What is the effective date of the Finance Act, 2018?

Keen followers of the government’s legislative calendar are no doubt agreed that the journey towards the Finance Act, 2018 has been a dramatic one.

Not often do tax amendments get the prominence that this piece of legislation enjoyed this year.

To start with, the Finance Bill, 2018 on the face of it, looked like any other, introducing routine amendments to the various tax and related laws.

It was, however, the key provisions and omissions from the Bill that provoked intense debate.

First, and possibly the best known and most contentious part of it, was introduction of value-added tax (VAT) on fuel — initially at 16 per cent then down to eight per cent. The omission of the extension provision caused a lot of hue and cry, not least because of the knock-on and potential inflationary impact that raising the cost of fuel has on the economy.

By increasing the cost of petrol and diesel, for example, we can expect that prices of anything that depends on transport will correspondingly rise.

The other provision that elicited heated debate was the removal of interest rate caps. Again, a lot of debate on this one and some slight movement as the Finance Act, 2018 adopted a compromise position that abolished the lower limit of interest payable on deposits.

The icing on the cake was the now famous Okiya Omtatah petition, in which the activist sought orders declaring that the provisions of the Finance Bill, 2018, cannot come into force until and unless passed by Parliament and assented to by the President.

In agreeing with Omtatah, the High Court ruled that the Provisional Collection of Taxes and Duties Act, 1958, is inconsistent with the 2010 Constitution insofar as it empowers the Treasury Cabinet Secretary to make laws, a function that is the preserve of Parliament.

With the Finance Act now in place, the biggest question remains: what is the effective date of these provisions? The Omtatah ruling states that the Finance Bill, 2018, “cannot be implemented before the Bill becomes the Finance Act after it goes through the parliamentary legislative process laid out in the Constitution for approval and adoption by Parliament and assent by the President.”

The President assented to the Finance Bill, 2018 on September 21, 2018. Therefore, based on the High Court’s ruling in the Omtatah case, the Finance Bill, 2018 became the Finance Act, 2018 and therefore law, on September 21, 2018.

Of course, one could argue that the text of the law only became available to the general public on September 28, 2018, which is then the date that taxpayers legally became aware of their obligations under the Finance Act, 2018. That, however, is not the big issue.

The bigger issue is whether the Finance Act, 2018 provisions which have an effective date of July 1, 2018 came into force on July 1 or September 21, 2018.

It is clear from the Omtatah case that the Finance Act, 2018 only became law on September 21, 2018 after presidential assent. However, the very same Act in some sections provides for July 1, 2018 as the effective date. The question then is, can a law that never existed before September 21, 2018 come into force on July 1, 2018?

In my view, a law cannot take effect before it existed — the law must exist before it can take effect. Thus, for example, a bank cannot logically be expected to have charged 20 per cent excise duty on a transaction that happened on July 1, 2018, when in fact the bank only got to know of this obligation on September 21, 2018 and the law came into existence on the very same day!

This predicament is not as simple as it looks, especially because Parliament has the power to legislate and nothing in the Constitution expressly prohibits it from passing law as it deems fit. However, having passed the Finance Act, 2018, with an effective date of July 1, 2018 for some provisions, hasn’t Parliament violated the taxpayers’ expectation of procedurally fair action?

Waruiru is a partner at consultancy firm KPMG.