Kenyans will have to wait longer to benefit from the reduction of Value Added Tax (VAT) on fuel after the Court of Appeal ruled the Finance Act 2023 unconstitutional, according to a tax expert.
The Finance Act 2023 had introduced measures such as increasing the VAT on fuel from 8 percent to 16 percent and adjusting tax bands in Pay As You Earn (PAYE) for those earning Ksh. 500,000 and above.
Many Kenyans expected the Court of Appeal’s ruling to take immediate effect, anticipating a change at the pump. However, four days later, there have been no alterations.
During a panel interview on Daybreak, Alex Kanyi, a partner at CDH Kenya, which provides legal advice on various matters including real estate and data protection, noted that the government might be awaiting the Attorney General’s interpretation of the court ruling before making any changes.
This situation poses a challenge, as Attorney General nominee Dorcas Oduor cannot assume her duties until she is approved by Parliament. Kanyi also indicated that Kenyans could expect a change in pump prices during the monthly review announced by the Energy and Petroleum Regulatory Authority (EPRA).
“I’m not surprised with the petrol situation. For some reason, parliament does not effect the changes immediately and it’s not the first time,” Kanyi said.
“I’ve heard they’re waiting some interpretational guidance from the Attorney General. Maybe they’re also waiting till mid month so that then they tell us they have considered the judgment and will reduce the fuel cost by another 8 per cent.”
In relation to the PAYE bands, he noted that the tax rates introduced in Finance Act 2023 should not be implemented in the next payslip.
” We continue with the tax laws before Finance Act 2023. So you still have your income tax Act, VAT Act and other legislations that provide for tax. Only the amendments that were done through Finance Act 2023 will wait until the decision is made by the Supreme Court,” he noted.
“Up to Finance Act 2023, especially for PAYE, the bands were up to 30 per cent as the highest rate. However, Finance Act 2023 introduced a band of 32.5 % for anyone earning between Ksh.500,000 and Ksh.800,000 monthly and 35 % for anyone earning above Ksh.800,000. What it means, as you process you payroll, you need to think what were the effective rates before Finance Act 2023.”
The Court of Appeal’s decision to declare the Finance Act 2023 unconstitutional poses a significant challenge for the government, which relies on the Act to generate additional revenue to meet budget expectations.
Experts suggest that the government may revert to the Finance Act 2022, but concerns remain about whether this move will effectively address the revenue shortfall.
The country is now awaiting the Supreme Court’s final ruling on the appeal.
