The High Court has dealt local manufacturers a huge blow after stopping the implementation of a higher excise duty on imported furniture.
The government had imposed a 25 per cent duty on imports in an attempt to spur demand for local products. But yesterday, Justice Anthony Mrima suspended it, pending hearing of a case filed by rights activist Okiya Omtatah challenging legality of the tax.
Apart from increasing revenue, the move sought to promote local businesses by making imports more expensive and less competitive in the market.
While issuing the temporary order, Justice Mrima noted that the National Treasury was against the imposition of the tax, which was introduced at the National Assembly through an amendment of the Finance Bill.
"Part of the National Assembly, that is the committee (National Assembly Committee on Finance and National Planning), also rejected the imposition of the disputed excise duty. There is already in place a high import duty on imported timber meant to protect local furniture producers," the court noted.
It is uncontroverted that the committee had resolved that the amendment of the Finance Bill be deleted in its entirety, the court noted. However, the amendment was reintroduced in the House and hastily passed. It was consequently enacted into law to apply in the financial year 2021/22.
The court also observed that there is a threat to the relations between Kenya and other regional states following an earlier decision by the East Africa Court of Justice (EACJ) to suspend Nairobi's imposition of a 25 per cent excise duty on imported glass bottles. The regional court had found the imposition as discriminative against glass bottles coming from other EAC states.
"The Ministry of National Treasury and Planning in opposing the imposition of the excise duty (on all imported furniture) meant that it had accordingly factored other areas of taxation in support of the national budget," Justice Mrima said.
"At the risk of ruining Kenya's international relations and further burdening the tax payer, is the imposition of the disputed excise duty. These are some of the issues which needs a close scrutiny by the court."
In suspending the duty on imported furniture, Justice Mrima said his order does not mean the tax will not be due and recoverable in the event Mr Omtatah's petition fails. The country has sufficient laws in aid of collection of taxes, he added.
"Indeed, this matter is very unique in several ways including the rejection by the Ministry of National Treasury and Planning to impose the tax in issue and the possibility of brewing conflict with other States within the East African Community," said Justice Mrima.
In its opposition, the National Treasury said imported furniture already attracts an import duty of 35 per cent and VAT at the rate of 16 per cent. The high tax was meant to protect local manufacturers. The Treasury also cited the decision of the East Africa Court of Justice.
Mr Omtatah is challenging the constitutionality and legality of the process of reintroduction of the amendments in the Finance Bill and passage by the House.
He says the amendment was sneaked into the Finance Act by the executive after the parliamentary committee rejected the attempt.
Mr Omtatah says the committee had subjected the intention of introducing the excise duty to public participation. Among those who made presentations before the committee included the Furniture Importers Group and the Ministry of National Treasury and Planning.
The Attorney-General had opposed the granting of the interim orders, saying they are "final in nature". The AG submitted that under Article 94(5) of the Constitution, Parliament is the only institution vested with the sole mandate to make laws, including the passage of amendment Bill.
The National Assembly supported the AG in imploring the court not to suspend the taxation as Parliament said the duty was for the benefit of the entire country.