The County Allocation of Revenue Bill, 2023

SPECIAL ISSUE

Kenya Gazette Supplement No. 52 (Senate Bills No. 16)

REPUBLIC OF KENYA -------

KENYA GAZETTE SUPPLEMENT

SENATE BILLS, 2023

NAIROBI, 27th April, 2023

CONTENT

Bill for Introduction into the Senate-

The County Allocation of Revenue Bill, 2023 ..........................................

PRINTED AND PUBLISHED BY THE GOVERNMENT PRINTER, NAIROBI

PAGE 561

THE COUNTY ALLOCATION OF REVENUE BILL, 2023 ARRANGEMENT OF CLAUSES

Clause

• 1 -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.
• 10 -Applicable revenue- sharing formula.

FIRST SCHEDULE: ALLOCATION OF EACH COUNTY GOVERNMENTS' EQUITABLE SHARE OF REVENUE RAISED NATIONALLY, FINANCIAL YEAR 2023/2024.

SECOND SCHEDULE: COUNTY GOVERNMENT

BUDGET CEILINGS OF RECURRENT EXPENDITURE IN FINANCIAL YEAR 2023/2024.

THE COUNTY ALLOCATION OF REVENUE BILL, 2023

A Bill for

AN ACT of Parliament to provide for the equitable allocation of revenue raised nationally among the county governments for the 2023/2024 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 Revenue Act, 2023.

2. In this Act -

'Cabinet Secretary' means the Cabinet Secretary for the time being 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(1)(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 2023/24; 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. (1) Each county government's equitable share of 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 2023/24 shall be as set out in Column H of the First Schedule.

• (2) Each county government's allocation under subsection (1) shall be transferred to the respective County Revenue Fund in accordance with a payment schedule

Short title.

Interpretation.

No.16 of 2011.

Object.

Equitable allocation of county governments' share of revenue.

approved by the Senate and published in the gazette by the 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 2023/2024 shall be as set out in the Second Schedule.

6. (1) Where a county government has transferred functions to the National Government pursuant to Article 187 of the Constitution, the 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 functions in accordance with the determination made under subsection (1) and the allocation shall not be less than the amount appropriated by the county assembly in the preceding financial year.

(3) The monies appropriated under subsection (1), 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 year, 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) A report prepared under subsection (5) shall be submitted 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.

8. (1) Each county treasury shall reflect all transfers by the National Government to the county governments in its books of accounts.

No. 18 of 2012.

Budget ceilings for recurrent expenditure.

Funding of transferred functions.

Report on actual transfers.

Books of accounts to reflect National 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 Ac.

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 third determination of the basis of the division of revenue among counties approved by Parliament pursuant to Article 217(7) of the Constitution.

No. 18 of 2012.

Financial misconduct.

No. 18 of 2012.

Applicable revenue-sharing formula.

(s.4(1))

FIRST SCHEDULE

Allocation of Each County Governments' Equitable Share of Revenue Raised Nationally in Financial Year

2023/24

| Grand Total Equitable Share | Allocation ratio Total Equitable Share 2.88 11,111,983,608 1.94 7,475,585,295 1.25 4,801,453,188 | column I column J=F+H 1.72 6,647,771,186 1.81 6,977,924,070 1.39 5,341,810,744 2.14 8,248,748,101 2.11 8,128,387,250 1.27 4,899,041,209 2.15 8,300,213,576 3.35 12,912,646,262 1.74 6,703,129,925 3.17 12,227,552,449 3.14 12,109,200,498 1.41 5,420,217,528 2.40 9,258,588,608 2.17 8,361,797,770 | |-------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | 2023/2024 (Equitable Share**-0.5 Allocation Ratio) *(Formula*** ) | Allocation ratio (Equitable Share**-0.5 Allocation Ratio) *(Formula*** ) column G column H 1.80 4,099,946,186 1.86 4,224,374,070 2.93 6,665,158,608 1.97 1.26 2,778,491,209 5,087,738,576 | 4,468,835,295 2,870,803,188 1.40 3,189,610,744 2.08 4,735,598,101 2.09 4,757,662,250 1.22 2.24 3.39 7,706,221,262 1.77 4,012,879,925 3.31 7,511,702,449 3.03 6,886,950,498 1.45 3,299,667,528 2.36 5,365,638,608 2.18 4,943,597,770 | | Ratio*) | Equitable Share column F 2,547,825,000 2,753,550,000 4,446,825,000 3,006,750,000 1,930,650,000 | 2,152,200,000 3,513,150,000 3,370,725,000 2,120,550,000 3,212,475,000 5,206,425,000 2,690,250,000 4,715,850,000 5,222,250,000 2,120,550,000 3,892,950,000 3,418,200,000 | | 0.5 (Allocation | Allocation ratio D column E 1.61 1.74 2.81 1.9 1.22 1.36 2.22 | 2.13 1.34 2.03 3.29 1.7 2.98 3.3 1.34 8,894,274,509 2.46 8,026,139,240 2.16 | | 2022/2023 Total Equitable Share | Allocation ratio column C column 1.72 6,369,394,592 1.81 6,691,099,118 2.88 10,659,435,192 1.94 7,172,162,009 1.25 4,606,532,480 | 1.39 5,125,243,762 2.14 7,927,212,254 2.11 7,805,353,300 1.27 4,710,388,265 2.15 7,954,768,229 3.35 12,389,412,168 1.74 6,430,664,924 3.17 11,717,525,720 3.15 11,641,592,941 1.40 5,196,177,952 2.40 2.17 | | County | Baringo Bomet Bungoma Busia Elgeyo/Marakwet | Embu Garissa Homa Bay Isiolo Kajiado Kakamega Kericho Kiambu Kilifi Kirinyaga Kisii Kisumu | | S/No. | 5 | 6 7 8 9 10 11 12 13 14 17 | | | 1 2 3 4 | 15 16 |

| Grand Total Equitable Share Allocation Total Equitable | column I column J=F+H 2.81 10,829,486,936 2.23 8,584,103,693 1.39 5,358,246,532 0.84 3,237,350,707 2.48 9,547,295,309 2.19 8,455,460,962 3.02 11,633,191,646 1.96 7,560,398,412 2.57 9,892,625,172 2.16 8,341,446,108 2.04 7,861,523,820 1.94 7,473,786,703 5.21 20,072,059,115 3.53 13,593,424,693 1.90 7,305,294,033 2.39 9,196,276,899 1.38 5,334,198,486 1.53 5,905,976,056 1.68 6,485,331,051 | |-----------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | 2023/2024 (Equitable Share**-0.5 Allocation Ratio) *(Formula*** ) Allocation (Equitable | column G column H 2.82 6,414,311,936 2.06 4,691,153,693 1.44 3,269,346,532 0.85 1,939,700,707 2.50 5,670,170,309 2.09 4,752,410,962 2.87 6,521,716,646 1.84 4,173,848,412 2.59 5,873,075,172 2.18 4,954,896,108 1.91 4,332,548,820 1.90 4,324,611,703 5.33 12,112,084,115 3.68 8,355,349,693 2.04 4,630,869,033 2.28 5,176,726,899 1.29 2,928,798,486 1.53 3,468,926,056 1.66 3,779,256,051 | | 0.5 (Allocation Ratio*) Allocation Equitable | column E column F 2.79 4,415,175,000 2.46 3,892,950,000 1.32 2,088,900,000 0.82 1,297,650,000 2.45 3,877,125,000 2.34 3,703,050,000 3.23 5,111,475,000 2.14 3,386,550,000 2.54 4,019,550,000 2.14 3,386,550,000 2.23 3,528,975,000 1.99 3,149,175,000 5.03 7,959,975,000 3.31 5,238,075,000 1.69 2,674,425,000 2.54 4,019,550,000 1.52 2,405,400,000 1.54 2,437,050,000 1.71 2,706,075,000 | | 2022/2023 Total Equitable Share | column D 10,393,970,413 8,265,585,516 5,136,265,679 3,105,649,643 9,162,304,232 8,132,783,562 11,190,382,598 7,277,004,032 9,493,857,338 8,005,020,448 7,567,354,061 7,180,155,855 19,249,677,414 13,026,116,323 6,990,869,041 8,844,789,456 5,135,340,036 5,670,444,228 6,228,728,555 | | Allocation | column C 2.81 2.23 1.39 0.84 2.48 2.20 3.02 1.97 2.57 2.16 2.05 1.94 5.20 3.52 1.89 2.39 1.39 1.53 1.68 | | County | Kitui Kwale Laikipia Lamu Machakos Makueni Mandera Marsabit Meru Migori Mombasa Murang'a Nairobi Nakuru Nandi Narok Nyamira Nyandarua Nyeri | | S/No. | 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 |

• This refers to the Sharable Revenue allocated to counties in the financial year 2019/ 20 of Ksh. 316.5 billion. Thus, the allocation to county governments under this component is one half of the equitable share allocated to county governments in FY 2019/20 amounting to Ksh. 158. 25 billion.

| Grand Total Equitable Share | column I column J=F+H 1.45 5,594,312,489 1.88 7,263,019,462 1.31 5,040,427,430 1.95 7,499,822,440 | 1.76 6,790,702,542 1.14 4,378,234,821 3.41 13,143,946,933 2.19 8,426,072,635 1.37 5,267,026,885 2.56 9,853,656,422 1.71 6,573,866,403 100 385,424,616,067 | |-------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------| | 2023/2024 (Equitable Share**-0.5 Allocation Ratio) *(Formula*** ) | column G column H 1.45 3,283,862,489 1.92 4,367,044,462 1.29 2,919,877,430 1.70 3,863,077,542 1.06 2,415,934,821 2.03 4,619,672,440 3.47 7,874,221,933 2.32 5,261,072,635 | 1.29 2,940,751,885 2.46 5,580,906,422 1.79 4,073,516,403 100 227,174,616,067 | | 0.5 (Allocation Ratio*) | column E column F 1.46 2,310,450,000 1.83 2,895,975,000 1.34 2,120,550,000 1.85 2,927,625,000 1.24 1,962,300,000 1.82 2,880,150,000 | 3.33 5,269,725,000 2 3,165,000,000 1.47 2,326,275,000 2.7 4,272,750,000 1.58 2,500,350,000 100 158,250,000,000 | | 2022/2023 Total Equitable Share | column C column D 1.45 5,371,346,037 1.88 6,966,507,531 1.31 4,842,174,698 1.76 6,528,408,765 1.14 4,214,198,593 1.94 7,186,157,670 | 3.41 12,609,305,994 2.18 8,068,858,318 1.37 5,067,356,827 2.56 9,474,726,151 1.70 6,297,284,329 100 370,000,000,000 | | County | Samburu Siaya Taita/Taveta 40 Tana River Tharaka-Nithi Nzoia | Turkana Gishu Vihiga West Pokot | | | Trans | Uasin Wajir Total | | S/No. | 37 38 39 41 42 | 43 44 45 46 47 |

SECOND SCHEDULE (S.5)

County Government Budget Ceilings on Recurrent Expenditure in Financial Year 2023/2024 (Figures in Kenya Shillings)

| | | County Assembly Ceilings | County Assembly Ceilings | County Executive Ceilings | County Executive Ceilings | |-----|-----------------|----------------------------|----------------------------|-----------------------------|-----------------------------| | No. | County | 2022/23 | 2023/2024 | 2022/23 | 2023/2024 | | 1 | Baringo | 712,229,059 | 828,250,102 | 607,049,529 | 628,507,168 | | 2 | Bomet | 621,143,848 | 735,832,256 | 588,023,141 | 525,981,274 | | 3 | Bungoma | 873,284,854 | 1,030,966,304 | 664,128,690 | 593,145,551 | | 4 | Busia | 765,019,229 | 890,557,352 | 626,075,916 | 565,353,297 | | 5 | Elgeyo/Marakwet | 592,408,337 | 688,567,522 | 568,996,754 | 540,143,817 | | 6 | Embu | 594,786,279 | 655,164,072 | 568,996,754 | 470,665,205 | | 7 | Garissa* | 815,801,264 | 928,822,377 | 607,049,529 | 517,163,240 | | 8 | Homa Bay | 872,842,726 | 951,617,005 | 645,102,303 | 612,652,603 | | 9 | Isiolo | 451,013,358 | 478,134,722 | 492,255,576 | 384,717,582 | | 10 | Kajiado | 699,076,887 | 801,365,718 | 562,230,871 | 543,625,285 | | 11 | Kakamega** | 1,097,653,117 | 1,400,821,103 | 721,207,850 | 702,976,417 | | 12 | Kericho | 708,995,621 | 828,466,755 | 607,049,529 | 574,171,331 | | 13 | Kiambu | 1,114,698,533 | 1,269,783,227 | 721,207,850 | 689,615,145 | | 14 | Kilifi | 779,167,171 | 893,031,550 | 626,075,916 | 552,882,777 | | 15 | Kirinyaga | 582,922,761 | 673,319,674 | 556,100,619 | 463,453,685 | | 16 | Kisii | 940,958,856 | 1,112,890,743 | 664,128,690 | 635,010,868 | | 17 | Kisumu | 718,886,210 | 827,121,358 | 626,075,916 | 548,429,020 | | 18 | Kitui | 862,047,458 | 1,042,409,957 | 645,102,303 | 787,239,883 | | 19 | Kwale | 617,790,583 | 667,712,409 | 568,996,754 | 436,816,651 | | 20 | Laikipia*** | 467,754,457 | 545,809,049 | 524,178,098 | 429,430,142 | | 21 | Lamu | 419,261,939 | 493,148,394 | 492,255,576 | 349,978,277 | | 22 | Machakos | 865,126,181 | 1,021,331,660 | 645,102,303 | 618,887,863 | | 23 | Makueni | 729,754,316 | 857,052,960 | 607,049,529 | 597,330,868 | | 24 | Mandera | 864,090,152 | 903,911,204 | 616,986,522 | 537,192,934 | | 25 | Marsabit | 678,317,733 | 714,092,325 | 568,996,754 | 477,791,217 | | 26 | Meru | 938,478,295 | 1,105,946,626 | 664,128,690 | 802,472,137 | | 27 | Migori | 857,185,385 | 1,003,508,709 | 645,102,303 | 609,089,597 | | 28 | Mombasa | 674,783,021 | 764,582,283 | 607,049,529 | 414,726,825 | | 29 | Murang'a | 753,378,653 | 830,709,033 | 626,075,916 | 633,050,405 |

| | | County Assembly Ceilings | County Assembly Ceilings | County Executive Ceilings | County Executive Ceilings | |-----|----------------|----------------------------|----------------------------|-----------------------------|-----------------------------| | No. | County | 2022/23 | 2023/2024 | 2022/23 | 2023/2024 | | 30 | Nairobi City | 1,446,962,393 | 1,694,120,608 | 816,339,786 | 640,180,465 | | 31 | Nakuru | 1,006,312,104 | 1,160,413,432 | 702,181,463 | 703,777,688 | | 32 | Nandi | 666,771,490 | 796,999,461 | 607,049,529 | 647,212,948 | | 33 | Narok | 734,655,062 | 911,202,495 | 607,049,529 | 545,667,285 | | 34 | Nyamira | 610,515,511 | 703,010,773 | 568,996,754 | 458,194,685 | | 35 | Nyandarua | 651,697,338 | 770,438,804 | 588,023,141 | 533,107,285 | | 36 | Nyeri | 692,693,761 | 776,126,610 | 607,049,529 | 605,347,631 | | 37 | Samburu | 517,964,444 | 593,254,286 | 533,708,983 | 482,789,720 | | 38 | Siaya | 683,152,880 | 775,678,151 | 607,049,529 | 540,322,777 | | 39 | Taita/Taveta | 620,545,692 | 681,840,554 | 568,996,754 | 439,488,905 | | 40 | Tana River | 582,990,790 | 571,922,609 | 537,074,233 | 436,641,663 | | 41 | Tharaka -Nithi | 434,745,770 | 517,563,626 | 524,178,098 | 445,463,668 | | 42 | Trans Nzoia | 643,357,859 | 685,259,476 | 588,023,141 | 427,107,865 | | 43 | Turkana**** | 818,680,328 | 966,834,859 | 607,049,529 | 526,961,505 | | 44 | Uasin Gishu | 703,027,730 | 796,524,510 | 607,049,529 | 474,407,171 | | 45 | Vihiga | 637,128,800 | 714,071,318 | 588,023,141 | 487,678,963 | | 46 | Wajir | 853,371,986 | 853,813,146 | 597,112,535 | 599,569,960 | | 47 | West Pokot | 603,044,748 | 683,634,469 | 568,996,754 | 589,135,145 | | | Total | 34,576,474,969 | 39,597,635,636 | 28,486,731,667 | 25,825,556,396 |

*Garissa County Assembly ceiling adjustment of Ksh. 48,000,000 is broken down as follows: Ksh. Furniture and fittings (Ksh. 13,000,000); computers, printers and photocopiers (Ksh. 10,000,000); air conditioners and fans (Ksh.2,000,000); fire system and other office equipment (Ksh. 5,000,000); and allocation to cater for nominated members mileage (Ksh. 18,000,000)

**Kakamega County Assembly ceiling adjustment of Ksh. 65,000,000 is broken down as follows: Hansard equipment (Ksh. 50,000,000); establishment of e-parliament infrastructure (Ksh. 15,000,000)

***Laikipia County Assembly ceiling adjustment of Ksh. 40,131,941 is broken down as follows: wages for security personnel (Ksh.7,503,941.2); general repair and maintenance (Ksh.2,250,000); furniture acquisition (Ksh. 22,500,000); utilities -one off (Ksh.

| | | County Assembly Ceilings | County Executive Ceilings | |---------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | No. County 2022/23 2023/2024 2022/23 2023/2024 7,500,000); Utilities annually (Ksh.378,000) | No. County 2022/23 2023/2024 2022/23 2023/2024 7,500,000); Utilities annually (Ksh.378,000) | No. County 2022/23 2023/2024 2022/23 2023/2024 7,500,000); Utilities annually (Ksh.378,000) | No. County 2022/23 2023/2024 2022/23 2023/2024 7,500,000); Utilities annually (Ksh.378,000) | | | ****Turkana County Assembly ceiling adjustment of Ksh. 121,774,706 is broken down as follows: Personnel emoluments (Ksh. 93,774,705.89) and public participation (Ksh. 28,000,000) | ****Turkana County Assembly ceiling adjustment of Ksh. 121,774,706 is broken down as follows: Personnel emoluments (Ksh. 93,774,705.89) and public participation (Ksh. 28,000,000) | ****Turkana County Assembly ceiling adjustment of Ksh. 121,774,706 is broken down as follows: Personnel emoluments (Ksh. 93,774,705.89) and public participation (Ksh. 28,000,000) |

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 governments for the financial year 2023/24.

Section 1 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 2023/24 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 107 (2) (a) of the Public Finance Management Act No. 18 of 2012.

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 10 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 25th April , 2023.

ALI ROBA, Chairperson, Committee on Finance and Budget.

APPENDIX

EXPLANATORY MEMORANDUM TO THE COUNTY ALLOCATON OF REVENUE BILL, 2023

Background

1. This memorandum is prepared as an attachment to the County Allocation of Revenue Bill (CARB), 2023 in fulfilment of the requirements of Article 218(2) of the Constitution and section 191 of the Public Finance Management Act, 2012, which require that the County Allocation of Revenue Bill tabled in Parliament be accompanied by a memorandum that: 2. (a) explains the revenue allocation as proposed by the Bill; 3. (b) evaluates the Bill against the criteria set out in Article 203(1) of the Constitution; 4. (c) provides a summary of significant deviations from the recommendations of the Commission on Revenue Allocation (CRA) together with the explanation for such deviations; 5. (d) explains the extent, if any, of deviation from the recommendations of the Intergovernmental Budget and Economic Council (IBEC); and 6. (e) explains any assumptions and formulae used in arriving at the respective shares under the County Allocation of Revenue Bill, 2023. 2. The memorandum is also prepared based on the approved third basis for revenue allocation among county governments pursuant to Article 217 of the Constitution. In September 2020, Parliament approved the third basis for allocation of the share of national revenue among the County Governments.

Explanation of Revenue Allocation as Proposed by the Bill

3. The bill proposes to allocate and transfer to County Governments Ksh. 385.425 billion for the financial year 2023/24 as equitable share of revenue raised nationally. The equitable share allocation has been proposed to increase from a base of Kshs. 370 billion allocated in the financial year 2022/23, to an allocation of Ksh. 385.425 billion in FY 2023/24. 4. The county governments' equitable share of revenue amounting to Ksh. 385.425 billion was allocated among the county governments on

the third basis of the revenue allocation criteria approved by Parliament in accordance with Article 217 of the Constitution.

Evaluation of the Bill against Article 203(1) of the Constitution

5. Fiscal Capacity and Efficiency of County Governments: Fiscal capacity for county governments refers to the potential revenues that can be generated from the tax bases assigned to the counties when a standard average level of effort is applied. In its recommendations to Parliament on the Third Basis for Sharing Revenue Among County Governments, the Commission on Revenue Allocation (CRA) included a 'fiscal effort' parameter with a 2% weight intended to incentivize OSR collection by the Counties. This is consistent with the approach in other jurisdictions, where the formula for horizontal revenue distribution among subnational governments typically incorporates measures of fiscal capacity alongside those of expenditure need. CRA's fiscal effort parameter was defined in terms of each County Government's actual revenue collection relative to the County's Gross County Product (GCP) as computed by the Kenya National Bureau of Statistics (KNBS). 6. In approving CRA's recommendations however, Parliament did not include the fiscal effort parameter, effectively shifting the 2% weight to other parameters. The formulae, therefore, does not incentivize counties to strengthen their local revenue collection efforts. There is, therefore, need for County Assemblies, in conducting their oversight role to ensure that county governments enhance their own source revenue collection. It is expected that future revenue sharing formulae may consider reinstating the fiscal effort parameter to incentivize counties to collect more own source revenues. 7. 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. 8. Economic Disparities within and among counties and the need to remedy them: Allocation of the sharable revenue (i.e., equitable share of Ksh.385.425 billion) among counties is based on the Thirdgeneration formula approved by Parliament in September, 2020 pursuant to provisions of Article 217 and Section 16 of the Sixth Schedule of the Constitution. The Third Basis formula which should be applicable from FY 2020/21 to FY 2024/25 has taken into account the following

• parameters; (i) Population (18%); (ii) Health Index (17%); (iii) Agriculture Index (10%); (iii) Urban Index (5%); (iv) Poverty Index (14%); (v) Land Area Index (8%); (vi) Roads Index (8%), and; (vii) Basic Share index (20%). The horizontal distribution of County Governments' equitable revenue share allocation of Ksh.385.425 billion for FY 2023/24 shall be based on the Third Basis Formula. It should be noted that the Third basis formula applied in FY 2023/24, takes into account disparities among counties and aims at equitable distribution of resources across counties.

9. Additionally, the equitable share to county governments is proposed to increase from Ksh. 370 billion in FY 2022/23 to Ksh. 385.425 billion in FY 2023/24, an increase of Ksh. 15.425 billion, which is meant to facilitate county governments enhance service delivery in performance of their assigned functions under the second part of the Fourth Schedule of the Constitution. 10. Stability and Predictability of County Revenue Allocations: The county governments' equitable share of revenue raised nationally has been protected from cuts that may be occasioned by shortfall in revenue raised nationally more so in the advent of the effects of projected global economic downturn in 2023. According to clause 5 of the Division of Revenue Bill (DoRB) 2023, any shortfall in revenue raised nationally is to be borne by the National Government, to the extent of the threshold prescribed in Regulations by the Cabinet Secretary.

Conclusion

11. The proposals contained in the Bill take into account the fiscal framework set out in the 2023 BPS and are intended to ensure fiscal sustainability specifically against the backdrop of escalating expenditure pressure on the fiscal framework occasioned by increase in Consolidated Fund Services (CFS) and the persistent under performance of the ordinary revenue. 12. The proposed equitable share allocated to county governments in the County Allocation of Revenue Bill, 2023 has also taken into account the approved Third Basis for Revenue Allocation. The proposed Kshs 385.425 billion allocation among county governments pursuant to Article 217 of the Constitution is equivalent to 24.5 per cent of the FY 2019/20 revenue which is the most recent audited and approved revenue by the National Assembly. This is above the minimum threshold required under Article 203(2) of the Constitution. 13. The Bill has also taken into account the approved Third Basis for Revenue Allocation among county governments pursuant to Article 217 of

the Constitution, whose application in the FY 2023/24 was preceded by a Ksh.15.425 billion increase in the Counties' equitable revenue share. It is expected with successful implementation of the Third Basis formula in FY 2023/24, county governments will be able to plan, budget and spend in accordance with areas of need as envisaged in the formula as well as achieve their developmental needs.