The County Allocation of Revenue Bill, No. 9 of 2025

SPECIAL ISSUE

Kenya Gazette Supplement No.95 (Senate Bills No.9)

REPUBLIC OF KENYA

KENYA GAZETTE SU PPLEMENT

SENATE BILLS,2025

NAIROBI, 24th June, 2025

CONTENT

The County Allocation of Revenue Bill, 2025

PAGE

147

Bill for Introduction into the Senate -

THE COUNTY ALLOCATION OF REVENUE BILL,

2025

ARRANGEMENT OF CLAUSES

Clause

• l-Short title.
• 2-Interpretation.
• 3-Object.
• 4-Equitable allocation of county governments'share of
• revenue.
• 5-Budget ceilings for recurrent expenditure.
• 6-Funding of transferred functions.
• 7-Report on actual transfers.
• 8-Books of accounts to reflect National Government
• transfers.
• 9-Financial misconduct.
• l0-Applicable revenue - sharing formula.

FIRST SCHEDULE: ALLOCATION OF EACH COUNTY

GOVERNMENTS'

EQUITABLE SHARE OF

REVENUE RAISED

NATIONALLY,

FINANCIAL YEAR

2025t2026

SECOND SCHH)LILE: COUNTY GOVERNMENT BUDGET CEILINGS OF RECURRENT EXPENDITURE IN FINANCIAL YEAR 202512026

THE COUNTY AI,LOCATION OF REVENUE BILL,

202s

{ Bill for

• AN ACT of Parliament to provide for the equitable allocation of revenue raised nationally among the county governments for the 202512026 financial year; the responsibilities of national and county governments pursuant to such allocation; and for connected purposes.

ENACTED by Parliament of Kenya, as follows-

1. This Act may be cited as the County Allocation of 2. Revenue Act,2025. 3. 2.In this Act -

"Cabinet Secretary" means the Cabinet Secretary responsible for matters relating to finance; and

"revenue" has the meaning assigned to it under section

2 of the Commission on Revenue Allocation Act.

3. The object of this Act is to - 2. (a) provide, pursuant to Article 218(l)(b) of the Constitution, for the allocation of an equitable share of revenue raised nationally among the county governments, in accordance with the resolution approved by Parliament under Article 217 of the Constitution for the financial year 2025126; and 3. (b) facilitate the transfer of allocations made to counties under this Act from the Consolidated Fund to the respective County Revenue Funds. 4. (l) Each county governments' equitable share of 5. revenue raised nationally, on the basis of the revenue sharing formula approved by Parliament in accordance with Article 217 of the Constitution in respect of the financial year 2025126 shall be as set out in Column F of the First Schedule.

• (2) Each county government's allocation under subsection (l) shall be transferred to the respective County Revenue Fund in accordance with a payment schedule approved by the Senate and published in the Gazette by the

Shon litle

Intcrpretation

Cap.428

Objecl

Equitable allocatioo of coutlty govcmments'

shart of rcvcnue Cabinet Secretary in accordance with section 17 of the Public Finance Management Act.

5. The budget ceilings for recurrent expenditure for county governments for the financial year 202512026 shall 2. be as set out in the Second Schedule. 6. (l) Where a county government has transferred a function to the National Government pursuant to Article 187 of the Constitution, the respective county executive in consultation with the National Government shall determine the cost of the transferred functions.

• (2) The respective county assembly shall appropriate such monies as may be required for the transferred function in accordance with the determination made under subsection (l) and the allocation shall not be less than the amount appropriated by the county assembly in the preceding fi nancial year.
• (3) The monies appropriated under subsection (l) shall be transferred to the National Government.
• (4) A national government entity to which a county government function has been transferred shall submit a quarterly report to the Senate and the respective county assembly on the status of the discharge of the devolved function.
• (5) The Auditor-General shall, no later than three months after the end of a financial yeiu, prepare a special audit report on the financial and non-financial performance of an entity to which a county government function has been transferred.
• (6) The Auditor-General shall submit the report under subsection (5) to the Senate and the respective county assembly.

7. The Cabinet Secretary shall publish a monthly report on actual transfers of all allocations to county governments.

• E. (l) Each county treasury shall reflect all transfers by the national government to the county governments in its

11. books of accounts.

Cag 4l2A

Budget ceilings for recurrcnt expenditure.

Funding of transferred

functions.

Rcpon on actusl transfers.

Books of accounts to rcflect Nstional Government

transfers.

• (2) The estimates of revenue of each county shall separately reflect the total equitable revenue share under section 4 of this Act transferred to the County Revenue Fund.
• (3) A county treasury shall as part of its consolidated quarterly and annual reports required under the Public Finance Management Act report on actual transfers received by the county government from the national government, up to the end of that quarter or year in the format prescribed by the Public Sector Accounting Standards Board or in the absence of a format prescribed by the Board, in the format prescribed by the National Treasury.

9. Despite the provisions of any other law, any serious or persistent non-compliance with provisions of this Act constitutes an offence under the Public Finance Management Act. 10. For the avoidance of doubt the allocation of the equitable share of revenue to county governments under section 4 of this Act shall be in accordance with the fourth determination of the basis of the division of revenue among counties approved by Parliament pursuant to Article 217(7) 5. of the Constitution.

Cap.4l24

Financial

misco[ducl

Cap. 4l2A

Applicable revcnue-sharing

formula.

FIRST SCHEDULE

Allocation of Each County Government's Equitable Share of Revenue Raised Nationally in the FY 2025126.

| | | B8s€line Allocation of Ksh3t7.425 billion | B8s€line Allocation of Ksh3t7.425 billion | Amrmetive ActioIl Allocation | Addltiond equltsblc share above Ksh39l.t85 (Ksh23.l lSblllion) | Addltiond equltsblc share above Ksh39l.t85 (Ksh23.l lSblllion) | Totrl Equltrble Shere | |-------|-------------------|---------------------------------------------|---------------------------------------------|--------------------------------|------------------------------------------------------------------|------------------------------------------------------------------|-----------------------------| | SN | County | Allocation factor | Equitsble share | Ksh.4.46 Billion | Allocrtion Ratio | llquitsble Shqre | | | | | A | B | C | I) | H | F=B+C+L | | | Baringo | t.72520 | 6b83,8'13 223 | | 1.72966 | 399,810,r61 | 7083,683J84 | | 2 | Bomet | I .81070 | 70l5.l2l .755 | | I .86926 | 432978.744 | 7.44'12@.499 | | -l | Bungoma | 2.88331 | I I .170.673599 | | 2.88't22 | 66738 t 06? | I I,838,054,666 | | I | B usia | 1.93971 | 1 5t4,935 582 | | 1.91057 | 441,628,416 | 7.956564058 | | 5 | Elgeyo- Marakwet | 1.24585 | 4.826.732pt9 | 371,666,667 | 1.37031 | 316;748,026 | 5 5 t5 ,146,7 t2 | | 6 | Embu | 1.3860-5 | 5.369,896.832 | 371.666.667 | 1.45307 | 335.8?8.174 | 6077 ,44t.672 | | '7 | Garissa | 2.13988 | 8290.44',7 365 | | 2.5,()9.1 | 587337,3 r l | 8,87't.' \1.676 | | tt | Homa-Bay | 2.10887 | 8,1702E0,800 | | 2.05968 | 4't6p95 263 | 8 ,646 -3 76 ,063 | | 9 | Isiolo | I .2708-l | 4 .923 507 .187 | 17 I .666 .66',1 | | .45.140 | 336.183.,145 | 5,63 | 357298 | | lo | Kajiado | 2.t539'l | 8345,013.6r0 | | 2.376t2 | s49241276 | 8,894254,886 | | ll | Kakamega | 3.35046 | l 2 .980 -503 320 | | 3.00387 | 694,34s 246 | l3,674,848 J66 | | t2 | Kericho | | 739:tO | 6,738,465.302 | | I .90440 | 440 203 054 | 7, r78.668,356 | | l3 | Kiambu | 3.17318 | t2293.696,67 4 | | 3.36630 | 't78,t2t 3t2 | 13,071 ,8 r ?986 | | tl | Kilifi | 3.14t2I | t2,t69,E43,476 | | 2.78414 | 643 5s3 294 | l2,E 13J96,770 | | l5 | Kirinyaga | I .40654 | 5.449 212 J t9 | 37 t.666,661 | t.4307',7 | 330,722 506 | 6.151.661.892 | | t6 | Kisii | 2.40 t9'1 | 9305.835,688 | | 2.223t'.? | 5 t3,886,080 | 9,819J21,768 | | t1 | Kisumu | 2.16954 | 8,405.328 J73 | | 2.14881 | 496.698365 | 8,902.026,938 | | lll | Kitui | 2.80983 | 10,885,968,099 | | 2.6'1333 | 6t'7 939,738 | I 1503,9O7,837 | | l9 | Kwale | 2.22634 | 8.625.41 I .603 | | | .96101 | 453 288.040 | 9 07 8 ,699,643 | | lo | Laikipia | I .39047 | 5387 p34;132 | 3',n.ffi,61 | 1.494t8 | 345 J80,610 | 6,104.082,008 | | I | Lamu | 0.84in2 | 3 254 A3O.723 | 371.666,67 | I .00162 | 23t 523,8t5 | 3,851 .62t 205 | | 22 | Machakos | 2.47',7 t8 | 9 597 2n.9q | | 2.5t't 45 | 5tt I .901t.?4 t | 10,179,t 32,681 | | 23 | Makueni | 2.t9328 | 8,49't 308212 | | 2 t1237 | 479,027,382 | 8,976,335,654 | | 24 | Mandera | 3.01752 | ,690,6t8J6O | | 2.485t'I | 574,M6,433 | t226s pu.993 | | 25 | Marsabit | r .96093 | 7 59't ,tst,t94 | | 2.r9995 | 508J r 7,884 | 8,105.669078 | | 26 | Mcru | 1.5667Ii | I,9.r434O 380 | | 2.6f12't | 609.605 579 | 10J53,946059 | | 2'l | Migori | 2.1&31 | 8 38s,076399 | | 2.r5818 | 498,863 320 | 8.883.939J l9 | | 28 | Momhasir | 2.03902 | 7,899.674038 | | 2.09263 | 483,1t t 243 | 83E33E5 28 r | | 29 | Murang'a | 1.93892 | 751 I,867,031 | | r .97966 | 457597.845 | 7,969A@,8',t6 | | 30 | Nairobi City | 5.20842 | 20.178.7|.957 | | 5.35763 | r,238,416,440 | 2t ,4t't ,t28397 | | 3l | Nakuru | 3.52765 | I 3 ,666 997 ,646 | | 3.40969 | 788.r 500 r2 | t 4,455,t47,658 | | l2 | Nandi | 1.89613 | 734607 r .107 | | 1.84169 | 425;706,959 | '7 J',l t J78,066 | | 33 | Narok | 2.38546 | 924r,8@5r9 5-159,987,994 | 31t,666,66',1 | 2.2862t .47861 | 528,456,62'l 341.179,695 | 9."l'to3t't,t46 6p73,434356 | | 34 35 | Nyamira Nvandarua | t.38349 r.53230 | 5,936521,652 | 31t,666.667 | I t.53358 | 354,487 312 | 6,662,675,63t | | l6 | Nyeri | t.68255 | 6-518,609255 | | r.63324 | 377 523,4t8 | 6,896.r 32,673 |

| | | Baseline Allocation of Ksh3t7.425 billion | Baseline Allocation of Ksh3t7.425 billion | Alnrmatlv€ Actlon Allocstlon Ksh.4.46 | Additionsl equitable share sbove Ksh39l.885 (Kshl3.l l5bllllon) | Additionsl equitable share sbove Ksh39l.885 (Kshl3.l l5bllllon) | Total Equitable Share | |-----|----------------|---------------------------------------------|---------------------------------------------|-----------------------------------------|-------------------------------------------------------------------|-------------------------------------------------------------------|-------------------------| | SN | County | Allocation fsclor | Equitable shsre | Billion | Allocatioo Rotlo | Equitable Share | | | II | | A | B | C | l) | t: | l =ll+C+ll | | 37 | Samburu | L.15l.l4 | 5.62322E 509 | 31t.666,667 | I .47988 | 342075,188 | 6 336 970 364 | | 38 | Siaya | 1.88462 | 7 301 ,473,431 | | t.95979 | 453,005,454 | 7,75437E,EE5 | | 39 | Taita- Taveta | l,30764 | 5 066,l 38 383 | 37 t,666,66'7 | 1.39582 | 322.644,636 | 5 .760 ,449,68 5 | | .10 | Tana-River | t.76156 | 6,824,718,834 | | 1.72077 | 397 .7 55,896 | 7 222,474,730 | | 4l | Tharaka- Nithi | r .r 3558 | 4399508.312 | 311 .666,661 | I .242t0 | 2E7,|t3t4 | 5058,286293 | | 42 | Trals- Nzoia | I .94631 | 7 5q5OO922 | | 1.94941 | 450,619,915 | 7,991,120,837 | | 43 | Turkana | 3.41054 | t3 2t3 283 320 | | 2.93876 | 6't9294,05t | t3,8925't'137t | | 44 | Uasin- Gishu | 2. r8685 | 8172 398,96t | | 2. t 8307 | 5M,615,809 | 8,9'77 914;77O | | 45 | Vihiga | | .36618 | s 29292t,@8 | 31t,ffi,667 | t.481i92 | 344,162.910 | 6.0o8,751 224 | | 46 | Wajir | 2.55606 | 9 902 J99,O4l | | 2.6t640 | @4,78t,642 | 10J07580,683 | | 47 | West Pokot | 1.70@7 | 6.@9J35;t l4 | | t.69885 | 392.690294 | 7 ,002 .426 ,00 8 | | | Total | 100 | -187,425.m0.fiX) | 4,460.m,0.000 | 100.00r)00 | 23,1l-s,(n0,000 | 4 t 5,fiX),000,fix) |

-,l'l

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| Counly Government Budget Ceilings on Recurrent Expenditure in Financial Year 2025126 (Figures in Kenya Shillings) | Counly Government Budget Ceilings on Recurrent Expenditure in Financial Year 2025126 (Figures in Kenya Shillings) | Counly Government Budget Ceilings on Recurrent Expenditure in Financial Year 2025126 (Figures in Kenya Shillings) | Counly Government Budget Ceilings on Recurrent Expenditure in Financial Year 2025126 (Figures in Kenya Shillings) | Counly Government Budget Ceilings on Recurrent Expenditure in Financial Year 2025126 (Figures in Kenya Shillings) | Counly Government Budget Ceilings on Recurrent Expenditure in Financial Year 2025126 (Figures in Kenya Shillings) | |---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------| | | | County Assembly | County Assembly | County Executive Ceilings | County Executive Ceilings | | | COUNTY | FY 20Ut25 | FY 2025t26 | FY 2024t25 | FY 2025t26 | | 33 | Narok | 834927,075 | 8'78,6245O9 | 'n5,936269 | 499,621 ,001 | | 34 | Nyamira | 650,614/0,4 | 689At4AO9 | 584,106,355 | 444949,706 | | 35 | Nyandarua | 706936,676 | 75834s,693 | 683,959,845 | 469,042,680 | | 36 | Nyeri | 710551514 | 760288,009 | 779,895,747 | 492,3652O9 | | 37 | Samburu | 557 ,17 t ,9't7 | s69,616,860 | 6t t 2'14,116 | 40055'7 124 | | 38 | Siaya | 710,085,1 l7 | 759,893500 | 'tot 924,fi4 | 491,970,700 | | 39 | Taita- Taveta | 635 498,816 | 686,797;720 | s67,tQA7s | 450,325,81l | | 40 | Tana-River | 605 987,033 | 580218,891 | 558,967,389 | 422,2'72,274 | | 4l | Tharaka- Nirhi | 485,355,r 31 | s08533,60s | 561,403,884 | 404,'731,372 | | 42 | Trans-Nzoia | 636;t549t5 | 664,759,854 | 557,t98937 | 474,454,626 | | 43 | Turkana | '17o,'139999 | 863,842,883 | 704,903,707 | 510,888,23s | | 44 | Uasin- Gishu | '127,164,370 | 7622733O8 | 623,694,943 | 498,842,00'7 | | 45 | Vihiga | 659,816,891 | 703,9r 8,304 | 628.658.777 | 467,9t7,374 | | 46 | Wajir | 784,444,072 | 884,853,943 | 79t 932,t9O | 502,524,835 | | 4'7 | West-Pokot | 637,364188 | 699 924,354 | 743944332 | 447,670,353 | | | Total | 3636924222s | 3E2s7 392$60 | 33156,814,187 | 23/t4,6ro.6Et |

MEMORANDUM OF OBJECTS AND REASONS

The principal object of this Bill is to make provision for the allocation of revenue raised nationally among the county govemments for the financial year 2025126.

Section I of the Bill provides for the short title while Section 2

defines the various terms used in the Bill.

Section 3 of the Bill contains the objects and the purpose of the Bill which is to provide for the allocation of revenue raised nationally for the financial year 2025126 as well as the transfer of the county allocations

from the Consolidated Fund to the respective County Revenue Fund.

Section 4 of the Bill deals with the allocation of equitable share of revenue raised nationally to each county government.

Section 5 of the Bill provides for budget ceilings for recurrent expenditure for county governments in accordance with section 1O7(2)(a) of the Public Finance Management Act No. Cap 4124.

Section 6 of the Bill provides for the modalities of funding of transferred functions.

Section 7 of the Bill provides for the publishing of monthly reports by the national government, on actual transfers of all allocations to county governments.

Section 8 of the Bill provides for the respective county treasury to reflect the total allocations from the national government separately in the County Finance Bill and reflect all transfers in the books of accounts.

Section 9 of the Bill provides for the actions constituting financial misconduct.

Section l0 of the Bill provides for use of the third determination of the basis of the allocation of revenue among counties as approved by Parliament pursuant to Article 217(7) of the Constitution.

Dated the 19th June,2025.

ALI IBRAHIM ROBA, Chairperson,

Committee on Finance and Budget.

APPENDIX

EXPLANATORY MEMORANDUM TO THE COUNTY

Background

1. This memorandum is prepared as an attachment to the County Allocation of Revenue Bill (CARB), 2025 in fulfllment of the requirements of Article 218(2) of the Constitution and secrion l9l (5) of the Public Finance Management Act,2012. 2. Article 218 (2) of the Constitution requires that the Bill be submitted to Parliament every year together rvith a memorandum explaining: 3. (a) the proposed revenue allocation set out in the Bill; 4. (b) the extent to which the Bill has taken into account the provisions of Article 203 ( I ) of the Constitution; and 5. (c) a summary of any significant deviation from the 6. recommendations of the Commission on Revenue Allocation (CRA), with an explanation for each such deviation. 3. Section l9l (5) of the Public Finance Management Act,2Ol2 requires that the Bill be accompanied by a memorandum rvhich explains: 8. (a) how the Bill takes into account the criteria listed in Article 203(1) 9. of the Constitution; 10. (b) the extent of the deviation from the Commission on Revenue Allocation's recommendations; 11. (c) the extent, if any, of deviation from the recommendations of the Intergovemmental Budget and Economic Council; and 12. (d) any assumptions and formulae used in arriving at the respective shares mentioned in subsections I9l (2) and (3) of the Public Finance Management Act, 20 12. 4. The memorandum is also prepared based on the approved fourth basis for revenue allocation among County Govemments pursuant to Article 217 of the Constitution. In June 2025, Parliamenr approved the Fourth basis for allocation of the share of national revenue among the County Governments.

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

C ounty G ove rnmc nts' E q uitable S hare

5. The Bill proposes to allocate County Governments KSh. 415.0 2. billion fbr the financial year 2025126 as equitable share of revenue raised

ALLOCATION OF REVENUE BILL,2O25

I

nationally, translating to an increase of KSh. 27.6 billion from a base of KSh. 387.4 billion allocated in the financial year 2024125.

6. In the financial year 2O24125, the Division of Revenue (Amendment) Act, 2024, allocated KSh. 387.4 billion to County Governments as equitable share resulting from mediation between the National Assembly and the Senate. 2. 7,. The Division of Revenue Bill,2025 provides for an allocation of K$h.2,332.4 billion to the National Government; and KSh.4l5 billion to County Governments in the financial year 2025126, translating to an increase of KSh. 27.6 billion (see Table l). 3. Table 1: Equitable Revenue Share Allocation to County Governrnents, Financial Y ear 2025126

| BUDGET ITEM | Amount (KSh. million) | |----------------------------------------------------------|-------------------------| | 1. Baseline (i.e. allocation in the previous FY 2024t25) | 387 A2s | | Add: | | | 2. Adjustment for Revenue Growth | 27 57s | | Equitable Revenue Share allocation for FY 2025126 (t+2) | 415,000 |

Source : National Treasury

8. The proposed County Governments' equitable revenue shiire allocation of KSh.4l5 billion is informed by the following factors: 2. (a) Trends in the perforrnance of revenue (this was taken into consideration in determining the KSh. 27.6 billion increase in equitable share of revenue in financial year 2O25126); 3. (b) Increased expenditures for National Government for purposes of debt servicing, coupled with a weakened shilling against the dollar; 4. (c) The Government commitment to implement a fiscal consolidation plan targeting to reduce the fiscal deficit to 4.5 percent of GDP in financial year 2025126. This is designed to slow down accumulation of public debt, improve primary surplus thereby achieve fi scal sustainability; 5. (d) Financing constraints due to limited access to finance in the domestic and international financial markets;

• (e) Low ordinary revenue collections attributed to the ongoing 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
• (f) The National Government continues to solely bear shortfalls in revenue in any given financial year whereas the County Governments continue to receive their full allocation despite the budget cuts affecting the National Government.

9. The above proposed Equitable Share for the financial year 2025126 of KSh. 415 billion is equivalent to 21.6 percent of the last audited and approved actual revenues raised nationally of KSh.l ,920134 million for the financial year 2O2ll22 pursuant to Article 203(3) of the Constitution. 10. Fiscat Capacity and Efficiency of County Governments: The Bill has proposed an increase of KSh. 27.6 billion equitable share to County Governments. Similarly, it is expected that the County Governments will also grow their Own Source Revenue (OSR). The National Treasury has further instituted measures to support County Governments enhance their revenue collection. These include the National Rating Act,2024,the County Governments Revenue Raising Process Bill currently under consideration, the Model Tariffs and Pricing policy proposed for adoption by County Governments, as well as the proposed Integrated County Revenue Management System. 11. County Governments' ability to perform the functions assigned to them and meet other developmental needs of the County Governments: As explained above, the baseline for the equitable share allocation for the financial year 2025126 was derived from the Division of Revenue Act, 2024. This baseline is informed by the costing of expenditure for devolved functions done at the onset of devolution, which has been the basis for the equitable share over the years. 12. Developmental needs of the County Governments and their ability to perform the functions assigned to them: County Governments are allocated equitable share of revenue which is an unconditional allocation to enable counties have autonomy to plan, budget and implement development projects based on county priorities and account for the same. In addition, Article 209 of the Constitution has assigned counties revenue-raising powers, and as such, counties are expected to improve and maintain sustained collection of their own source revenues.

13. Additionally, the equitable share to County Governments is proposed to increase from a base of KSh. 387.4 billion in financial year 2024125 to KSh. 415 billion in financial year 2025126, an increase of KSh. 27.6 billion, which is meant to facilitate County Governments enhance service delivery in performance of their assigned functions under Part II of the Fourth Schedule of the Constitution. 14. It should be noted that, in order to achieve balance between priority development and performance of the assigned functions, the Fourth Basis for horizontal revenue sharing is premised on previous allocations and four parameters which relate to devolved functions assigned to County Governments in Part II of the Fourth Schedule of the Constitution. 15. Thus, the proposed vertical division of revenue proposed in the Division of Revenue 8i11,2025, therefore, takes into account the cost of County Governments' developmental needs and it is expected that County Governments will have the ability to perform the functions assigned and transferred to them as contemplated under Article 203( I ) (f). 16. Economic Disparities within and among counties and the need to remedy them: Allocation of the sharable revenue (i.e., equitable share of KSh. 415 billion) among County Governments is based on the Fourth-generation formula approved by Parliament in June,2025 pursuant to provisions of Article 217 and paragraph 16 of the Sixth Schedule of the Constitution. The Fourth Basis formula which is applicable from financial year 2O25126 to financial year 2029130 has taken into account the following parameters; (i) Population (45Eo) (ii) Poverty Index (127o); (iii) Geographical Size Index (8Vo); and; (vi) Basic Share index (35Vo). The horizontal distribution of County Governments' equitable revenue share allocation of KSh.4l5 billion for financial year 2025126 shall be based on the Fourth Basis Formula. Noting the equity and the parameters outlined above, the Fourth basis formula applied in financial year 2025126, takes into account disparities among counties and aims at equitable distribution of resources across counties. 17. Further, KSh. 9.6 billion has been set aside for the Equalization Fund in the financial year 2025126, which for purposes of Division of Revenue in financial year 2025126 , which is equivalent to 0.5 per cent of the last audited and approved actual revenues for financial year 2021122 (i.e., KSh. 1,920A34 million). The Equalisation Fund is used to finance development programmes that aim at reducing regional disparities among beneficiary counties. 18. Need for Economic Optimization of Each County: Allocation of resources to County Governments was guided by the historical costing

of expenditures for functions assigned to the County Governments. The equitable share of revenue allocated to County Governments in the financial year 2025126 is KSh. 415 billion, an allocation which is KSh.27.6 billion higher than the allocation of KSh. 387.4 billion for financial year 2024125. This is an unconditional allocation which means that the County Govemments 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.

19. Stable and Predictable Allocations of County Governments' Vertical Share of Revenue: The County Govemments' equitable share of revenue raised nationally has been protected from reductions that may be occasioned by a shortfall in revenue raised nationally more so in the advent of the effects of the projected global economic downturn in 2025. According to Clause 5 of the Division of Revenue Bill (DoRB) 2025,the National Government will bear any shortfall in revenue raised nationally. 20. 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 l9 - 2l of the Public Finance Management Act, 2012. In addition, the Public Finance Management Act,2012 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. 3. 2l.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 huge 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

• 22.The County Allocation of Revenue Bill (CARB), 2025 proposes to allocate county governments an equitable share of KSh. 415 billion from the shareable revenue raised nationally to be shared among county governments on the Fourth basis formula for sharing revenue approved by

Parliament under Article 217 of the Constitution. The CRA, on the other hand, recommended County Governments' equitable share of revenue of KSh. 417.4 billion as an unconditional allocation to be shared among county governments on the CRA proposed fourth basis formula for sharing revenue submitted to Parliament for consideration and approval pursuant to Article 217 of the Constitution.

23. The difference between the proposed allocation by the National Treasury and CRA is occasioned by: - 2. (a) Adjustment for Revenue Growth: - While the Bill has proposed an increase of KSh. 27.6 billion to county governments' -quitable share, the CRA has proposed an increasi 6f fSn. 30.0 biliion, in FY 2025126,resulting into a difference of KSh.2.4 billion; and 3. (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 2025126, 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 inFY 2025126.

• Table 3: Comparison of approaches towards recommendations of the Commission on Revenue Allocation and the National Treasury on the equitable share ofrevenue proposed for FY 2025126

| | Expenditure ltem | CRA | National Treasury | Variance | |------------------------------------|---------------------------------------|------------|---------------------|-------------------| | | | A(million) | B(million) | C=(A- B(million)) | | I | Equitable Revenue Share in FY 2024t25 | 387 Azs | 3E7 A2s | 0 | | | Add: | | | t | | , | Increase in Revenue Allocation | 30,000 | 27,6575 | 2A2s | | TOTAL EQUITABLE OF REVENUE = (2+3) | TOTAL EQUITABLE OF REVENUE = (2+3) | 417 A2s | 415000 | 2Azs |

Source: The National Treasury

Assumptions Used in Arriving at the Respective Shares

24. In arriving at the allocation of KSh.4l5 billion, the National Treasury was informed by the following economic assumptions: 2. The Equalization Fund iurears to be financed from the National 3. (i) Government's share of revenue; 4. (ii) That there will be no major economic shocks negatively 5. affecting forecasted revenue in financial 2025126; 6. (iii) That Ordinary revenues projected at KSh' 2,757.O billion (14.7 7o of GDP) from KSh. 2,631.4 billion (14.6%o of GDP) in financial yeu 2O24125 is attainable; 7. (iv) That there shall be stability in interest rates and foreign exchange rates; 8. (v) That inflation shall remain stable within the govemment target 9. of 512.5 percent; 10. (vi) That there shall be a steady GDP growth momentum with a projection of 5.3 percent in 2025; and 11. (vii) That County Govemments will continue to enhance their Own Source Revenues to reduce overreliance on national transfers and improve their fiscal sustainability. 25. In arriving at the allocation of KSh.417.4 billion, the CRA was informed by the following factors: 13. (a) The need to ensure adequate resources for counties to perform assigned functions 14. (b) To provide for counter-part funding of shared commitments for County aggregated parks and community health promoters 15. (c) The need to ensure County Governments are able to meet financial obligations of non-discretionary commitments such as Housing Levy and Universal Health Coverage 16. (d) The need to ensure no County gets lower allocation than that for FY 2O24l25upon the application of the fourth basis revenue sharing among counties. 17. (e) Predictable and stable allocation to Counties in line with Article 2O3 (2) (c) &amp; j 18. (f) Meeting of National Govemment provisions for National Debt and obligations under Article 203 (l) (b).

Conclusion

• 26.T\e proposals contained in the Bill take into account the financial objectives set out in the 2025 BPS and are intended to achieve fiscal sustainability against the backdrop of escalating expendirure pressue on the fiscal framework occasioned by an increase in Consolidated Fund Services (CFS) and the persistent underperformance ofordinary revenue.
• 27.The proposed equitable share allocated to County Governments in the County Allocation of Revenue Bill (CARB), 2025 has also taken into account the approved Fourth Basis Formula for Revenue Allocation. The proposed KSh. 415 billion allocations among County Governments pursuant to Article 21'1 of the Constitution is equivalent to 2l .6 percent of the audited and approved actual revenue for financial year 2O21122. This is above 15 per cent minimum threshold required under Article 203(2) of the Constitution.