The Division Of Revenue Bill, 2025

SPECIAL ISSUE

Kenya Gazette Supplement No.38(National Assembly Bills No.10)

REPUBLIC OFKENYA

KENYA GAZETTE SUPPLEMENT

NATIONALASSEMBLYBILLS,2025

NAIROBI,12thMarch,2025

CONTENT

Bill for Introduction into the National Assembly-

The Division of Revenue Bill,2025

PAGE

221

THE DIVISION OF REVENUE BILL,2025

ARRANGEMENT OF CLAUSES

Clause

• I-Short title.
• 2-Interpretation.
• 3-Object and purpose of the Act.
• 4-Allocations to national and county governments.
• 5-Variation in revenue.

SCHEDULE

EQUITABLE SHARE OF REVENUE RAISED NATIONALLY BETWEEN THE NATIONAL AND COUNTY GOVERNMENTS FOR THE

2025/26FINANCIAL YEAR.

APPENDIX

EXPLANATORY MEMORANDUM TO THE

DIVISIONOFREVENUE BILL,2025

THEDIVISION OFREVENUEBIL,2025

ABill for

AN ACT of Parliament to provide for the equitable

division of revenue raised nationally between the national and county governments in the 2025/26 financial year,and for connected purposes.

ENACTED byParliament ofKenya,as follows-

• 1.This Act may be cited as the Division of Revenue Short itle.
• Act,2025.
• 2.In this Act,unless the context otherwise requires "revenue"has the meaning assigned to it under section 2 of the Commission on Revenue Allocation Act.
• 3.The object and purpose of this Act is to provide for the equitable sharing of revenue raised nationally among the national and county governments in the 2025/26 financial year in accordance with Article 203(2) of the
• Constitution.
• 4.Revenue raised nationally inrespect of the national and county governments as set out in the Schedule
• 2025/26 financialyear shall be shared equitably among the to this Act.
• 5.(1) If the actual revenue raised nationally in the financial year falls short of the expected revenue set out in the Schedule,the shortfall shall be borne by the national government.
• (2)If the actual revenue raised nationally in the financial year exceeds the projected revenues set out in the Schedule, the excess revenue shall accrue to the national
• government,and may be used to reduce borrowing or pay debts.

Interpreiapion.

Cap.428.

Object and purpose of the

Allocationsto nationaland county governments.

Variation in revenue.

SCHEDULE

(s.4)

ALLOCATION OFREVENUERAISEDNATIONALLYBETWEEN THENATIONAL GOVERNMENT AND COUNTY GOVERNMENTSFORTHE 2025/26FINANCIALYEAR

| Type/level of allocation | Amount in KSh. | Percentage (%)of 2020/21 audited and approved Revenue i.e.KSh. 1,570,562,945,014 | |----------------------------|-------------------|------------------------------------------------------------------------------------| | A.Totai SharableRevenue | 2,835,040,979,609 | | | B.National Government | 2,419,382,005,336 | | | Equalization Fund | 10,589,554,076 | | | Ofwhich:a) 0.5Per Centum | 7,852,814,725 | 0.5% | | b)Arrears | 2,736,739,351 | | | D. County equitable share | 405,069,420,197 | 25.79% |

MEMORANDUM OF OBJECTS AND REASON

The principal object of this Bill is to provide for the equitable

division of revenue raised nationally among the national and county governments as required by Article 218 of the Constitution in order to facilitate the proper functioning of governments and to ensure continuity of service delivery to the citizens.

Clauses 1 and 2 of the Bill provide for the short title and the

definition of terms as used in the Bill, respectively.

Clause 3 of the Bill contains the objects and purpose of the Bill.

Clause 4 of the Bill prescribes the allocations for the national government and the county governments from the revenue raised nationally for the 2025/26 financial year.

Clause 5 of the Bill outlines the mechanisms for adjusting for variations in revenues emanating from revenue performance during the financial year in which this Bill relates to.

Dated the 12th March,2025.

GLADYSBOSS, Chairperson,Liaison Committee.

APPENDIX

EXPLANATORY MEMORANDUM TO THEDIVISION OF REVENUEBILL,2025

Background

• 1.This memorandum has been prepared as an attachment to the Division of Revenue Bill (DoRB),2025 in fulfilment of the requirements of Article 218(2) of the Constitution and section 191(5) of the Public Finance Management Act (Cap.412A).
• 2.Article 218(2) of the Constitution requires that the Bill be
• explaining:
• a) the proposed revenue allocation set out in the Bill;
• b) the extent to which the Bill has taken into account the provisions of Article 203(1) of the Constitution;and
• c)asummary ofany significant deviation fromthe recommendations of the Commission on Revenue Allocation (CRA),with an explanation for each such deviation.
• 3.Section 191 (5) of the Public Finance Management Act (Cap. explains:
• a)how the Bill takes into account the criteria listed in Article 203(1) of the Constitution;
• b) the extent of the deviation from the Commission on Revenue Allocation's recommendations;
• the extent,if any,of deviation from the recommendations of the Intergovernmental Budget and Economic Council;and
• d any assumptions and formulae used in arriving at the respective shares mentioned in section 191(2) and (3) of the Public Finance Management Act (Cap.412A).

Explanation of the Allocations to the National and County Governments as Proposed in the Bill

County Governments'Equitable Share

4. The Bill proposes to allocate County Governments KSh. 405.1 billion for the financial year 2025/26 as equitable share of revenue raised nationally, translating to an increase of Ksh.17.6 billion from a base of KSh.387.4 billion allocated in the financial year 2024/25.

• 5.In the financial year 2024/25,the Division of Revenue (Amendment)Act,2024,allocated KSh.387.4billionto.County Governments as equitable share resulting from mediation between the National Assembly and the Senate
• 6.The National Treasury has proposed an allccation of KSh 2,419.4 billion to the National Government,and KSh.405.1 billion to County Governments in financial year 2025/26,translating to an increase ofKSh. 17.6 billion (see Table).
• Table 1:Equitable Revenue Share Allocation toCounty Governments,Financial Year2025/26
• 7.The proposed County Governmentsequitable revenue share allocation of KSh.405.1 billion is informed by the following factors:
• a)Trends in the performance of revenue (this was taken into consideration in determining the KSh.17.6 billion increase in equitable share of revenue in financialyear 2025/26);
• b)Increased expenditures for National Government for purposes of debt servicing coupled with a weakened shilling against the dollar,
• C The Government commitment to implement a fiscal consolidation plan targeting to reduce the fiscal deficit to 4.3 percent of GDP in financial year 2025/26.Thisisdesignedtoslow down accumulation of public debt,improve primary surplus thereby achieve fiscal sustainability;
• d)Financing constraints due to limited access to finance in the domestic and international financial markets,
• geopolitical shocks.The global economy is on a recovery path from the negative shocks in supply chain constraints and the rising US Federal Reserve interest rate that destabilized dollar exchange rate and the international debt market.,and

| BUDGETITEM | Amount (KSh,milion) | |---------------------------------------------------------|-----------------------| | 1.Baseline (i.e.allocation in the previous FY 2024/25) | 387,425 | | Add: Adjustment for Revenue Growth | 17,644 | | Equitable Revenue Share allocation for FY 2025/26 (1+2) | | | | 405,069 |

Source:National Treasury

Table 2:Evaluation of the Bill against Article 203 (1) of the Constitution

| ITEM DESCRIPTION (KSh.millions) | | | FY2021/22FY2022/23FY2023/24 | FY 2024/25*2025/26** | | |------------------------------------------------------------------------------------------------------------------------|----------------|-----------------|-------------------------------|------------------------|-----------------| | ORDINARY REVENUE EXCLUDING AIA) | 1,775,624 | 2,141,584 | 2,565,959 | 2,631,4182,835,041 | | | National Interest[Article 203(1)(a)] | 83,197 | 92,466 | 97,854 | 92,456 | 101,252 | | Enhancement of security operations (police vehicles,helicopters,defense etc.) | 22,261 | 24,299 | 23,969 | 33,044 | 33,320 | | Nationalirrigation &fertilizer clearance | 11,199 | 16,800 | 24,654 | 17,943 | 16,994 | | Youth empowerment | 14,548 | 15,290 | 13,087 | 10,290 | 11,175 | | National social safety net-(for older persons, OVC,childwelfreresidentialbursary, severe disability,Hunger Safety Net) | 29,286 | 31.074 | 31,120 | 29,178 | 33.763 | | Primaryschool digital literacyprogram | 1,800 | | | | | | School examination fees (KSCE &KCPE& Grade 6(CBC Examination) | 4,103 | 5,003 | 5,023.47 | 2,000 | 6,000 | | Public debt(Art.203 [1][b]) | 1,174,013 | 930,354 | 1,187,784 | 1,340,588 | 1,606,419 | | Other National obligations (Article.203 [b) | 557,863 | 595.269 | 691,148 | 738,456 | 758.368 | | Pensions,constitutional salaries &other | 136,978 | 145,951 | 211.019 | 227.357 | 239,623 | | Constinitional commissions(Art.248(2)) i.e, CRA,,C,C, | 299,333 | 321,968 | 332,497 | 355.313 | 391,101 | | Independent offices(Art.248(3)-ie.,AG& CoB | 6,499 | 6,981 | 8,756 | 8,808 | 9,430 | | Parliament Other constitutional institutions-StateLaw | 37,883 | 38,477 | 41,002 | 40,865 | 42,488 | | Office and DPP | 8,371 | 8,713 | 10,054 | 9.414 | 10,478 | | Other statutory bodies (e.g,EACC,RPP, WPA,CAJ,IPOA,NG) | 7,036 | 8,462 | 9,002 | 8,911 | 9,714 | | Judiciary | 17,918 | 18,297 | 22,287 | 22,505 | 25,750 | | Otherstatutoryallocations/earmarkedfunds (e.g.,NG-CDF,Affirmative Action) | 43,845 | 46,420 | 56,532 | 65,283 | 29,785 | | Emergencies[Art.203(1)(k)] | 5.000 | 5,000 | 1,200 | 4,000 | 5,000 | | a)Contingencies | 5,000 | 5.000 | 1,200 | 4,000 | 5,000 | | b) Strategic grain reserve | | | | | | | Equalization Fund[Art.203(1)(g)and (h)] Of which: | 6,825 | 7,068 | 10,867 | 8,000 | 10,590 | | Allocation inFY2025/26 | | | | | | | Arrears | | | | 7,867 | 7.867 | | | | | | 147 | 2,737 | | BALANCE TO BESHARED BY THE 2 County Government allocation from LEVELS OF GOVERNMENT | -7,429 | 547,843 | 577,106 | 447,918 | 353,411 | | revenue raised nationally of which;- | 377,537 | 375,654 370.000 | 391,661 380,645 | 394,419 | 417,964 405.069 | | a)Equitable Share of Revenue b) Additional conditional allocations financed fromrevenuesraised nationally | 370,000 | 5,654 | 11,016 | 387,425 6,994 | 12,894 | | Balance left for the National Government | 7,537 -384,966 | 172,189 | 185,445 | 53,499 | (64,553) |

• 11.National Interest:These are expenditures which relate to
• projects and programmes that:
• are critical to the achievement of the country's economic
• development objectives;
• potentially will have significant impact on social well-being of citizens;
• are anchored in the Vision 2030 and the Medium-Term Plan IV
• (2023-2027);
• are addressing the Bottom-Up Economic Transformation Agenda (BETA)ofthe Government;
• have significant resource investment requirements and whose benefits accrue nationwide;and
• are contained in the 2025 Budget Policy Statement.

The identified programmes of national interest inchude:activities aimed at enhancing security operations;national irrigation and fertilizer

subsidy initiatives;Youth Empowerment;provision of national social safety net for vulnerable groups,and school examination fees subsidy.

• 12.Allocations for these programsis expected to increase significantly by KSh.8.8 billion from KSh.92.5 billion in financial year 2024/25to KSh.101.3 billion in financial year 2025/26 asshown in Table 2.This increase is largely accounted for by the KSh.4.6 billion increase in expenditures on National Safety Net Programme to cover the elderly persons under the Indigent Fund for Social Health Authority;and the KSh. 4.0 billion additional funding towards school examination fees.
• 13.Public Debt:The Bill has taken into account public debt related costs. These comprise the annual debt redemption cost as well as the interest payment for both domestic and external debt.In fin ancial year 2025/26,the allocation for payment of public debt related costs is expected to increase from KSh.1,340,588 million allocated in financial year 2024/25 to KSh.1,606,419 million allocated in the fiaancial year 2025/26,reflecting an increase ofKSh.265.8 billion.
• 203(1) (b) of the Constitution, the Bill has also taken into account the requirements for other national obligations, such as,mandatory pension contributions and/or payments,financing for constitutional offices, including Parliament and Judiciary as well as expenses re lating to other statutory bodies. These are estimated to cost KSh.758,368 million in
• financial year 2025/26 up from KSh.738,456 million a.llocated in the

• 17.6 billion higher than the allocation of KSh. 387.4 billion for financial year 2024/25. This is an unconditional allocation which means that the County Governments can independently plan,budget and spend the funds. With the resources, therefore, County Governments are able to prioritize projects and allocate resources, thus optimizing their potential for economic development.
• 24.Stable and Predictable Allocations of County Governments Vertical Share of Revenue: The County Governmentsequitable share of revenue raised nationally has been protected from reductions that may be occasioned by shortfall in revenue raised nationally more so in the advent of the effects of projected global economic downturn in 2025.According to Clause 5of the Division of Revenue Bill (DoRB) 2025,the National Government will bear any shortfall in revenue raised nationally

25. Need for Flexibility in Responding to Emergencies and Other Temporary Needs: The National Government equitable share of revenue has an allocation of KSh. 5 billion for the Contingencies Fund established pursuant to Article 208 of the Constitution. This Fund will be used to meet the demands arising from urgent and unforeseen needs in all Counties that suffer from calamities in the manner contemplated under sections 19-21 of the Public Finance Management Act (Cap. 412A). In addition, the Public Finance Management Act (Cap. 412A)requires each County Government to set up a County Emergency Fund. County Governments are, therefore,expected to set aside budgets to respond to emergency functions.

• 26.It should be noted that after taking into account all the other
• factors contemplated under Article 203(l) of the Constitution,including the needs of County Governments,there are no resources left to finance other National Government needs,such as defense,roads,energy among others.In fact, the National Government is left with a deficit amounting to KSh. 64.6 billion to finance needs of other non-discretionary expenditures such as salaries of National Government staff. To bridge this financing gap, the National Government will require additional borrowing which may negatively impact on the fiscal consolidation plan.

Summary of Deviations from the Recommendations of the Commission on Revenue Allocations

• 27.The Division of Revenue Bill, 2025 proposes to allocate county governments an equitable share of KSh. 405.1 billion from the shareable revenue raised nationally to be shared among county governments on the Article 217of the Constitution.The CRA,on the other hand,recommends
• third basis formula for sharing revenue approved by Parliament under County Governments'equitable share of revenue of KSh.417.4 billion as

an unconditional allocation to be shared among county governments on the proposed fourth basis formula for sharing revenue submitted to Parliament for consideration and approval pursuant Article 2i7 of the Constitution.

• 28.The difference between the proposed allocation by the National Treasury and CRA is occasioned by:-
• (a)Adjustment for Revenue Growth:-While the National Treasury has proposed an increase of KSh.17.6 billion to county governmentsequitable share, the CRA has proposed an increase ofKSh.30.0 billion,in FY 2025/6,resulting into a differenceof KSh.12.4billion;and
• (b) Assumptions Used in Arriving at the Respective Shares: Both the National Treasury and the CRA have made varying assumptions in arriving at the respective proposals on County Equitable Share for FY 2025/26,as discussed in paragraph 29 for the National Treasury;and paragraph 30 for the CRA.
• Table 3 analyses the approaches by CRA and the National Treasury in computing the proposal on the division of revenue between the national and county governments in FY 2025/26.
• Table 3: Comparison of approaches towards recommendations of the Commission on Revenue Allocation and the National Treasury on the equitable share of revenue proposed 2025/26 Financial Year

| Expenditure Item | CRA | National Treasury B(million) | Variance C=(A- B(million)) | |-----------------------------------------|------------|--------------------------------|------------------------------| | | A(million) | | | | 1.Equitable Revenue Share in FY 2024/25 | 387,425 | 387,425 | 387.425 | | Add: | | | | | 2. Increase in Revenue Allocation | 30,000 | 17,644 | 12,366 | | TOTALEQUITABLEOFREVENUE=(2+3) | 417,425 | 405,069 | 12,366 |

Source:The National Treasury

Assumptions Usedin Arriving at the Respective Shares

• 29.In arriving at the allocation of KSh.405.1 billion,the National Treasury was informed by the following economic assumptions:
• The Equalization Fund arrears to be financed from the National Government's share of revenue;
• 11 That there will beno major economic shocks negatively affecting forecasted revenue in financial 2025/26;

• (i)That Ordinary revenues projected at KSh.2,835 billhion (14.7 %of GDP) from KSh.2.6314billion(14.6%of GDP)in financial year2024/25is attainable;
• exchange rates;
• (FThat inflation shall remain stable within the government target of5+2.5 percent;
• (vi) That there shall be a steady GDP growth momentum with a projection of 5.3 percent in2025:and
• (vii) That County Governments will continue to enhance their Own Source Revenues to reduceoverrehiance on national transfers and improve therr fiscal sustainability.
• 30.In arriving at the allocation of KSh.417.4 billion,the CRA was informed by the following factors
• (a)The need to ensure adequate resources for counties to perform assigned functions
• (b)To provide for counter-part funding of shared commitments for County aggregated parks and community health promoters
• (e)The need to ensure County Governments are able to meet financial obligations ofnon-discretionary commitmentssuch as Housing Levy and Universal Health Coverage
• FY 2024/2supon the application of the fonrth basis revenue sharing among counties
• (e)Predictable and stable allocation to Counties in line with Article 203(2)(c)&j
• () Meeting of National Government provisions for National Debt and obligations under Article 203 (1) (b)

Conclusion

31.The proposals contained in the Bill take into account the fimancial objectives set out in the 2025 BPS and are intended to achieve fiscal sustainability against the backdrop of escalating expenditure pressure on the fiscal framework occasioned byan mcrease in Consolidated Fund Services (CFS) and the persistent underperformance of ordinary revenue. As demonstrated above,any increase in county allocation beyond the KSh. 405.1 billion proposed by the National Treasury will necessitate additional