The Supreme Court, in a bench comprising Mwilu DCJ & VP, Wanjala, Njoki, Lenaola and Ouko, SCJJ, dismissed a public interest appeal challenging the constitutionality of Legal Notice No. 15 of 2021, which exempted Japanese companies, consultants, and employees engaged in specified Kenya–Japan development projects from income tax. The decision settled the question of when a delegated tax instrument must be treated as a statutory instrument requiring public participation, and clarifies the evidentiary burden a litigant must meet to establish that a tax measure is discriminatory.
Between 2007 and 2020, the Governments of Kenya and Japan entered into sixteen financing agreements covering infrastructure, health, and energy projects, several of which conditioned Japanese financing on an exemption of Japanese companies, consultants, and employees from Kenyan income tax. The Cabinet Secretary for the National Treasury operationalised this through Legal Notice No. 15 of 2021, issued under section 13(2) of the Income Tax Act, which empowers the Cabinet Secretary to exempt income accrued in or derived from Kenya by notice in the Gazette. The Notice was laid before the National Assembly’s Committee on Delegated Legislation, which, after querying the apparent disparity in treatment between Japanese and Kenyan workers, accepted that it had been properly issued, and its report was adopted by the House in May 2021.
The appellant challenged the Notice at the High Court, arguing that any tax waiver under Article 210(1) of the Constitution must be grounded in legislation, that the Notice was a statutory instrument requiring public participation under the Statutory Instruments Act, and that the exemption discriminated against Kenyan workers on the basis of nationality. The High Court (Magare, J.) agreed, quashing the Notice and holding that section 13(2) of the Income Tax Act was itself unconstitutional to the extent it permitted tax waivers by gazette notice rather than legislation proper, and that the resulting arrangement amounted to “economic apartheid.” The Court of Appeal reversed this, holding that the Notice was executive rather than legislative in character, that Parliament’s delegation of exemption powers to the Cabinet Secretary under section 13(2) was constitutionally valid under Article 94(5), and that the High Court had erred in determining issues, including the constitutionality of section 13(2) itself, that had not been pleaded.
The Supreme Court’s analysis turned on the distinction between statutory instruments of a legislative character, which vary or repeal rules of general application, and those of an administrative character, which merely implement existing law or policy. Reading Article 210(1)’s requirement that tax may only be waived “as provided by legislation” alongside Article 94(5), which permits Parliament to delegate law-making authority where the Constitution or a statute expressly authorises it, the Court found that Parliament had validly delegated this authority to the Cabinet Secretary through section 13(2) of the Income Tax Act. Legal Notice No. 15 of 2021 did not itself create any new rule; it merely operationalised financing agreements already concluded pursuant to that delegated authority. On this basis, the Notice fell outside the definition of a “statutory instrument” under section 2 of the Statutory Instruments Act, and was accordingly not subject to the public participation requirements in section 5 of that Act. The Court found the only applicable procedural requirement was section 13(3) of the Income Tax Act, requiring the Notice to be tabled before the National Assembly, which had been duly satisfied.
On discrimination, the Court held that the appellant’s challenge was directed at the wrong instrument. The Notice itself contained no specific terms of exemption; the substantive terms, including the extent of the tax waived, were contained in the underlying financing agreements, which the appellant never challenged and had, by his own pleadings, not seen. Absent a challenge to those agreements, the Court held there was no evidentiary basis on which discrimination could be established, and the appellant had not discharged his burden on the balance of probabilities. The Court further noted that the exemption traced back to agreements concluded before the promulgation of the current Constitution, when treaty ratification was an executive prerogative, and that Article 2(6) now assures such agreements effect within domestic law once ratified. The appeal was accordingly dismissed, with each party bearing its own costs given the public interest character of the litigation.
The judgment does useful work in clarifying that not every instrument issued under statutory authority requiring Gazette publication and parliamentary tabling is automatically a “statutory instrument” attracting the full procedural apparatus of the Statutory Instruments Act. The test the Court applies, whether the instrument creates new rules of general application or merely implements a policy or agreement already settled elsewhere, gives government agencies a workable basis for structuring similar notices going forward, provided the delegating statute itself was validly enacted and duly scrutinised by Parliament.
The more significant point, however, lies outside the four corners of the judgment. Financing agreements of this kind are negotiated government-to-government, frequently as a precondition of concessional financing, and their substantive terms, including the scope of any tax concession, are rarely published or subjected to public scrutiny before they are locked in. By the time a legal notice operationalising such an agreement reaches the public domain, the terms it implements are already fixed, and, as this case shows, a challenge to the notice alone will not succeed without evidence of the underlying agreement’s terms, evidence an ordinary litigant has no ready means of obtaining. As Kenya continues to rely on bilateral development financing, this case is a useful prompt for a broader conversation about how much transparency should attach to the tax concessions embedded in these agreements before, rather than after, they are signed.
