs with public sentiment in a tense economic climate.
Kenya’s economic trajectory remains closely tied to Ruto’s fiscal policies, which he believes will lay a sustainable foundation for long-term development and economic sovereignty. As the Supreme Court’s decision restores the legality of the 2023 finance law, Ruto’s government can proceed with its fiscal strategy, though challenges remain in winning over a sceptical populace weary of austerity.
