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REVENUE SHARING AMONGST COUNTY AND NATIONAL GOVERNMENT: WHO HAS THE FINAL SAY?

The recent stalemate between the National Assembly and the Senate over the Division of Revenue Bill 2019 has revealed a huge lacuna in the fiscal legislative framework. The stand-down happened after the Senate amended the Division of Revenue Bill, to increase the revenue allocation to the County Governments while decreasing the amount allocated to the National Government. As a result, Members of Parliament have refused to pass the amended Bill leaving the country penniless until further notice.

The implication has been far-reaching. Two months into the fiscal year, salaries have not been paid, services have not been procured and strikes are starting to spring around the country.

Although the Constitution through the Division of Revenue Act and the County Allocation of Revenue Act provides direction and identify key players who determine the revenue sharing framework, it does not clearly assign the final word to any of the institutions.

The Commission for Revenue Allocation recommended that in 2019/20 County Governments receive Ksh 314 billion with a Ksh21.7 billion adjustment for revenue growth. The Senate and the Council of Governors concur. However, the National Assembly declared that it will only allow a transfer of Ksh 316 billion citing shortfalls in nationally raised revenues.

Trends for revenue sharing

Legal basis for Revenue sharing

Article 203 (2) of the 2010 Constitution states that not less than 15% of revenue collected by the national government should be allocated to the devolved units. But who has the final say?

Five institutions play a decisive role in revenue sharing:

The constitution defines the roles of the institutions as follows; 

1. Commission on Revenue Allocation

Make recommendations concerning the basis for equitable sharing of revenue raised by the National Government between the National and County governments.

Ensure that for every financial year, not less than 15% of all nationally raised revenues shall be allocated to county governments (based on the most recent audited and approved revenue accounts by the National Assembly). In the case of Financial Year 2019/2020, the most recent audited accounts are in Financial Year 2014/2015.

Submit its recommendations to the Senate, the National Assembly, the National executive, County Assemblies, and County Executives.

Determine each county’s allocation based on national interest, development needs, and efficiency of County Governments, etc.

2. The Senate

Safeguard the interest of the County Governments

Determine the allocation of national revenue among counties

Exercise oversight over national revenue allocated to the county governments

Determine the basis for allocating the share of nationally raised revenues among the counties through a resolution which is approved by the National Assembly

Review the County Allocation of Revenue Bill and the Division of Revenue Bill while considering recommendations from the CRA, County Executive Committee members responsible for finance, the Intergovernmental Budget and Economic Council, the public and any other interested persons or groups

3. The National Assembly

Represent the people of the constituencies and special interests.

Deliberate on and resolves issues of concern to the people.

Determine the allocation of national revenue between the two levels of government.

4. The National Treasury

Prepare the annual Division of Revenue Bill and the County Allocation of Revenue Bill taking into consideration the recommendations of the Commission on Revenue Allocation and the Intergovernmental Budget and Economic Council.

Prepare the Budget Policy Statement (BPS).

Submit to the Parliament, the two revenue bills, BPS and a memorandum summarizing the reasons for deviating from CRA’s recommendations.

5. Parliament

Not later than 30 days after the introduction of the revenue bills, consider and approving them, with or without amendments.

Conclusion and Recommendation:

Provided by the above legal provisions, it’s clear that;

  1. The CRA sets the revenue recommendations based on the revenue sharing formula and through public consultations. These recommendations are submitted to the Senate, the National Assembly, the County Assembly, the National Executive and the County Executives for inputs and further action.
  2. The Senate considers the above recommendations and inputs from CRA, County Executive Member responsible for finance, the Intergovernmental Budget and Economic Council, the public and any other interested persons or groups. In doing so, they review and prepare proposals for the County Allocation of Revenue Bill.
  3. After considering proposals by the Senate, the National Assembly determines the allocation of national revenue between the levels of government.
  4. National Treasury submits the BPS, Division of Revenue Bill and County Allocation of Revenue Bill to the Parliament accompanied by a memorandum explaining deviations from recommendations of CRA & IBEC.
  5. The Parliament considers the two introduced Bills with a view to approving them, with or without amendments.
  6. Importantly, when members of the two houses fail to agree on the Bills, Article 113 of the CoK provides for the appointment of a mediation committee in an attempt to develop a version of the Bill that both houses will pass within 30 days.

In conclusion, Parliament has the final authority in passing the Division of Revenue Bill, however, with Parliament being comprised of both the Senate and National Assembly conflict of interest when passing the Bill is bound to arise as each tries to safeguard their interests.

The best way to resolve this would be to have a closed forum each year where the Intergovernmental Budget and Economic Council, the Senate, National Assembly, CRA, and National Treasury sit and deliberate on the equitable share. The outcome of this would be a decision made finally by the CRA as an independent body.

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