What the conservatory orders on the Finance Act mean to Kenya’s medium-term strategy, 2023

  • 10 Jul 2023
  • 3 Mins Read
  • 〜 by Annette Muindi

The High Court on Friday, June 30, issued orders suspending the further implementation of the new Finance Act, 2023. The case was filed by Busia Senator Okiya Omtata who argued that the Act is illegal as it was approved by the National Assembly without the consultation of the Senate.

The petition also argues that the law introduced by the Kenya Kwanza administration amounts to forcing Kenyans to pay taxes irregularly without justification and contends that the taxes imposed by the Finance Act 2023 are invalid, null and void for violating Article 24 of the Constitution. The petition specifies that Sections 30, 33, 34, 36, 73, 74, 76, 78 and 79 of the Act are unconstitutional and as such should be quashed. Lady Justice Thande issued conservatory orders preventing the implementation of the case.

Effect of orders

A conservatory order is a judicial remedy granted by the court by way of an undertaking that no action of any kind is taken to preserve the subject until the motion of the suit is heard.  It is an order of status quo for the preservation of the subject matter.  The party applying for a conservatory order must satisfy three requirements:

  1.     The applicant must show the case has merit. The applicant must only show the case is arguable, not that it is likely to win. It ensures that applications are made in good faith and not to gain an unfair advantage over others.
  2.     An applicant must show there is a real and imminent danger that the applicant’s legal rights or claims will be irreparably damaged if a conservatory order is not issued. A real danger is one that is not theoretical but is present and happening. An imminent danger is one that must be dealt with immediately. It is not an issue that is on the horizon or that can be put off, but one that must be addressed now.
  3.     Whether a conservatory order is in the public interest and is supported by the Constitution. To be in the public interest the court must determine whether its decision is just, equitable and efficient.

In this case, conservatory orders were granted barring the Finance Act from coming into effect in July.  

Impact on businesses

With the conservatory orders in place, the Act will not come into force. This means that:

  •         Employers need not deduct a tax rate of 35% on employee income over Ksh 500,000 per month or 1.5% for the housing levy in July 2023.
  •         For content creators, the tax on digital content monetization at the rate of 5%, will not apply to them for the time being
  •         Introduction of excise duty on powdered juice at a rate of Ksh 25 per kilogram will not apply until the suit is heard and determined.
  •         Excise duty at the rate of 15% of the excisable value on fees charged on the advertisements by all televisions, print media, billboards, and radio stations in promotion of alcohol, betting, gaming, lottery and prize competition will not be applicable until the suit is heard and determined.
  •         Excise duty on fees charged on advertisement on television, print media, billboards and radio stations on alcoholic beverages, betting, gaming, lotteries and prize competitions at 15% will also not be applicable until the suit is settled.

How these developments will affect Kenya’s medium-term strategy

This strategy is prepared as per the requirements of Section 33(2) of the Public Finance Management Act, 2012. The 2023 Medium-Term Debt Management Strategy (MTDS) outlines the strategies and initiatives to be implemented by the National Treasury, the fiscal agent, and Capital Markets Authority aimed at reducing costs and risks of debt management and borrowing, development of domestic debt market institutions and pursuit of intergenerational equity in costs and benefits of public debt.

Public and publicly guaranteed debt as at end December 2022 was KSh.9.1459 trillion. Total external debt was KSh.4.6731 trillion while total domestic debt was KSh.4.4728 trillion. The debt levels remain sustainable with elevated risk of debt distress as per the Debt Sustainability Analysis (DSA) report by World Bank and International Monetary Fund as at December, 2022. The MTDS is aimed at guiding borrowing and debt financing in the medium term.

With the conservative orders in place, it will be more difficult for the government to effect its medium-term strategy as the additional funds expected from the Finance Act 2023, will not be collected. What effect this will have in the long term is yet to be seen.