Division of Revenue and Allocation of Revenue in Kenya
How do you distinguish between the division of revenue and allocation of revenue in Kenya? The division of revenue and allocation of revenue are terms you will find in public finance management in Kenya.
For the national government and the 47 county governments to function, they need financial resources. The citizens fund these two levels of government through their taxes. The financial resources are important for public service delivery at the national and the county level.
Article 209 of the Kenyan Constitution stipulates the powers granted to each level of government to impose taxes and charges.
Only the national government may impose —
- income tax;
- value-added tax;
- customs duties and other duties on import and export goods; and
- excise tax.
The county governments may impose property rates, entertainment taxes and any other taxes that an Act of Parliament may authorise.
Therefore, when talking about the division of revenue and the allocation of revenue in Kenya, we shall focus on the revenue collected by the national government as mentioned above. This is the ordinary revenue (or tax revenue) that the national government collects each financial year.
Now, let’s distinguish between the division of revenue and allocation of revenue in Kenya.
Article 202 of the Kenyan Constitution provides for the division of revenue in Kenya. It states that the revenue raised nationally should be shared equitably among the national and county governments.
Therefore, the division of revenue is the sharing of tax revenue raised nationally between the two levels of government.
This process of sharing revenue between the national and county governments is referred to as vertical sharing. This is because the two levels of government are involved in this stage.
To facilitate the process of division of revenue, Article 218 (1)(a) of the Kenyan Constitution provides for the Division of Revenue Bill. The Bill serves the purpose of dividing the revenue raised by the national government between the national and county levels of government in accordance with the Constitution.
The National Treasury prepares this bill and should table it in Parliament two months before the end of the financial year. Normally, the National Treasury tables the bill on February 15 every year (and the financial year ends on 30th June).
Both the Senate and the National Assembly are involved in the process of division of revenue. Once a house of parliament approves the bill with or without amendments, it goes to the other house for consideration. If both houses agree on the amendments, then the bill is forwarded to the president for assent.
If both houses do not agree on the bill in its form or after amendments by either of them, then they should form a mediation committee according to Article 113 of the Constitution.
The Speakers of both Houses should appoint a mediation committee consisting of equal numbers of members of each House to attempt to develop a version of the Bill that both Houses will pass.
If the mediation committee agrees on a version of the Bill, each House should vote to approve or reject that version of the Bill.
If both Houses approve the version of the Bill proposed by the mediation committee, the Speaker of the National Assembly should refer the Bill to the President within seven days for assent.
If the mediation committee fails to agree on a version of the Bill within thirty days, or if a version proposed by the committee is rejected by either House, the Bill is defeated.
One signed into law, the Division of Revenue Bill becomes the Division of Revenue Act. This is an Act of Parliament to provide for the equitable division of revenue raised nationally between the national and county governments.
The national government’s equitable share of revenue is deposited in the Consolidated Fund.
The Senate also has another role to play in the division of revenue process according to Article 217 of the Constitution.
Once every five years, the Senate should, by resolution, determine the basis for allocating among the counties the share of national revenue that is annually allocated to the county level of government.
This basis of revenue sharing is the revenue sharing formula. The Commission on Revenue Allocation usually comes up with the formula which then goes to parliament for approval.
In determining the basis of revenue sharing, the Senate should-
- take the criteria in Article 203 (1) into account (criteria for determining the equitable shares provided for under Article 202) ;
- request and consider recommendations from the Commission on Revenue Allocation;
- consult the county governors, the Cabinet Secretary responsible for finance and any organisation of county governments; and
- invite the public, including professional bodies, to make submissions to it on the matter.
Within ten days after the Senate adopts a resolution, the Speaker of the Senate should refer the resolution to the Speaker of the National Assembly.
Within sixty days after the Senate’s resolution is referred, the National Assembly may consider the resolution, and vote to approve it, with or without amendments, or to reject it.
If the National Assembly–
- does not vote on the resolution within sixty days, the resolution should be regarded as having been approved by the National Assembly without amendment; or
- votes on the resolution, the resolution should have been-
- amended only if at least two-thirds of the members of the Assembly vote in support of an amendment;
- rejected only if at least two-thirds of the members of the Assembly vote against it, irrespective whether it has first been amended by the Assembly; or
- approved, in any other case.
If the National Assembly approves an amended version of the resolution or rejects the resolution, the Senate, at its option, may either —
- adopt a new resolution, in which case it is submitted to and considered by the National Assembly afresh; or
- request that the matter is referred to a joint committee of the two Houses of Parliament for mediation under Article 113, applied with the necessary modifications.
A resolution that is approved by the National Assembly should be binding until a subsequent resolution is approved.
Any time within the five years, the Senate may, by resolution supported by at least two-thirds of its members, amend a resolution at any time after it has been approved. With the necessary modifications, the procedure for consideration of the resolution as discussed above applies in this case
Once the division of revenue is carried out, the Senate now determines how much each of the 47 counties should get from the county’s share of the national revenue. This is referred to as horizontal sharing.
The County Allocation of Revenue Bill under Article 218(1) (b) facilitates the allocation of revenue in Kenya.
The County Allocation of Revenue Bill divides among the counties the revenue allocated to the county level of government on the basis determined in accordance with the resolution in force under Article 217 (the revenue sharing formula).
The Cabinet Secretary in charge of finance should prepare and table the bill two months before the end of the financial year. The bill is usually tabled on February 15th of each year.
Once the Senate approves the Bill, it becomes the County Allocation of Revenue Act. This then officially determines how much of the county equitable share each county should get based on the revenue sharing formula.
Each county’s equitable share of revenue (except some conditional grants) is deposited in the County Revenue Fund.
Therefore, to distinguish between the division of revenue and allocation of revenue in Kenya, it is important to know that:
- the division of revenue in Kenya is between the national and the county government (vertical sharing).
- both the Senate and the National Assembly are involved in the division of revenue process.
- the division of revenue is carried out through the Division of Revenue Bill (or Act when enacted by parliament).
- the Senate should come up with a revenue-sharing formula for the counties which should be considered by both houses of Parliament.
- the allocation of revenue in Kenya is among the 47 county governments after the vertical sharing is carried out (horizontal sharing).
- the Senate is in charge of the county allocation of revenue process.
- the county allocation of revenue is carried out through the County Allocation of Revenue Bill (or Act when enacted by the Senate).
- The National Treasury prepares both the Division of Revenue and Allocation of Revenue Bills and tables them in Parliament.