According to media reports, the Supreme Court of Kenya on August 20 overturned a lower court ruling, declaring the controversial 2023 Finance Act constitutional, which effectively upheld the legislation. But this legislation had previously triggered strong protests across Kenya.

It is understood that the Court of Appeal of Kenya had previously declared the Act unconstitutional on the grounds that the public participation process was flawed. However, the Supreme Court did not see it that way, stating in its judgment that the public had been fully consulted during the legislative process and that their views had been taken into account. Therefore, maintaining budget stability before next month's hearing is crucial, and hearings on whether the 2023 Finance Act is constitutional will be held on September 10 and 11.

This year, the 2024 Finance Act was supposed to be implemented, but in June of this year, President William Ruto and the government issued a new 2024 Finance Act, which triggered public discontent. Demonstrations broke out in Nairobi, the capital of Kenya, during which police clashed with demonstrators, causing multiple deaths and injuries, and later spread to other parts of Kenya, where clashes also occurred one after another.

This led President Ruto to implement a series of measures, including refusing to sign the new finance bill and dissolving the government cabinet, but the public was not buying it and continued to protest. In the end, Kenya's parliament voted to delete all 65 clauses in the 2024 Finance Act. Because this year's new act was deleted, taxation can only continue under the 2023 finance law.

As for this ruling by the Supreme Court of Kenya, the Kenyan government welcomed it, considering it a victory for its fiscal policy, but many Kenyans remain worried.

Opposition leaders and civil society groups have expressed deep disappointment and concern, after the court challenged the opposition-led protests of last year. All because the 2023 Finance Bill doubled the VAT on fuel, introduced a housing levy, and raised the top personal income tax rate. As a result, some opponents argue that this finance law places an undue burden on ordinary Kenyans, especially amid a high cost of living and economic hardship, and could spark a new round of protests.

For the coffee industry, although the finance bill favors commodity exports, the tax increases will undoubtedly have a negative impact on the coffee industry, raising production and transport costs and shrinking profit margins. At present, green coffee bean prices are rising in tandem with lower output and higher international prices, and the taxes may push up the prices of coffee and other products to offset the tax burden, while possibly dampening consumer willingness to buy.

In addition, the biggest and most urgent problem at present is the implementation of the EU Deforestation Regulation (EUDR), which will officially take effect in January 2025 and will deal a severe blow to Kenya's coffee industry. This is because 70% of Kenya's main coffee market is the EU, and currently only about 30%-40% of Kenya's coffee industry is certified. Certification bodies such as the Rainforest Alliance are working hard to help uncertified farmers, but the remaining time makes it difficult to complete the remaining 60%.

In addition, because most Kenyan coffee farmers are smallholders and are relatively scattered even within the same producing region, many farmers know nothing about the EU's new rules, and the cost of compliance is relatively high for some smallholders. Coffee industry insiders say the EU's new rules currently pose a huge challenge to Kenyan coffee growers and are also a test for the entire supply chain. The Kenyan government needs to act quickly to incentivize coffee cultivation, but the political situation is currently rather chaotic, and the development prospects of the coffee industry are unclear. If output cannot be increased, prices will see a substantial rise.

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