What the Supreme Court advisory means for the Division of Revenue

16 Jun, 2020 0 comments
Victor Odanga Victor Odanga

On 15th May 2020, the Supreme Court issued an advisory on four key PFM issues. For the benefit of those who may have not come across the advisory, the issues are summarized as follows;

  1. Whether the recommendation by the Commission on Revenue Allocation is binding upon both Houses during deliberations concerning the Division of Revenue Bill and the Appropriation Bill. The Court gave an opinion that “the recommendations by the Commission on Revenue Allocation are not binding upon either the National Assembly or the Senate.  What the two Houses cannot do however is to ignore or casually deal with such recommendations”
  2. What happens when the National Assembly and the Senate fail to agree on a Division of Revenue Bill, thereby triggering an impasse? The court gave an opinion that “in the event of an impasse, the percentage of the money to be withdrawn be based on the equitable allocation to Counties in the Division of Revenue Act of the preceding financial year. In keeping with the spirit of Article 222 (2) (b) of the Constitution, the money to be withdrawn shall be 50% of the total equitable share allocated to the Counties in the Division of Revenue Act.”
  3. Whether there should be timelines within which the National Government should release the equitable share of revenue to County Governments;  The court gave an opinion that “Any delay in releasing funds to Counties, has to be justifiable and must be explained in good time at a forum convened for that purpose by the National Government.” 
  4. Whether the National Assembly can enact an Appropriation Act prior to the enactment of a Division of Revenue Act? The Court gave an opinion that, “It follows in our view that in an ideal situation, the enactment of an Appropriation Act cannot precede the enactment of a Division of Revenue Act.”

Based on the four opinions issued by the Court, we would like to highlight the following;

  1. While the Supreme Court attempted to cushion county governments in case of an impasse during the Division of Revenue process by proposing an allocation of 50% of the preceding Division of Revenue Act allocations, it denied the national government the opportunity to access the same 50% of the estimates of its expenditure for that year. This is because the Constitution under Article 222(1) and 222(2) only allows for the national government to access the 50% of its estimates if only the appropriation bill has been enacted by Parliament but awaiting assent by the President. So without the Appropriation Bill being enacted by Parliament the national government cannot access the 50% of its estimates. The Appropriation bill is an essential piece of legislation as it is the legal instrument that authorizes the national government to withdraw money from the Consolidated Fund for the expenditure of the national government.

The paradox of this is that for the Supreme Court to direct that county governments be allocated 50% of the preceding Division of Revenue Act allocation in case of an impasse during the annual division of revenue process, the Court relied on Article 222 of the Constitution that allows the national government to access 50% of its estimates in case of a delay in the assent of the Appropriation Act.

This begs the question: did the Supreme Court issue an advisory to amend the Constitution to bar the national government from utilizing a constitutional provision while at the same time directing that the county governments be allocated revenues that the Constitution does not provide for? The advisory seeks to amend Article 222 and by including a clause to limit the National government from accessing a percentage allocation allowed by the same Constitution while equally amending Article 224 to allow county governments to develop their budgets on the basis of the 50% allocation pending approval of the Division of Revenue Bill.

It is our observation that this particular opinion might lead to a protracted process rather than provide the solutions for which the advisory was sought.  

It is evident that the advisory has caused some confusion which might lead to future court cases. We, therefore, recommend that the two houses of parliament need to rise to the occasion and amicably agree on an equitable sharing of revenues between the two levels of government to avoid conflicts that subject the process to a mediation process. This will ensure that both levels of government equally benefit from the process.

2. Secondly, we would like to emphasize that public finance management is a process and the respective phases are sequential from planning all the way to the audit of expenditure.  The Supreme Court failing to give direction through its third opinion on whether there should be timelines within which the National government should release County governments’ allocations contradicts its own advisory directing for the allocation of 50% of the previous year’s allocation to county governments’ in case of an impasse.

One of the reasons the Supreme Court directed that County governments be allocated a percentage of revenues in case of an impasse is that they opined that there would be a total freeze of the functions of the entire level of County government.  Such a freeze in their view would, in turn, lead to a serious disruption of the business of the National government, given the fact that the two levels of government are interdependent. This reasoning we agree with. However for the Court to fall short of invoking section 17(7) of the PFM Act 2012 – that requires the National Treasury to disburse funds on a timely manner to the counties based on a disbursement schedule approved by the Senate – defeats the purpose for recommending for an allocation to the counties in case of an impasse. 

This is because an allocation without transfer adds no value to the continuity in the provision of services by the county governments as the functions will still grind to a halt.

While we are of the view that the Supreme Court expressed goodwill for both levels of government during the production of the advisory, it is evident that there is an urgent need to to harmonize the public finance management framework for clarity of decisions.

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