Report On The Division Of Revenue Bill, 2025 (national Assembly Bills No.10 Of 2025)

Published: July 2025 · 13th

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PARLIAMENT OF KENYA LI B RARY [rr"*,.t"r,L/ 1r'\, (1 rY 1rl\ IIEPI-IBLTC OF KENYA 1'I I III.l' }.] I]NTII PA I{LIAMIJNT - FOUII'I'H SESSION S'l'A N I)Irr.-(i COM Ml'l"l'Iili ON FINANCI'l A NI) I] UD(; ET t{EPOttT ON THE DMSION OI.'REVENUE BILL,2025 (NATIONAL ASSI.]MI}I,Y BILLS NO. IO OF 2025) f DATE BLED BY CO MMITTEE LERK A1 T! FT \bL C Clcrk's Chambcrs, Parliamcnt Iltrildings, NAIITOI]I. Mar'2025 porr I RT. H( 't'il 1,1 sliN,\'l'I t.t"{ r- pt ID \I\. h-f e{ taw\ 6 \ , t

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'Iablc of contcnts Contents Table of contents ........ .'....'...... LIST OF ABBREVIATIONS/ACRONYMS ...............,..,... PREFACE ESTABLISHMENT AND MANDATE OF THE COMMIT"TEE MEMBERSHIP OF TI{E COMMIT"TEE CI-IA I RPEITSON'S FOREWORD ................... Recommcndations . ................ Acknowledgcment.............. ....' cLtAP'l'ER ONE ................ OVERVIEW OF TI.It] DIVISION OF REVENUE BILL,2025 l.lLcgalprovisionsgoverningtheDivisionofRevenuebetlveenNationalandCounty Governments,. |,2ConsidcrationoftheDivisionofRevenueBill,2025byParliament. 1.3 Analysis of thc DORB' 2025.-.-.....'.""" ct'IAPTERTWO................ SUBMISSIONS I]Y STN KEHOLDERS ON THE 8ILL."......". 2.0 Introduction.............'........ . " """""""""" 2.1 Submissions by the National Treasury and Economic Planning 2.2 Submissions by thc Council of Covernors." 2.3 Submissions by thc Commission on Revcnue Allocation (CRA)" "' ' ' ..2 ..3 ..4 ..4 ..5 ..6 ..9 10 72 72 72 13 13 ttl 16 1b Ib 18 20 21. 23 24 25 )-7 11 27 29 30 2.4 .l oint Strbmissions b)' the Institutc of Certified Public Accountants of Kenya (ICPAK) antl Ilajcti Hub...... 2.5 Submissions by thc County Asscmbly Forum (CAF); 2.6 Submissions by thc Kcnya Dcvolution civil sociefy organization working Group 2.7 Submissions by the Coast Civil Society Nefwork for Human Rights " """"" "" "' ct-tAP'l'EIl'fFIItEI1............ OI]SEI{VA'lIONS AND RECOMMENDA'I]ONS 3.1 obscrraitions ..................... 3.2 Ilccom m end ations Appendiccs...... 2l \(.'l:t\ fJ llalutrt on Dit'iritttt o/ litcrttrc ttill 1025

t,t s't' o h' A It l] l{ li v IA'l'loNS/A(l lto NYNIS CA]I

County Assetnblies Iiolum
(-'ounty AssemblY Irorum
(lor-rtrh, Irrtcgratcd h.rdr"rstlial Parks
Co llcctive Ilargaining Agreement
Ootntnttnitl' I-Icalth Promotel's
(louncil ol (iovct'uors
Division o1'ltevcnuc Il ill
li'inancial Ycar'
(i'oss I)omestic Product
Institutc ol Certillcd Public Accoulltants of Kenya
Intergovcrnmental Ilclations Tcclurical Cornn.ritlce
Intcglated Pa1'1'n11 and Persounel Databasc
l(cnya I)o,olution Civil Society Orgar.rization Working Group
National Social Securit)'Fund
Ou,n Source Il.e venuc

-Pr-rblic lrinancc Mauagemeut

I{cturn 'l'o Wolk liolmula
lJnivcrsal Flcalth Covcrage
\l/alcr Sauitation und l-lygicnc

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'I'ablc <-rf ctlntcnts Contents Tablcof contents............".... '. """""' " " """2 LIS'I OF ABIIREVIA'rIONS/ACRoNYMS .....................' " " ""3 ES'TABLISHME,N'I'AND MANDATE OF THE COMMITTEE .."""""'"""""4 MEMBERSIIIPOFTIIECOMMITTEE " """'" "" "'5 crhrRPEI{SON',S FORI]WoRD.'.................. """ ' "" " " """"'6 Ilecommcndations..........'........ " "' ' " """ " ""'9 Acknowledgerncnt........... '......'. """ """" "" '10 cl IAP'rER ONE ................ "" """"'\2 oVERVIEW OIIrllE DIVISION OIr REVENUE BILL'2025 "" " " "." " " " '12 l.lLegalprovisionsgovcrningtheDivisionofRevenuebetweenNationalandCounty Governments,. " """""""" '12 l,2ConsiderationoftheDivisionofRevenueBill,2023byParliament..........-...........,''.....13 1.3 Analysis of thc DORB, 2025..... .. """ " " "" """ "" "13 cl In PTER 1'W()................ "" 16 SUBMISSIONS I-]Y S'I'N KEHOLDI]RS ON TIIE BILT, .........""""'16 2.0 Introduction.............. ....... """" " "" " 16 2.I Submissions by thc National Treasury and Economic Planning "" "" " '16 2.2 Submissions by the Council of Govcrnors" " " " """ "18 2.3 Submissions by the Commission on Revenuc Allocation (CRA) """ " "" " """" " " """'20 2.4 Joint Submissions by the Institutc of certified Public Accountants of Kcnya (ICPAK) and Ilajcti Hub....,. """" """"21 2.5 Submissions by thc County Assembly Forum (CAF); " "" " " " " " "'23 2.6 Submissions by thc Kcnya Devolution civil society organization working Group "" "24 2.7 Submissions by tho Coast Civil Socicty Network for Human Rights " " " " " "" 25 otlstil{vA'l'loNs AND RDCOMMENDn',t'loNS """.""""""""""27 3.1 Observations...............'..... """" " """"""""27 J,2 Rccommendations............ """"""""""""""'29 (. \(.'l'& l.l llcytrr rtn Dit ititttt of llttt'nue IJill 1025 2l

I,I 51' OF A I}I}I{I.lVIA'I'I()NS/ACI{ONYMS CAIT

Counfy Assemblies Forum
County AssemblY Forum
Cor"rnty Integrated Industrial Parks
Collective Bargaining Agreement
Community Health Promoters
Cor,urcil of Governors
Division of I{evenue Ilill
Financial Year
Gross Domestic Product
Institutc of Certified Public Accountants of Kenya
Intergovernmental Relations Technical Committee
Intcgrated Payroll and Personnel Database
Kcnya Devolution Civil Society Organization Working Group
National Social Security Fund
Own Source Revenue

-Public Iiinancc Management

Return'l'o Work Formula
Universal Flealth Coverage
Watcr Sanitation and FlYgiene

CAIT CAII's Cllr\ CI lPs (loG l)( ) Ittl I:Y (;t)1, I(]I'AK rGt{'1'c II'I'I) KIX]WG \SSII ost{ l)l;M I{',1'wtf IJIIC WN SH ( 3l \( I l ll l'L't'ot t ,,n l)it i.tiott ol'llcrcnue [Jill 1015

PITEF'ACII ESTABLTSHMENT AND MANDATE OF THE COMMITTEE Arrictc 124 (l) o1'thc Constitution of Kenya provides that each I{ouse of Parliament n.ray cstablish committces and shall make Standing Orders for the orderly conduct of its procccdings, including the proceedings of its committees' parliamentary committees consider policy issues, scrutinize the workings and cxpenditures of thc National and County Governments, and examine proposals for lcgislation.'l'hc cnd rcsull of any process in Cornmittees is a rcport, which is tablcd in thc Housc lbr consideration. 'l'he Scnale Standing Committee on Finance and Budget is established under Section 8(l) of thc Public l.'inance Managemenl erM) Act, Cap 4l2Aand standing order228 of thc Senate Standing Orders and is mandated to- a) invcstigate, inquire into, and report on all matters relating to coordination, control, and monitoring of the county budgets and examine - (i) the Iludget Policy Statement presented to the Senate; (ii) the rcport on the budget allocated to constitutional Commissions and indePendent offices; (iii) the Division of Revenue Bill, the County Allocation of Revenue Bill' thc County Governments Additional Allocations Bill, and the cash disbursement schedules for counfy governments; (iv) all matters relatcd to resolutions and Bills for appropriations, the share of nalional revenue amongst the counties, matters conceming thenationalbudget,includingpublicfinanceandmonetarypolicies and public debt, planning, and development policy; and b) Pursuant to Article 228 (6) of the Constitution, to examine the report of the ControllerofBudgetontheimplementationofthebudgetsofcounty governments. \(.'l',t11 R"'port urt Dit'i.tiott,'f Rev:nua Bill :025 4l t

( MEMBERSHIP OF THE COMMITTEE 'l'he Stancling Committec on l.'inance and Budget was constituted by the Senate of the 'l'hirtccnth (13t1,) Parliamcnt on l'hursday,l3th October, 2022 duringthe First Session' 'l'he Committee was later reconstituted on Wednesday, 12'h February,2025, during the l.ourrh Scssion.'l'he Committee as currently constituted is comprised of the following Members- l) Scn. (Capt.) Ali Ibrahim Roba, EGH, MP 2) Scn. Maureen Tabitha Mutinda, MP 3) Scn. (Dr.) BoniKhalwale, CBS, MP 4) Scn. Mohamed lraki Mwinyihaji, CBS, MP 5) Scn. Itichard Momoima Onyonka, MP 6) Scn. Shakila Abdalla Moharaed, MP 7) Scn. tiddy Gicheru Oketch, MP 8) Scn. Mariam Sheikh Omar, MP 9) Scn. listhcr OkcnYuri, MP Chairperson Vice-Chairperson Member Member Member Member Member Member Member , ( sl \Ct:& ll llL'l,ot t (tt Dit'isiott qf Rcvnuc llill 2025

CHAIRPERSON'S FOREWORD 'l'he Division of Revenue l\111, 2025 (National Assembly Bills No' 10 of 2025) was published vidc a Kenya Gazette Supplement No. 38 of 2025. The Bill was introduced in the National Assembly, debated and passed without amendments on Wednesday, 9'l' r\pri],2025. Consequently, in accordance with Article li0(4) of the Constitution, the I] ill was rcl-errcd to thc Senate for consideration' 'l'he Bill was read a Irirst 'l'ime in the Senate on wednesday, 16th Aprll,2025. Consequently, pursuant to standing order 145 of the Senate Standing Orders, thc Bill was commitled to the Standing Commitlee on Finance and Budget for consideration and Iacilitation of public participation. 'fhe Division of Revenue Bill, 2025 (National Assembly Bills No. 10 of 2025) is prepared in lir-rc with Article 218 of the Constitution. It provides for vertical equitable sharing of rcvenuc raiscd nationally between the national and county govcmments in tl.rc l;inancial Ycar (l;Y) 2025126 in accordancc with Arriclcs 202(l) and 203 of the Constitr-rtion 'l'hc projected rcvenue collection for the FY 2025/26 is estimated at Ksh.2,835'040 billion. Out of this, the Nationai Governments share is Ksh.2,419.382 billion, rcpr.cscnting 85.33% of thc total rcvenue, while the proposed county govcmments' cquitablc share is Ksh.405.069 billion represenling l4.28Yo of the total revenue ' 'l'he Bill indicatcs that thc proposed counfy governments' cquitable share is 25.79% ot tlre most rcccnt auditcd revenue for the FY 2020/2021 approved by the National Asscnrbly. 'l'hc County cquitablc sharc is proposed to increase by 4.5% fl'om a bascline o I Ksh. 3 8 7.42 5 bi llion (allocatcd in l'Y 2024 /2025) - 'l'he Bill also provides an allocation to the Equalization Fund for the FY 202512026 totaling to Ksh.10.589 billion, of which, Ksh.7.852 billion is 0.5% of thc t'-Y 2020121 audirc<l and approvcd rcvenLle, as per Article 204 of the Constitution and Ksh2.136 l,,illion is lirr lirnd urlcLtrs It is worth noting that during consideration of the 2025 Budget Policy Statement approvcd by the senate, thc Senate made some key financial recommendations with / d ll llt'/tttr t ,,n l)it'i;iott ttl'll.tt'tnrr l)ill ln25 6l

rcgard to thc division of revcnuc. Notably, the Senate recommended c0unty govcrnmcnts equitable share allocation of Ksh.465.0 billion for FY 2025/26. 'fhe rccommendation was informed by the need for county governments 1cl meet new non- discrctionary linancial obligations relating to housing levy deductions, cnhanccd contributions to the Nalional Social Sccuriry Fund (NSSF), matching allocations 1br the counry Intcgratcd Industrial Parks (GAIPS), matching allocations lbr Community Ilcalth Pro[roters Program, procurcment of new medical equipment, meting the orrlstanding obligation undcr I)octors CBA, annual wage drift' |ollowing thc relerral of the Bill to the Standing Committee, and pursuant to Article I l8 of thc Constitution and standing order 145(5) of the Senate Standing Orders, the Committcc facilitated public parlicipation and took into account the views and rccomrncndations of thc public in its report. An advert inviting the gencral public to submit nrcrnoranda on thc llill was published in two newspapers of nationwidc circulation on 19tl' April,2025. During considcralion of the Bill, the Committee held three (3) meetings (Annex 2- minutcs of thc Committce) and received submissions from the following key stakcholdcrs - a) 'l'he National Treasury and Economic Planning; b) 1'hc Council of Governors (CoG); c) 1'he Commission on Revenue Allocation; d) A joint submission liom lhe Institute of Certified Public Accountants of Kcnya (ICPAK) and Bajeti Hub; e) the CountY AssemblY Forum (CAF); f) 'Ihe Kcnya Devolution civil Sociery organization working Group; and g) 'l'hc Coast Civil Society Nctwork for Fluman Rights 0bservations 'fhe Committee made several observations, ampng them- a) 'fhcre has been marginal growth in the counfy equitable share from previous financial ycars, dcspitc the substantive growth in shareable revenue. In FY 7 | \( '1. (\ tl llL'l't)t t "n l)itititttt t'/ lle wntt lJill )0-"5 (

2025126 while shareable revenue is estimated to grow by 10'1 percent (Ksh.259. I billion increase), counties are proposecl to get an increase of Ksh' 17'7 billion trom this revenue gromh. b) Noting that ovcr the years, the county equitable share has on average been2'230k of GDP, and FY 2025126 nominal GDP is projected to be Ksh.19,272billion, Ksh.387.425 billion should be adjusted to ensure counry equitable share pcrccntage of GDP is maintained at the samc level' c) Whereas lhere havc been consistent allocations and appropriations to the lrqualization Fund by Parliament, there has been a delay in transfers to the Fund' 'llre total disbursement to the Fund as of June, 2024 was Ksh. l3'4 billion out of thc total entitlemcnt of Kshs.62.4 billion' d) 'l.hc llill uscs the most rccent audited and approved accounts of revenue forl:Y 2O2Ol2l , amounring to Ksh. 1,570.6 billion. However, the National Assembly on l5th April, 2025, approved the audited accounts of rcvenue of Ksh. 1,920,434,085,078 as the total nationally collected revenue of FY 2021122. c) |ollowing thc change in the most recent audited and approved accounts of rcvcnuc (fi.om Ksh. 1,570.6 billion to Ksh. 1,920.4 billion), the allocation to Iiqr.ralization Fund must be adjusted in order to meet the constitutional obligation under Article 204(1). I) Clausc 3 on thc object and purpose of the Bill makes reference to Article 203(2) ol'thc Constitution instead ol'Arlicle 202(1) which provides for the sharing of l'cvcnuc raiscd nationally between the two levels of government' g) County government expenditure needs havc sharply grown due to increase in non-discrctionary expenditures such as contribution to housing levy, NSSF' Social Flealth Insurance I'-und, Matching of contribution to County Aggregated Industrial l)arks, annual wage drift among otl'rers' lr)AssubmittcdbytheCabinetsecretary,National.l.reasuryandl]conomic Planning,theprojectedsharablerevenueforFY2025126hadbeenrevisedfrom Ksh.2,835 billion to Ksh.2,751 biltion. \'('l:& lt llrlot t on l)ivi:iitttt ol llL'\'i:rurc lJill :0]5 8l

( llcconr nrcntlations Having considcrcd thc llill ar1d submissions from the stakeholders, thc Committee recommcnds that the Senate approves the Bill with the following amendments - a) Clause 3 be amended to make reference to Article 202(1) of the Consdrution which rcquires revenuc raised nationally be shared equitably between thc National and sounty levcls ol'governmcnt; and b) 'l'hc Schedule to thc Bill be amended to reflect the following- i) 1'he total sharable Revenue Ksh.Z,756,978,546,059; ii) 1'he most recent account of revenue as approved by the National Asscmbly as Ksh.1,920,434,085,078 for FY 2021122; iii) National Government share - Ksh.2,279,638,176,610; iv) County govemrnent share - Ksh. 465,001 ,459,673; v) Allocation to the Equalization Fund - Ksh.9,602,170,425 (0'5% of most rccent approved accounts ofrevenue); and v i)'l'hc I jclualization Fund arrears- Ksh.2,7 3 6,1 39,3 5 |' ( el \('l:il lt llrl'ot t tn l)it'i.tiott qf llL'vnuc ltill 10:5

Acknowledgement 'Ihe Committee appreciates all the stakeholders who submitted written memoranda or appeared before the Committee to present their comments on the Bill' 'l'he Commiftee appreciates the support extended by the offices of the Speaker and thc Clcrk of the Senate while undertaking this important assignment I take this opportunity to commend the Members of the Committee for their devotion and commitment to duty, which made the consideration of the Division of Revenue Bill, 2025 successful. It is now my pleasanl duty, pursuant 1o standing order 148(1) of the Senate Standing Ordcrs to present the I{eport of the Standing Committee on Finance and Budget on the Division of Revenue P111,2025 (National Assembly Bills No'10 of 2025). ttl,(u S ign atu re .7 I)atc.. sEN. (CAPT.) ALI IBRAHIM ROBA, EGH, MP, CHAIRPERSON, STANDING COMMITTEE ON FINANCE AND BUDGET \r. / rt /J R.'ltorl on Dit'isittn o1 llt'renue ttill ]015 10 I

ADOP'IION OI.- THIi IIEPORT OF T}IE STANDING COMMITTEE ON FINANCE ANI) IIUD(;E]' ON TIIE DMSION OF REVENUE BILL,2025 (NATIONAL ASSEMIII.Y llll,LS NO.10 OF 2025) Wc, thc undcrsigncct Mcmbers of the Senate Standing Committee on Financc and Iludget, <Io hercby append our signatures to adopt this Report- Nanrc () Scn. Ilsther Okenyuri, MP \CFtltJ llelrttrt on Dilisicrn o./'Reven e Bill 2025 l)csignation Signature I Scn. Capt. Ali Ibrahim ltoba, F)GH, MI' Chairperson 1 Scn. Maurecn'l'abitha Nlutinda, MP Sen. (Dr.) BoniKhalwale, CBS, MP Vice-Chairperson 3 Mcmber ,+ Sen. Mohamed Faki Mwinyihaji, CBS, MP Mcmbcr 5 Scn. Itichard Momoima Onyonka, MP Sen. Shakila Abdalla Mohamcd, MP Mcmber 0..^-*,tl*. Member () 7 Scn. Ilddy,Gichcru Oketch, MP Membcr 8 Scn. Mariam Shcikh Omar. MP Member Mcmbcr 11 I

CHAPTER ONE OVERVIEW OF TIIE DIVISION OF REVENUEBTLL,2025 l.l Legal provisions governing the Division of Revenue between National and County Governments. 1. thc Division of Itevenue Bill is prepared in accordance with the provisions of Articlc 218 0f thc constitution. 'lhe law mandates that a Division of Revenue Bill bc introduccd in Parliament at least two months before the end of each financial year. 'l'he Bill aims to ailocate revenue raised nationally befween the national and county government levels. 2. l'he sharing of revenue contemplated in Article 218 is anchored in Article 202(1) of the Constitution, which dictates that revenue raised nationally be shared equitably among lational and county governments. Fulhermore, section 191(2) of the Public Irinance Managemcnt Act (Cap. 412A) stipulates that the Division of Revenue Bill should specify the share ofeach level ofgovernment ofthe revenue raised nationally lot the relcvanl financial Ycar. 3. Arriclc 2ls(2) of thc constitution and scction 191(5) of' the Public Finance Managcmcnt Act (Cap. 412A) indicate that the legislative proposal on the Division o1'Revcnue should be accompanied by a memorandum that explains the following- i. how the Bill takes into account rhe criteria listed in Article 203(1) o.f lhe Conslilution ii,theextentofthedeviation/iomtheCommissiononRevenue Allocati on's rec ommendations iii. Ihe extent, rf any, of deviation from the recommendations of the Intergovernmental Bttdget and Economic Council; and iv. any assltmptions and formulae used in arriving qt the respective shares. 4. 'fhc criteria for determining the equitable shares to each level of government is exclusivcly provided for in Article 203 of the Constitution. The minimum equitable sharc ro counry govcrrunents is provided for in Article 203(2), where it is specified that lbr evcry financial year, the equitable share ofthc revenue raised nationally that \('ttrl8 lltlar t on l)irisittrt tf lirtnn: llill :0)5 12 I

is allocatcd to county govcrnmcllts shall be no1 less than fiftecn percent of nrost rcccnt auditcd accounts of revcnue collected by National Government, as approved by thc National AssemblY. 1_2 Considcration of the Division of Revenue Bill, 2025 by Parliament. 5. Arricle 110(4) of thc Constitution rcquires that if any Bill concerning county goverrunent has been passed by one of the I louses of Parliament, the Speaker of that I-lousc shall refer it to the Speaker of the other House.'I'he other House is required to consi<jcr thc Ilill and pass it in the form it was passed by the originating Llouse, pass it ir.r arncndcd form, or re.icct thc llill. (r. 'l'hc Division of I{cvcnuc l\111,2025 (National Assembly Bills No. 10 of 2025) was publishcd on 12tr,March, 2025 andsubsequently presented to the National Asscmbly ibr considcration. 'lhe National Assembly upon deliberation, passed the Bill without arncndmcnts on wcdncsday, 9th April, 2025.The Bill was thereafter forwarded to rhc Scnarc lbr considcration under the provisions of Article 110(4) of thc Constiturion and stanciing orders 4l and 142 of the National Assembly Standing Orders. 7. l'he Ilill was rcad a First'lime in the Senate on 16tl' April,2025, and pursuant to standing ordcr 145 o[ thc Senate Standing Orders it was committed to the Standing Committce on Financc and Budgct. l'he Commiftee was required to facilitate and underrakc public participation on the Bill and prepare a report to the Senate, taking into account thc views and recommendations of the public' 1.3 Analysis of thc DOltB,2025' 8. 'l'hc projected total shareable revenue for the FY 2025/26 is Ksh'2,835'0 billion' 'lhis represenrs a7,l percent growth (20j.4 billion increase) in shareable revenue Iiom thc projected Ksh.2,63 1.4 billion for FY 2024125. 'fhe shareable revenue as pr.ovidcd in the Bill is inibrmed by the performance trends of ordinary revenues of the govcrnmcnt. 9. Out of the sct target collection of Ksh.2,835.0 billion as shareable revenue for FY 2025126,thcI}illproposestoallocateKsh.2,4lg.4billiontotheNational :('l dll !l,rrittr ,,n Ditisiott ttflltwnue llill )015 13 I

Government, Ksh.405.1 billion to the County Govemments, and Ksh. 10'6 billion to thc Ilqualization fund. Based on this projected shareable revenuc of Ksh.2,835'0 billion, the allocation to thc National Government is equivalent to 85.3 percent, whilc that of the county Sovernments is 14.3 percent.'Ihis trend is depicted in the previous allocations, where the share for the National Government has averaged above 85 percent, while that of the counties being between 14 and 15 percent on averagc. 10.'l'hc proposc<i sharcable rcvcnue of Ksh.2.835.0 billion is a growth of Ksh 203'4 billion liorn thc fY 2024125 shareable revenue of Ksh.2,63 I '4 billion' Out of thc increase o1-the Ksh.203.4 billion, counties are set to receive an increase of Ksh'17'7 billion from the allocation of Ksh.387.425 billion in FY 2024125. Flence, the proposcd allocation of Ksh.405.I billion for the FY 2025/26. A review of the county cquitablc sharc allocations indicates that countics receive a marginal increase as an adjustrnent for rcvenue growth fi'om the preceding year. Thc highest adjustment was int:Y 2021122, with an increase of Ksh.53.5 billion, and the second highest is the proposcd Ksh.l7.7 billion lbr FY 2025126. I 1.'l'hc Constitution in Article 203(2) sets the minimum allocation to counties at any givcn linancial ycar to bc not less than fifteen percent of the most recent audited accounts of rcvenue collected by the National Govemment, as approved by the National Assembly. Ihe Bill uses the last audited and approved revenue for F-Y 2020121, amounting to Ksh.i,570.6 billion. An evaluation of the proposed Ksh.405.1 billion against this constitutional threshold indicates that the amount (Ksh.405.1 billion) isequivalent to25.79 percentoftheKsh. 1,570.6 billion. 12.'I'he Bill indicates that the proposed allocations of Ksh.405.1 billion to counties was inlbrmcd by factors such as continuous underperformance ofrevenue by the end of tl.rc fiscal ycar, increased expenditures for debt services, the fiscal consolidation commitments of redr.rcing fiscal deficit to 4.3 percent of GDI' and the limited access to domcstic and external borrowing' l3.'l'hc Bill also provides for the allocation to the Equalization Fund in accordance with Article 204(l) of the Constitution. Pursuant to Article 204(|),0.5 percent ol all rcvcnuc collcctcd by thc national government annually, calculated based on the most \(.'l t\ ll llalort ,n Dit'i:;iort ol'llcycnrc Bill 2025 t4 I

(_ rccenl auditcd and approved revcnue accounts, should be allocated to the l"und. The llill proposes an allocation of Ksh.7.85 billion to thc Equalization Iiund' 14.lrurllrcr, there is an allocation of Ksh.2.l4 billion in the IrY 2025126 as partial payment to arrears owed to the Equalization Fund. The arrears to the Fund at the cnd of I;Y 2023/24 stood at Ksh.49 billion. In the pcriod between the inception ol the l:urrd (liY 201 ll12) to |unc 2024, total disbursement to the Fund was Ksh' 13.4 billion out olthc total entitlemcr.rt of Ksh.62.4 billion. ( 1sI s'(.1 t\ ll llal,ot t on l)it'i.sirtrt of llt \'Ltttttt: llill )025

CIIAPTI.]II TWO SUI}MISSIONS BY STAKEHOLDERS ON THE BILL 2.0 Introduction 15. This Chapter entails submissions from various stakeholders regarding the Bill Thcy include thc following; a) 1'he National Treasury and Economic Planning; b) 'fhc Council of Governors (CoG); c) 'l'he Commission on Revenue Allocation; d) A joint submission from The Institute of Certified Public Accountants ol- KenYa (ICPAK) and Bajeti I{ub; e) 'l'hc County Assembly F-orum (CAF); I) ',l'he Kenya Devolution civil Society organization working Group; and g) 'I'he Coast Civil Society Network for Human Rights' 2.1 Submissions by the National Treasury and Economic Planning 16. 'I'he National Treasury appeared before the Committee submitted the following- a) 'l'he National 'l'reasury projected a total shareable revenue of Ksh. 2.835 trillion lbr |Y 2025126. I;rom this, they allocated Ksh 2.419 trillion to thc National Government, Ksh.405.1 billion to County Govemments as the equitable share (25.19% of the most recent audited revenue), and Ksh 10.6 billion to thc llqualization Irund, comprising Ksh. 7.9 billion fbr FY 2025126 and Ksh. 2'7 billion in arrears. b) (Jpon revicrving thc performance of ordinary revenuc since the Bill's submission, the 'I'reasury reporled that revenue collection h FY 2024125 had consistently Iagged behind targets, with the shortfall widening each month and reaching a cumulative Ksh. 142.8 billion by March, 2025.'l'hey estimate that the overall ordinary revcnue lbr FY 2024125 would bc Ksh.2,435.1 billion, which is Ksh.482.1 billion below thc original budget target' c) Given the depressed performance, the'freasury stated that the earlier revenue lbrecast Ibr FY 2025/26 was no longer realistic. They therefore recommended a I d li llt't1t.t t 0n !.)irisiott t)l llt\Tnu,i llill )(l-15 16 I

dowlward revision of the ordinary revenue forccast for IrY 2025126 to Ksh. 2,757.0 billion, which is Ksh. 78.0 biltion lower than the initial projection. d) l'hc 1'rcasury cxplained that several factors informed the proposed division of rcvcnuc lbr IrY 2025126. |irstly, the revised projection was based on a lower rcvenuc bascline, reflccting the consistcnt underperformance ofordinary revenue in rcccnt ycars. Secondly, they highlighted the need to finance mandatory expenditurcs under Article 203(1) of the Constitution-including public debt, pcnsious, constitutional scrvices, and emergencies-which would total Ksh. 2,616.6 billion in l;Y 2025126. After these mandatory expenditures, only Ksh. 140.4 billion would remain lor sharing between the lwo levels of government' e) A1ler accounting for county allocations (Ksh. 417.9 billion, including both cquitablc sharc ancl additional allocations), the 1'reasury noted that the balance lcfl lor the National Govclnment would be negative, at -Ksh. 277.6 billion' 'l'his pcrsistcnl liscal dcllcit, they said, had lcd to additional borrowing over the years, distorting the i-rscal framework and undermining fiscal consolidation efforts. The 'l'rcasury also pointcd out that Kenya had faces financing constraints due to limited acccss to domcstic and international financial markets, with borrowing consistcntly lalling short of targcts. I) l.'urthcrmorc, thc 'l'rcasury observed that the National Govemment continued to bcar the lull burdcn of revenue shortfalls, as counties always received their full cquitablc share allocation rcgardless of revenue perfotmancc. This had resulted in bucJgct cuts and delaycd disbursements for national ministries and agencies, with arrcars sometimes carried forward to subsequent years. They also highlighted that the cost ofpublic debt servicing was projected to account for 52 pcrcent of ordinary revenue inFY 2025126, significantly higher than the average of41 pcrccnt in prcvious Ycars. g) Iror thc horizoptat sharing ol' the equitable share, the Treasury proposed that the Ksh.405.l billion allocations to counties for FY 2025126-a 4.6 percent increase from the previous year-be distributed according to the Third determination of the basis o1'division of revenue among counties, since the Fourth determination has no1 bccn approvcd bY Parliament. \( l ^ Il ll(fott , l)iti.\iott of llertnw l.till :0:5 ltl

h) Additionally, the 'Ireasury proposed Ksh.69.8 billion in additional allocations (both conditional and unconditional) to county governments for FY 2025126. Of this amount. Ksh.12.89 billion would be financed from the National Govcrnment's sharc of revenue, and Ksh.55.07 billion from loans and grants provided by dcvclopment partners. 2.2 Submissions by the Council of Governors i 7. 'l'hc coG appcarcd bcfore thc committec and submitted as follows- Gcncral Comments a) The council of Govemors (coc) expressed appreciation for the Senate's support in enabling devolved units to fulfil their mandates through proper financing and ovcrsight. Whilc thcy acknowlcdged the Senate's rccommendation of Ksh.465 billion as the cquitable share for counties inFY 2025126, the COG maintaincd that the amount is insufficient to meet counties' acfual financing needs. b) 'l'hc Council of'Govemors argued that county allocations did not reflect the cxpanded fiscal space or projected 5.3%o cconomic growth. They noted a fivc- ycar disparity whcrc counties' share rose by only Ksh.70.9 billion compared to Ksh.702.6 billion fbr the national govemment. They called for a review of the revcnuc sharing framework and proposed a minimum allocation ol'Ksh 536'88 billion for \;Y 2025/26. c) 'l'hc COG also notcd that thc Division of Revenue 8i11,2025, did not consider thc financial implications of rccently delineated and gazelted functions betwcen national and county governments. They called for urgent identification and transler of attendant resources to counties, as required by previous summit resolutions, to cnsure counties could effectively perform these additional lunctions. d) Regarding bascline allocations, the COG observed that the current baseline lbr counties had been reduced to Ksh.387.425 billion from the earlier Ksh.400.l l7 billion, cven as the national governrytent's allocation was restored through supplcr.ncntary buclgcts. ]'hc COG recommended reinstating the countics' basclinc allocarion to Ksh.400.l l7 billion, in line with the Division of Revenue Act,2024. 13 I \'( I olt ll,'lvrt t)tt [)it'i\iott t/ ll''tt'nrrt hill 1015

e) 'l'hc COG raiscd concerns about recent cabinet resolutions on state corporatton rclbnrs, which involvcd nrcrging, dissolving, or transferring several statc corporations, including those performing devolved functions. They emphasized that, in accordance with thc principle of resources following functions, any state col.porations perlorming dcvolved functions should be transfcrred to countics along with thcir rcsources, apd this should be reflected in the revenue division lorl;Y 2025126. I) Additionally, thc COG pointed out that counties continued to face unmet llnancial obligations and dcficits due to previous budget cuts, with no additional allocations proviclcd to address outstanding non-discretionary expenditures' '[hcy rccommendcd rhat thc I)ivision of Revenue Blll, 2025, should provide for thcse cxpenditures arising fiom national government policies and projects. g) Irinally, the COG criticized the lack of enforcement of legal provisions meant to protcct countics' cquitablc share from revenue shortfalls. Despite legal salcguards, countics had suflered budget cuts while the national government's budgct was rcstorcd, undermining the stabiliry and predictability of revcnuc allocation. 'l'hc COG urged the Senate to ensure that counties' allocations were pl'olcctcd as envisagcd in thc Constitution and relevanl laws' Spccific Comments h) 'l'hc CoG rccommended that the Bill's schedule be amended so that the national govcl'runent reccives Ksh.2,290,308, 164,884 and counties receive Ksh.536,880,000,000, instcad of the proposed Ksh.2,419,382,005,336 lor the national govcrnnlcnt and Ksh.405,069,420,197 for counties' i) 'l'hc Council of Governors (COG) proposed the removal of the Equalisation I;und arrcars item from the Division of Revenge schedule' 1'hey argued that each year's fund allocalion is specific and including arrears in future Division of Revenue Acls leads to double allocation and roduces shareable revenue. With arrears cxcccding Ksh.60 billion, thc Council recomrnended that thcy be addressed through a scparate Equalisation Fund Appropriation Act and protected lrom changcs under National Govemment Appropriation Acts' \( /.& ll !1,;lut t ,,tr l)it'isitt 'l li:t'cttrtc l.lill )0:5 leI

:('1.&ll llc!trttt tn l)ili.tiott ol llr\'t'ttttL' llill :())5 20 1 2.3 Submissions by the Commission on Revenuc Allocation (CRA) 18. Cl{A appcared bcfore the Committee and submitted the following- a) CIiA noted thc necd to correct the constitutional basis for equitable sharing bctwccn thc national and county governments which is Article 202(l), not Article 203(2), which only outlines revenue-sharing criteria. b) 'l'hc Commission highlighted a significant decline in county govcrnments'sharc o1 rhc narional budget, from l0.4Yo in FY 2024/25 to 9.3o/o in FY 2025 126, whilc thc national cxecLltive's share increased. CRA recommended allocating Ksh 417.4 billion to countics, stressing that lower allocations undermine servicc dclivcry and contravene the objectives ofdevolution. c) CIIA also objected to how the Bill categorizes "national interest" by including dcvolved functions such as youth empowerment and irrigation. 'l'hey argucd that national intcrcst projccts can be implemenled by either level of government and must respcct thc constitutional allocation offunctions under the l"ourrh Schedule. d) Additionally, CRA opposcd the inclusion of the National (iovemment Constituencics Devclopment Fund (NG-CDF) and the Affirmative Action Fund in thc list of statulory dcdr"rctions from shareable revenuc. They clarified that lhcsc ar.c fundcd li'om the national government's cquitablc share, not deductcd bclbrc rcvcnuc is shared. e) 1'hc claim that the nalional government is left with a negative balance after allocations, CItA pointed out that several listed expenditures-such as NG-CDF, statc law olficc, and the DPP-are national government Iunctions. 'l'hus, the claim o1'a dcllcit is misleading since the Constitution recognizes only two lcvels of govcrnmcnt, f) CRA also corrected the Bill's reference to the applicable revcnue-sharing lbrmula, clarilying that the'l'hird Basis expired with FY 2024/25. The lrourth Ilasis fias alrcady bccn submitted to Parliament, and the Senate is expected to guidc its implcmcntation from ItY 2025126. g) Irinally, CI{A disagrccd with the Tre4sury's justification that paying Ksh.2.7 billion in Ilqualization l-und arrears limits capaciry to increase county allocations'

'l'hcy cmphasized that the Equalization Fund is a separate constitutional obligation and not a valid reason to suppress county equitable share groMh. 2.4 Joint Submissions by the Institute of Certified Public Accountants of Kcnya (ICPAK) and Bajeti Hub 19. ICPAK and llajeti I Iub made the following submissions on the Bill- a) IGPAK and Bajcti Hub cxpressed concem over the declining proportion of county equitablc share in total sharable revenue, which dropped to 14.29oh in 2025 from 14.61% in 2024, despite a nominal increase in allocations. 1'hey crnphasizcd that while the legal minimum of l5o/o of the last audited revenue is rnct, counties rece ive a shrinking portion of the overall public resources. 'l'hey rccomrrcnded adopting the CI{A's proposed allocation of Ksh 417.4 billion and ur-gcd thc 'l).casury tit usc inllation rates rather than revettuc groMh as a basis fbr dctclrnining ccluitablc share. b) 'l'hey criticizcd the continucd reliance on outdated FY 2020121 audited revenue figr-rres lor dctermining the Equalization Fund allocation. Although Ksh 7.85 billion was proposcd forFY 2025/26, with Ksh2.7 billion for ancars' they argued rhar rhis limits ttrc lund's rclevance and effectiveness. 'l'hcy callcd 1br prompt approval ol'updated financial statements, a clear payment plan for arrears, and robust monitoring to ensure funds benefit marginalized areas' c) 'I'hc submission pointed out the lack of clarity around allocations labelled under 'National Intcrcst', such as the Ksh I1.175 billion earmarked for 'Youth limpowermcnr'. 'l'hey called for detailed justifications and consistency with legal crilcria, rccommending transparency in how such programs are identified and lunded across fiscal years. d)'fhcy argued that using 2013 cost data to allocate resources for devolved lugctions is outdated due to population growth and rising scrvice delivery costs like clcctricity' 'l'hcy urged Pariiament to mandate a fresh costing excrcise based on rcccnt delineation olfunctions by IGTRC. c) while noling projected growth in ordinary revenue to Ksh 2.84 trillion fbr FY 202512(t, thcy warncd that actual collections often fall short, underscoring the nccd lor rcalistic fbrccasting. fhey recommended improving tax collection, 21 I "( !'\ii !lL/'t;tr "n l)iti'titttt "l llLtcnut liill :015

rcducing lcakages, and diversifying revenue sources to avoid overrcliance on taxation. 0 'l'he submission highlighted a persistent gap between OSR targets and actual collections, with a Ksh 22 billion shortfall in FY 2023/24. They cited weak cnlbrcement, outdatcd baselines, and planning gaps as causes. To reduce reliance on nalional transfcrs, they recommended strengthening county revenue systems and sctling rcalistic targcts. g) Kenya's public debt rose ro Ksh 10.58 trillion in2024, hilting 63% of GDP.'Ihe growing cost of debt servicing, projected at Ksh 1.6 trillion-was said to crowd out dcvelopment funding and potentially reduce county allocations. The team rccommcndcd stricter adhercnce to debt limits under the PFM Act, better repofling, and alignment between the Division of Revenue Bill and offlcial debt data to cnsure accurate fiscal planning. h) In thcir gencral submissions, ICPAK and Bajeti Ilub urged Parliament to ensure thc l)ivision ol' I(cvenuc Bill (DORI]) reflects rccent IGR'IC directives that dclincarc lutrctions betwecn the national and county governmcnts. 'Ihey cmphasized that the National Treasury must explain how the current revenue liamcwork aligns with and supports the deepening of devolution' i) 'l'hcy rccommcndcci increasing county allocations within the DOR framework, cspccially considcring rccent national legislation-such as the Social Health Insurance Act and the Primary Ilealth Care Act-which imposes additional administrative and service delivery responsibititics on counties. l)espite this, the flscal framework ibr 2025126 shows a decline in the county expenditure share liom 10.4% to9.3Yo. j) 'l'hc submission also called on Parliament and thc National 'lreasury to create liscal space lor counties by reforming or winding up state corporations that duplicate county lunctions. Ihey highlighted that entities like Regional I)cvclopment Authorities, particularly in the WASH sector, perform rolcs that countics are already mandated 1tl carry put. k) Lastly, they proposed strengthening intergovernmental fiscal relations, improving financial oversight and accountabiliry, enforcing liscal discipline ;t l i ll llct,t t ,,rr DiIitittrt rl'llc' trtrt llill -'025 22 I

( through realistic projcctions, and enhancing public participation in budgeting to promote transparency and responsiveness to citizen needs' 2.5 Submissions by thc County Assembly Forum (CAF); 20. CAI madc thc following submissions- a) 'l'hc County Asscmblics Forum (CAF) recommended an enhanced allocation of Ksh 450 billiol to counties, stating that it better reflects counties' rising fiscal demands, inflation pressures, and constitutional obligations. They noted that both thc CRA and 'l'reasury had agreed on maintaining the baseline of Ksh 387.4 biltion from l;Y 2024125 but difl'ered on the increment, with CRA proposing Ksh 417.4 billion—still short o1'wha1 CAIr considers adequate. b) CAp justified rheir proposal by citing increased non-discretionary expenditures at thc county level, such as the I{ousingLevy, Social Health Insurancc Fund contributions, and LJIIC rollout costs. These were said to strain county budgets and arc not lutly addresscd in thc National 1'reasury's lower allocation Additionally, CAF highlighted that County Assemblies remain underfunded, which undermines their oversight, legislative, and representation functions, particularly thc work of committees like PAC and I'}IC that ensure fiscal accour.rtabilily. c) 'l'hcy also rcl'crcncccl economic pressures, including rising inflation and utiliry costs, arguing that a static or modest increase in county allocations would erode scrvicc delivery capaciry. The proposed Ksh 450 billion would provide slability arrd allow counties to sustain essential services amid economic volatilify. CAF also noled that thcir proposed allocation aligns with Articlc 203 of the Constitution, as it represents approximately 28.5o/o of the last audited national revcnue, thercby meeting both the legal minimum and the spirit of equitable distribution. d) I;urthcrmorc, CAF emphasized that increased funding is essential to realize the gains o1'dcvolutiol and to support county development priorities, such as industrial parks, youth and women empowerment programs, and the completion ol'stallcd projccts. \( l.d ll llt,lrtrl ,,n l)it'i.'iiort t,f llLtatur lJill 10:5 23 I

e) Thcy concluded by calling on the Senate to reject the Treasury,s proposal, improvc upon cRA',s recommendation, and adopt the Ksh 450 billion proposal to ensurc countics arc adequately resourced to meet their obligations and strcngthcn dcvol ution. 2.6 Submissions by thc Kcnya Devolution civil society organization working Group 21.]'he KI)CWG submitted as follows- a) 'l'hc Kcnya Dcvolution civil Society organization working Gror-rp (KDCWG) submittcd that the proposed Ksh 405.1 billion allocation to counties in thc Division of Revenue Bill 2025 fell short of constitutional requirements. They noted that this amount represented only 14.260/o of projected national revenue' which contravcnc Articlc 203(2) of the Constitution that sets a minimum of 15Yo. 'l'hcy also pointcd out that outdated auditcd accounts fi'om FY 2020121 wcrc used as a basis instead of the latest ones, leading to underfunding of counties. b) KDCWG argued that counties deserve a larger share-at least Ksh 677.3 billion-when accounting for devolved functions currently still performed by the national government, such as library services, fertilizer procurement, and urban roads. 'I'hey criticized the rejection of the Commission on Revenuc Allocation's rccommendation of Ksh 417.4 billion, which was done without justification by thc National AssemblY or Treasury' c) On the liqualization Fund, the group maintained that its implementation should be county-lcd since the targctcd scrvices (health, watcr, roads) are devolvcd. 'l'hcy proposed that such funds be given to counties as conditional grants, in line with Schcdulc 4 of the Constilution. d) 'l'hey further expressed concern over persistent delays in disbursing the equitable sharc to counties, noting violations of Arlicle 219 and Section 17(6) of the PF-M Act. By Lpril 2025, disbursements had only been madc up to February"they also highlighted new revenue streams-such as the Housing l,evy and Social I Iealth Insurance lrund-allocated to thc national govemment despite housing and hcalth bcing county lunctions. \('l & B llt'l,ort ,,n l-rit'i.riott r,.f llcvnuc nill -1025 24 I

c) 'l'hc group also criticized thc impacl of ballooning public debt on counties, strcssing that thcy arc ncithcr consulted nor shiclded from its consequcnccs. 1'hey insistcd that allocations made under the guise ol "national interest" should be brokcn down and partly executed at the county level. {) In conclusion, KDCWG urged the Senate to allocate no less than Ksh 677 billion, cnsurc full costing and transfcr of all devolved functions, enforcc timcly disburscmcnts, fast-track approval of audited revenue, and pass legislation to opcrationalizc thc Equalization liund with counfy governments involvement. 2.7 Su.bmissions by the Coast Civil Society Network for Human Rights 22.'lhe Coast Civil Society Nctwork for Human fughts submitted the following; a) 'l'hc Coast Civit Socicty Network for Iluman Rights criticizcd the proposed allocation of Kshs. 405.1 billion to counties, noting that it falls below thc Commission on Revenue Allocation's recommendation of Kshs. 4l7.4 billion. l;urther, that thc allocation amounts to only 14.26% of projected national rcvenuc, lalling shorr o1'thc constitutional threshold o{ \5o/o as required under Articlc 203(2) ol-the Constilution. b) 'l hc Nctwolk objcctcd to the use of outdated 2020121 audited revenue ligures in dclcrmining county allocations, instead of the more recent 2023 /24 accounts. 'l'hcy pointcd out that using curent audited figurcs would entitle counties to at lcasr Kshs. 620.7 billion, based on the present revenue-to-allocation proportion ol'25.79Yo. c) 1'hcy expressed concern that county functions have expanded, including the dcvolution o1'scrvices such as libraries, yet the funding allocated has not been adjustcd accordingly. Meanwhile, the national government continues to retain control ovcr functions like urban loads, health staffing, and fertilizer distribution, limiting counties' ability to fully deliver services. d) 'l'he Network recommendcd that the Senate revise the allocation upwards to Kshs. 677.3 billion, comprising Kshs. 405.1 billion currently proposed and an additional Ksl.ts. 272.2 billion identified by the Intergovernmcntal Relations 'l'eclmical Committee as needed for fully devolved functions. \( l'& ll ll,,llot't , l)iti.\ion ,l lletcntrt llill 1015 2sI

c) 'l'hcy r.aiscd concerns over delays in disbursing county funds, noting that by April 2025, county govcrnments had only received disbursements up to I.'ebruary. 'l'hey argued that such delays contravene Article 219 of the Constitution and Section 17(6) of the Public Finance Management Act and urgcd thc Scnatc to intcrvcne. 1) 'I'hc Nctwork highlighted that new national-level revenue streams such as the I-Iousing I-evy and the Social Health Insurance Fund relate to devolved functions, yet are managed centrally, which undermines counties' financial autonomy and abiliry to implement their mandates. g) 'lhey also criticized the influcnce of ballooning public debt and vague "national intercst" considcrations in rcvenue sharing, waming that these factors unfairly disadvantagc counties and that national priorities should be addressed within county contexts as well. h) 1-he Nctwork proposed several legal reforms, including compelling full transfer ancl costing of dcvolved tunctions, mandating timely approval of audited rcvenue accounts, and instituting an automatic approval mechanism if the National Asscmbly delays beyond six months. i) 'l'hcy callcd on the Senate to facilitate a conditional grant to Makadara Hospital in Mornbasa, which suppofts several coastal counties but suffers from inadcquatc funding and resources. i) liinally, the Nctwork urged the Senate to pass the Equalisation Fund Bill and cnsurc that the lund is administcred through countics in line with constitutional rnandatcs, particularly to suppoft marginalized regions. ( \I /.{ ll /lr/,()/'/ ,'n l)it'itiott o1 llet'ttttrtt Bill 10li 26 I

CTIAP'I'HII THRI]E OI}SI]I{VATIONS AND ITECOMMENDATIONS 3.1 Obscrvations _) 'l'he Commitrcc, having considered thc Bill and submissions from stakeholders, made thc lbllowing observations. 'I'hat- a) 1'herc has bcen marginal growth in the county equitable share from previous ljnancial ycars, despitc thc substantive growth in shareable revenue' In FY 2025126 whilc sharcablc revenue is estimated to grow by 10.1 percent (Ksh.259.1 billion increasc), counties are proposed to get an increase of Ksh. 17.7 biltion from this revenue growth. This is equivalent to 6.8 percent of this projccted revenue growth. b) 'l'he National 'l'rcasury adviscd the Committee that the performance of ordinary rcvcnuc in thc liinanci alYcar 2024/25 had consistently fallcn below target with the shor.tfall widening each month and reaching a cumulative amount of Ksh.l42.8 billion by March, 2025.The National Treasury estimated that the rotal ordinary rcvcnuc lbr IrY 2024/25 would be Ksh.2,435.1 billion, t'alling shorl ol'the original targct by Ksh. 482.1 billion. Given this underperformance, thc National 'l'rcasury indicated that the earlier revenue forecast for FY 2025/26 was no longer realistic and proposed that the projected sharable rcvcnLtc lbr l"Y 2025126 should be Ksh.2,756,978,546,059. c) Whilc thc l)ivision oi Ilcvcnue Act sets out the allocation to each level of govcrnmcnt anrl allocation to the Equalization Fund, there have bcen budget canyovers (undisburscd funds) of equitable share at the end of the financial ycar.'l'his mcans the provision under the Bill (clause 5(1)) stipulating thatthe National (iovernment solcly bears the shorffalls in revenue collection is brcachcd. l;or instancc, an allocation for |Y 2023124 amounting to Ksh.30.8 billion was transferrcd to the counties in FY 2024125. d) Whcreas thcre have bcen consistenl allocations and appropriations to the liqualizatiol I.und by Parliament, there has been a delay in transfers to the l;un<I. 'l'hc total disbursemcnt to thc liund as of June 2024 was Ksh. 13.4 billion \( l' ^ Ll llL'lt)t.t ,,n Dirisiott o.f llavcnrz Ltill :025 27 I

out of the total entitlement of Kshs.62.4 billion. Five years to the lapse of the f'und as per Arlicle 204(6), the objectives of the Fund are far from being ach ie ved. e) 'l'hc Bill indicates that the most recent audited and approved accounts of revenue are for FY 2020/21, amounting to Ksh. 1,570.6 billion. Flowever, the National Assembly, on l5tl' April,2025, approved the audited accounts of rcvcnue o1. Ksh. 1,920,434,085,078 as the total nationally collected revenue of llY 2O2I/22.'l'his means thc most recent audited revenue received and approved by the National Assembly to be applied in the Division of Revenue B1ll,2025 is Ksh.1,920.4 billion for FY 2021/22. This change in the most recent audited revcnue implies that the funds allocated to counties, being Ksh.405.1 billion, is equivalent to 21.09 percent of the latest audited and approved rcvcnue. f) Irollowing the change in the most recent audited and approved accounts of revenue (fi.om Ksh.1,570.6 billion to Ksh.1,920.4 billion), the allocation to the liqualization liuud must be adjusted in order to meet the constitutional obligation under Articlc 204(l). g) An analysis of the Bill in light of the provisions of Articie 203(1) of thc Constitution reveals that thc specified mandatory expenditures make up 87.5 pcrccnt ol thc cstimated shareable revenue lbr FY 2025/26. As a result, it makcs i1 dilllcr-rtt to equilably share the remaining amount between the two lcvcls of govcrnmcnt. h) Clause 3 of the llill states that the object and purpose of the Bill is to provide for the equitable sharing of revenue raised nationally among the National and county governments in accordance with Article 203(2) of the Constitutior.r. Article 203(2) of the Constitution however provides the minimum share of rcvenue due to county governments and the proper constitutional provision providing for the sharing ofrevenue as proposed in clause 3 is Article 202(1) as rcad togcthcr with Arlicle 203 of thc Constitution. i) Ovcr thc ycars, thc county equitablc share has on average been2.23oh o1'GDI'' Noting that in IrY 2025126 nominal GDP is projected to be Ksh.19,272billion, \( l t\lt lltltort t,tl l)it'i.tiott tl [lL'\'cnttc ltill :0-"5 28 I

rhc coLtnty cquitable sharc pcrcentagc of GDP should be maintained at thc samc lcvcl and furthcr an aclditional Ksh.34.93 billion be provided to meet the cost o1'lhe non-discrctionary expenditures Iisted below- i) Ilousing ievy deductions- Ksh.4.1 billion ii) lrnhanced Contributions to the NSSF- Ksh.6 billion iii) Matching allocation to the CAIPs project- Ksh. I i.8 biltion iv) Matching allocations for the CHPs- Ksh.3.23 billion v) Annual wage increments -IPPD annual adjustment- Ksh.6'3 billion vi) llasic Salary incremcnt as per the Doctors CBA20lll2l; Execution of thc Rcturn'l'o Work Fomula (R1'WF)-Ksh' 3.5 billion. 3.2 llccomrncndations 24.Ilavirryconsidercd the Bill and submissions from the stakeholders, the Committce rccommcnds that thc Scnate approves the Bill with the following amendments- a) Clausc 3 bc amcndcd to makc reference to Article 202(l) of the Constitution which rcquircs rcvcnue raised nationally be shared equitably between the National and county levels of government; and b) 'l'he Schcdule to thc llill bc arncnded to reflect the following- i) 'l'hc total sharable Revenue Ksh.2,756,978,546'059; ii) 1'he most recent account of revenue as approved by the National Assembly as Ksh.1,920,434,085,078 for FY 2021122; iii) National Govcrnment share - Ksh.2,279,638, 176,610; iv) County govcrnment share - Ksh'465,00 i , 459,673; v) Allocation to the Ilqualization Fund - Ksh.9,602,170,425 (0.5% of most recent approved accounts ofrevenue); and vi) 'fhc Equalization Fund arrears- Ksh.2,736,739,351. \( l.t lt lirt\rt ,,n l)ititirtrt rtIllevnuc IJill 10]5 2eI

.\ppcntliccs a) b) c) d) Committee stage Amendments Minutes of the Committee Submissions from stakeholders Public Advcrt \( l l: ll lt!lort ott l)ivi.tiott of li.'\'rttttt' tJill :(l:5 30 I

Annex 1- Committee Stage Amendments

It t. l3tr' May, 2025 'fhe Clcrk o1'the Senate, Parliament Buildings, NAIROBI. COMMI'I'I'EE STAGE AMENDMENI'S TO 'I'HE DIVISION OIT RIMNUE 811,L,2025 (NATIONALASSEMBLY BILLS NO. 10 OF2025) NOTICE is givcn that Sen. (capt.) Ali Ibrahim Roba, the chairperson to the standing Committee ou Finance and Budget intends to move the following amendments to the Divisi<rn ol I{cvenue 8i11,2025, National Asscmbly Bills No.10 of 2025, at the C<,rrnmittcc Stagc CLAUSI] 3 THAT clausc 3 of the Bill be amended by deleting the expression "203(2)" appearing imrncdiately after the words "accordance with Article" and substiruting therefor the cxprcssion "202(l)". SCI I !]I) UI,I] THAT the Bill be amended by deleting the Schedule and substituting therefor the lollowing new Schedule - SCHEDULE (S.4) AI,I,OCA'I'ION OF IIEVIINUE RAISED NA'I'IONAT,IJ ItEl'WIiEN THE NA'TIONAI, GOVERNMENT'AND COUNTY GOVERNMENTS FOR THE 2025126 FINANCIAL YEAR b) Anears [). County equitable share Dated ...... 1.3.'\ May,.?-Q?5 :' Sen. (Capt.) Ali Ibrahim Roba, Chairperson, Standing Comntittee on Finance and Budget. 'l'vpe/ lcvel ol' allocation I'erce ntagc (%) of thc FY 2021122 auditcd and approved Revenue of Ksh. 1 ,920,434,085,0 78 A. 'lotal Sharcablc l{cvenuc 2,835,040,979,609 []. Nalional Governtrcnt 2,3s7 ,700,610,160 C. [Jqualization lrund 12,338,909,776 oJ which, a) 0.5 Per Centunt 9,602,170,425 0.50o/o 2,736,'739,351 465,001 ,459,6'73 24.21% 1 Amount in Kshs.

Annex 2- Minutes of the Committee ,

-#t::-;-;;;:.=e. NIINUTES OF TTIE TWO IIUNDIIIID ANI) ELEVENl'H (21 I I Ir) MEETING OF I'HE SENATT' STANDINC COMMI T]'IiE ON FINANCE AN D I}UDGET HF]LI) l2rrr MAy 2025 tN VICTORIA }IALL 1 ARGYLE GRAND ON MONDAY I'IIESI'N1' l. Scn 2. Scn 3, Sen 4. Sen 5. Scn 6. Scrt (Capt.) Ali Ibrahirn ltoba, lrGFI, MP Maurecn l'abitha Mutinda, MP (Dr.) BoniKhahvale, CBS, MP Mohamcd Faki Mwinyihaji, CBS, MP I{ichard Momoirna Onyonka, MP l:dcly Okctch Gichcru, MI' Christopher Gitonga I)avid Ngarnatc Lucy I{adoli Kirninza Kioko Constant Warnayuyi Itosc Otnutcrc .lamcs Ngusya Chairperson Vice-Chairperson Member Member Member Member Men-rber Mcmbcr Member ,\ IISI'-N'I' Wl'l'll r\1'}0 LOG Y l. Scn. Shakila Abdalla Mohamed, MP 2. Scn. Mariatn Sheikh Omar, MP 3, Sen. listhcr Okcnyuri. MP SECRIITAI{IAT l. Mr 2. Mr 3. Ms 4. Mr 5. Mr 6. Ms 1. Mr Clerk Assistant Clerk Assistanl l,egal Counsel Iriscal Analyst Itescarcher Audio Officer Sergeant-At-Arms It I N/S E N/SCl- &B/ 122512025 PRELIMINARIES lhc Chairpcr.son callcd thc urccling to order al 4:04 p.m. 'l'his was followcd by a u'ord ol ADOPTION OF THE AGENDA f sr \r HOTEL AT 4.OO P.M. pra)'cr. M IN/SEN/SCF& B/ I 22612025 'l'hc agcnda was adoptcd a{icr bcing proposed by Sen. (Dr.) Boni Khalwale, cBS, MP' and sccondc<j bv Sen. I{ichard Mornoima onyonka. MP. as listcd bclorv-

1. Prayer: 2. Adoption of thc Agenda; 3. Considcration of the draft report on the Division of ILcvcnuc l\ill' 2025 (National Assembly Bills No. l0 of 2025): 4. Adoption o1'thc Report on the Division of l{cvenuc llill, 2025 (National Asscrnbll'' Bills No.l0 of 2025) 5. Any other Business; and 6. Adjournment and Date of the Next Meeting CONSIDEITA TION OFTH E DRAFI'ITEPORTON THE DIVISION OF REV I'NUT] BILt. 2025 NATIONAL ASSEMBI.,Y I]I LLS NO. 1 0 ()F 2025 'fhe cornrnittee considered its draft rcpofl on the Division o1- Rcvcnuc Bill- 2025 (National Asscmbly Bills No. 10 of 2025) and tnadc thc lbllowin-e obscrvations- a) 'l'herc has bccn marginal growth in thc county cquitablc sharc li'ont prcvious llnancial years, dcspite the substantive grorvth in sharcablc rcvcnuc' lrtl:Y 2025126 while sharcable revenue is estirnatcd to grou'by 10.1 pcrccnt (Ksh.259'1 billion increase). counties arc proposed to get an incrcasc of Ksh.17'7 billion liorn this b) rcvcnue growth' Whilc thc Division of Revcnuc Act sets out thc allocatiott to cach lcvcl ol' _s.ovenlmcnt ancl allocation to thc I'.qualization i;uncl. thcrc havc hccn budgct .rrryou"r, (undisbursed funds) ol cquitablc sharc at thc cnd ol'ths llnancial ycar' 'l'his means this provision of the National (iovcrnmcnt to solcly bcar thc shortlalls in revcnue collection is not fulhllcd' Whercastherchavebccnconsistcnta[[ocationsanclappropriationstothc llqualization I:und by thc Parliarncnt, thcrc has bccn a dclay in lransl'crs to thc I;und' -l'lre total disbursemcnt to the Fund as of Junc 2024 was Ksh.13'4 billion out oi'thc total cntitlcment of Kshs.62.4 billion' 'l'he Ilill uses the most rccent audited and approvcd accounts ol rcvcnue for |Y 2O2Ol2l, amounting to Ksh.1,570.6 billion. Flowevcr. thc National Asscrnbly on 15tr) April, 2025, approvcd thc auditcd accounls o1' rcvcnuc ol Ksh'1.920.434,085'0TSasthctotalnationallycoIlcctcdrcvcnuco|\:Y2021122. l;ollowing the changc in the most rcccnt auditcd and approvcd accounls ol'rcvctrtto (lrom Ksh. 1,570.6 billion to Ksh.1,920.4 billion), thc allocation to Iiclualization Fund rnust be adjusted in ordcr to mcet thc constitutional obligation undcr Articlc 204( I ). c) d) 2 c) M I N/S EN/SC F&I}/I 227l2025

ADOPTION OF 1'HE REPORT ON THE DIVTSION OF REVENUE I]ILL 2025 f) clausc 3 on the object and purpose of the Bill makcs reference to Article 203(2) of thc Conslitution instcad of Article 202(1) which provides for the sharing of revenuc raisccl nationally between the two lcvels of government' g) County governmcnt expenditure needs have sharply grown due to increase in non- discretionary expenditures such as contribution to housing levy, NSSF, Social Ilealth Insurancc Fund, Matching of contribution to County Aggregated Industrial Parks, annual rvage drift among others. tr) As submitted by thc Cabinet Sccretary, National 'freasury and Economic Planning, the projcctcd sharable revenue for FY 2025126 had been revised from Ksh.2,835 billion to Ksh.2,7 57 billion M IN/SEN/SCl'& B/l 228l202s (NATIONAL ASSEMBLY BILLS NO.lO OF 2025) Irollowing deliberations, considerations of stakeholders' submissions, the Committee noted that county equitablc share should be informed by reflect the GDP growth as well as the t.ron-discrctionary expcnditure rcquiretnent. Thus, the Committee resolved- a) Noting that ovcr the ycars, the county equitable sharc has on avcrage been2.23o/o ol' GDp, and ljy 2025126 nominal GDP is projected to be Ksh.19,272 billion, Ksh.387.425 billion should be adjusted such that county equitable share percentage of GDP is rnaintained at the same level, and b) Irurthcr, providing Itrr Ksh.34.9 billion to catcr for the following non-discretionary cxpcnditurc- i) Ilousing lcvy dcductions- Ksh.4.1 biilion ii) Ijnhanccd Contributions to the NSSF- Ksh.6 billion iii) Matching allocation to the CAIPs project- Ksh.l I '8 billion iv) Matching allocations for the CHPs- Ksh.3'23 billion v) Annual r,vage increments -IPPD annual adjustment- Ksh.6.3 billion vi) Basic Salary incremcnt as per the Doctors CllA2011 /21 ;Exccr"rtion of thc Itcturn'l'o Work I;ortnula (lt1'WF)-Ksh. 3.5 billion. Conscqucntly, the Committec unanitnously adopted its report having been proposcd by Scn. Itichard Mornoirna Onyonka, MP, and seconded by Sen. Maureen I-abitha Mutinda, Ml']. with the recoutncndation that- a) Clausc 3 bc arncnclcd to makc relcrence to Arlicle 202(1) olthe Constitution; and b) 'l'hc scheduls bc arncncled to rcilcct the following- i)'l'he total sharable Revenue Ksh.2,756,97 8,546,059 ii) 'fhc most reoent approved account of revenue Ksh. 1,920,434,085,078. iii) 'l'hc NalionaI government share- Ksh' 2,279,638,176,610 iv) 'l'hc County ,e,ovcrnment share - Ksh' 465,001,459,613 3

OURNMENT ANI) DATE OF NIiXT ADJ MEETING 1'he mecting was adjourne d aL 4:46 p.lTr. Next me cting shall bc by noticc SIGNATURE DATIi SEN.(CAPT.) ALI IBRAHIM ROBA, EGH' MP (CHAIRPERSON 4 v) -l'he Ilqualization Fund -Ksh.9,602.1 10.425 (0.5% of most rcccnt apProved accounts o1' revcnuc) vi) 'l'he Equalization Fund arrears - Ksh'2,136'139'35 I MIN/SEN/SCF&B/122912025 ANY OTHERBUSINESS 'l'hc Chairperson inforrncd thc Comrnittce the status olthc motiotr on thc lirurth basis and issucs raised during thc plcnary. Following delibclations, thc Cotrrurittcc rcsolvcd to convenc a breakfast meeting, wherc all Senators will bc invitcd, on 'l'hursday '22"'t May' 2025 within Nairobi city county. The purpose of the mceting will bc to briclthc Scnators on the Committee's recommendation on fourth basis for sharing nationally raiscd revenuc among county governments as containcd in thc rcport' M I N/SEN/SC F &BII23OI2O25

W*.-r- -- -;-e" MINUTES OF TIIE 1.WO HUND IIED AND NINTH 209r'rr) MEETING ( OF THE S'I'ANDING COMMITI'EE ON FINANCE ANI) BUDGET HELD ON SIlNATE HALL AIIGYLE HOTEL MAC}IAKO S MONDAY I2IIIMAY 2025IN VICTOIIIA I Co UN'I'Y A'I9.OO A.M. 1. Sen 2. Sen 3, Scn 4, Sen 5. Sen 6. Sen 7. Sen (Capt.) Ati Ibrahim Roba, EGFI, MP Maureen'l-abitha Mutinda, MP (Dr.) lloniKhalwale, CBS, MP Moharncd |aki Mwinyihaji, CBS, MP Richard Momoima Onyonka, MP Eddy Okctch Gicheru, MP Mariarn Shcikh Omar, MP Christophcr Gitonga David Ngarnate Lucy Itadoli Kirninza Kioko Constant Wamayuyi I{ose Ornctcrc Itita Chudi Jarncs Ngusya Chairperson Vice-Chairperson Mcmber Member Mcrnber Member Member Mcmbcr Mcmber AI}SENT WITTI APOI,OGY l. Sen. Shakila Abdatla Moharned, MI' 2. Sen. llsthcr OkcnYuri, MP SECRETARIAT l. Mr 2. Mr 3. Ms 4. Mr 5. Mr 6. Ms 7. Ms tl. Mr Clerk Assistant Clerk Assistant Legal Counsel Fiscal Analyst Researcher Audio Officer Office Assistant Scrgeant-At-Arms National Treasur v and Flconomic Planning (NT) 1. LIon.l'CPA. John Mbadi, EGII 2. Ms. Illizabcth Nzioka 3. Mr. Millbrd llctt 4. Mr. Collins Mulai 5. Ms. Mildrccl KcnYan 6. Ms. Iraith Jully Cabinet SecrctarY Director of Planning Parliament Liaison Of'ficer (N'l') National Treasury National 1-reasury National 'l'reasury I'II.ESIiNT IN ATTANDNCE

Contmission on llevc n uc Allocation 7. Mr. Koitarnct Olekina 8. Dr.lsabelWaiYaki 9. Ms. Lincth OYugi I nstitute of Ccrti licd Public Accountants of Ken \,il ICPAK) Vicc - Chairpcrson C om ur iss ion cr Director. llconornic A[]airs ( 10. Mr. Andrerv Itori I l. Hilary Onarni 12. Mr. 'i'ony Juma 13.Ms. Nancy Moraa Coun tv Assemblie s Forum (CAF ) MIN/SEN/SCF.t li n21512025 PII.ELIMINARIES 'l'hc Chairpcrson callcd the mecting to ordcr at 9.30 a.tn' and thc proccedings cotnucnccd witll a word of praycr. 'l'his was followcd by a round ol' inlroduotions by thc Mcrlbcrs o['thc Comrnittee and the stakcholdcrs. MIN/SEN/SC F&B.1121612025 'l.hc agenda rvas adopted after bcing proposed by Sen. Iiddy okctch Gichcru' Ml)' ancl sccondcci by Sen. Mariarr Sheikh Omar, MP' as listcd bclo'uv- l. Praycrl 2. Introduction; 3. Adoption o1'thc Agenda: 4.MeetingwiththeCabinetSecretary,NationalTreasuryandEcononricPlanning to deliberate on the Division of Revenue Bill, 2025 (National Assembly Ilills No' l0 of 2025); (Corumittee paper No 135-A); 5.MeetingwiththeCabinetSecretary,NationalTrcasuryanrlEconomicPlanning to deliberate on the County Wards (Equitable Dcvclopmcnt) Bill, 2024 (Committee poper No 136); 6. Any othcr Busincss: and 7. Adjournment and Datc of the Ncxt Mecting' 2 14. Mr. Scth Kamanz.a l5. Mr Chege Mwaura 16. Ms. Lonah [.osern 17. Mr. Aharub Khatri 18. Ms. Chrisline Mududa 19. Mr. Austin Muncnc 20. Ms. Sahna Aii AI)OPTION OF TIllt A(;llNI)A Chair (CAIr) Secrctary Gencral (CAF) crjo (cnF) Speakcr Mornbasa County Asscmbly Dcputy Clcrk Mombasa C. asscmbll' Dircctor. llconotnic Allairs Mombasa CountY AsscmblY

MIN/S riN/scF&B lt2l7l202s I'LANNING TO I)r]LIBERATE ON THE DIVISION ()F ITBVENUE BILL.202s (NATIONAL ASSEMBLY BILLS NO. IO OF 2025): COMMITTI'E PAPER NO l3s-A\ lJpon invitation, thc Cabinet Secretary, National Trcasury and National Planning subrnittcd as lbllows- a) 'l'hc National 'l'rcasury had projccted total sharable revenue of KSh. 2,835.0 billion fbr rhe FY 2025126 as contained in the Division of Revenue Bill, 2025 submitted to Parliament in February 2025. b) 'l'hc llill proposcd allocation of Ksh.2,419.4 billion to the National Governrtent, Counry Govcrnmcnts Ksh. 405.1 billion as County Equitable Share; and KSh. 10.6 billion for Ilqualization F-und, being the surrr of Ksh. 7.9 billion for FY 2025126 (0.5 percent olthc most recent audited and approved revenue of KSh. 1,570.6 billion for FY 2O2O/21as required by the Constitution), and KSh. 2.7 billion (as arrears to the Fund)' 'fhc allocation of KSh. 405.1 billion as County Equitable Share translates to 25'79 pcr ccnt ofthe most rcccnl auditcd and approved rcvenue. c) 'l'hc National 'l'rcasury has reviewed the perlormancc of ordinary revenuc sincc thc subrnission o1'thc Division of Revenu e Brll, 2025 to Parliament in February 2025. to be Ksh 2,435.1 billion, reflecting a shortfall of Kshs. 482.1 billion relative to the original budgct ftrr IrY 2024125. cl) 'l'hat with thc l'orcgoing, that thc ordinary revenue forecast of Ksh. 2,835.0 billion Ibr l:Y202512(t as conraincd in the Division ol'Revenuc Bill,2025 may not be achievablc. c) 'l'hat thc Ministry had rnadc downward revision of the ordinary revcnuc tbrecast 1br lrY 2025/26 ro Ksh 2,757.0 billion, which is Ksh 78.0 billion lower than thc Budget Policy Staternent 2025 projeclion of Ksh 2,835.0 billion' t) 'fhc Cabinct Secretary cited the below as the factors inlbrming the proposcd Division oll{cvcnue Ibr FY 2025/26- i) 'l'har ovcr the pcriod 2016/17 to 2023124 actual ordinary revenue has always bccn bclow rargct except fbr IrY 2021122, and as such even the FY 2025/26 may experiencc such shortf-all. ii) 1'hc need to finance mandatory expenditures under Article 203 (1) of thc Constitution. iii)'l-hat liscal dcllcit in financing othpr major National Government functions has alrvays occasioncrj additional borrowing rvhich continues to distort thc llscal li.arnework sct out in the annual Budget Policy Statemcnts and lurthcr undcrminc govcrnlnent liscal consolidation plan' iv) Financing constraints due to limited access to finance in the domestic and intcrnational fi nancial markets. 3 MEETING WI'IH THE CABINET SECRETAIIY. NATIONAL TREASURY AND ECONOMIC

MIN/SEN/SCF&B t121812025 M EETING WITH TIIE CAI}INT''T SECITETARY NATIONAL TREASUITY AND I,CONOMIC PLANNING TO DE,LII}EITAT EONTH t- COUNI'Y WARDS (EoUITABLE DEVEL oPMENI') I}II,L. -l'hc Cornrnittee was as Ibllows- a) Prelimina ry"clause 2" should define the terms 'cquitablc dcvclopmcnt 'and 'ward Projccts Iclcntification Committee' in the contcxt of the Ilill' b) Allocation of resources lor ward dcvclopmcnt projccts "clause 5 2(b)""I'hat the I]ill dcsignatcs the Ward as thc lundamcntal within thc County in rcsourcc sharing''l'his 4 v) Lligh cost ofpublic debt scrvice;that thc public dcbt scrvicc in IrY 2025/26 rvill account for 52 pcrcent ofordinary rcvcnuc rvhich is highcr than thc avcragc (4 I perccnt) ovcr the pcriod FY 201 6l''17 Lo 2024125 ' g)'l'hatthcNationalTreasuryhasproposcdtharcquitablcshareolKSh'405'l hillionto CountyGovernmentsinFY2025126,.l.hisallocationisa4.6pcrccntincrcascfionltltc I:y 2024125 allocation of KSh 3g7.4 billion rvhich is consistcnt rvith thc provision ol' Articlc 203(1) thal cnvisagcs stable and prcdictable allocations olrcvcnuc to counly Governrnents. 'l'hc allocation o[ KSh. 405.1 billion is bascd on thc rnacro llscal lramcwork which rclies on expected rcvenucs and cxpcnditurc cotntrrittncnts fbr l]Y 2025126.T'his shall be sharcd in accordance with thc'lhird dctcrrnination o{'thc basis of thc division of revenue among counties approved by Parliament pursuallt to Articlc 211 (7) of the Constitution. h) In conclusion, the Cabincl Sccretary inforrncd thc Cotnmittcc that thc National 'l'rcasury proposes to allocatc KSh.69.8 billion as adclitional allocations (conditional and unconditional) to county Governrnents' l-hat arising KSh l2'89 billion rvill bc financcd from the National Governtnent's sharc of rcvcnuc. and KSh 55'07 billion lionl procecds ol loans and grants I'rorn Devclopment Partncrs' Com mittee Observations Follorving the deliberations the Committce observed that; a) l'hat division ofrevcnue was not proportionate in thc grorvth ofnational rcvcnucs ovcr the Ycars; b) That the division did not cater for the burdened countics whosc cxpcnditurc obligations have ballooned with the ncw govcrnmcnt policics likc Social Ilcalth Authoritv Contributions Ilousing lcrry, NSSF for instancc' c) 'l'hc National Govcrnment had factored proiccts in its budgct likc thc hcalth inlrastructure a function which is dcvolved to counLics' I;or instancc' Ksh' 50' 000'000/ Mugumo hcalth centre d).fhatthercwasabigvarianccinthcNationalGovcrntlcntsallocalionstothcNational Iteferral HosPitals' 2024 (COMMITTIII| PlPltR N0 l36t

approach has not guided on uniquc characteristics including; i. Allocation lo mttnicipalities ancJ cities and; ii. Allocation to transboundary projects across wards' c) "Clause 3 (a) " Allocation o1'60% olresources for ward development projccts. 'l'he CS raised conccm ovcr the rationale for allocating no less than sixty percent of the developntent budger? 'l'hat Proposing such a high allocation may impedc county govcrnmcnts' ability to undertake these essential transformativc projects' lle opined that the County Intcgrated Development Plan (CIDP) guidelines providc for thc idcntillcation and financing ol'transformative or I'lagship projccls at thc county Icvcl. d) Allocation of rcsourccs for Ward developlnent projects "Clau.se 6 "that the llill Introduccs a clause to address the challenges that occur when there is a delay in obtaining approval for the Resource Sharing Irormula following its expiration. e) In rhc Idenrification of Ward based projects for equitable development within wards ''Clattse 7 (3)", thc CS rccomrnends that the Ward Projccts Idcntification Committcc. although cstablishcd by thc County Exccutivc Committee Member (CECM), should havc bccn nominatcd by thc community through a democratic process at thc rvard levcl, in accordance with the criteria outlined in "Clauses 7(4) and 7(10)" t) Identilication of Ward based projects for equitable developmcnt within wards "Clause 7 (3) " 'l-he schcdulc should be cnhanced to ensure that; i. Projccts arc idcntificd by the community at the grassroots lcvel,, as indicated in "Clattse 7 (12)" 'l'hesc projecls mLrst undergo screening through thc projcct managcrncnt process to asscss cost estirnates and viability, including I'easibility studies and environmcntal and social saf'eguards; ii. 'l'hc cornmittce should make provisions to prioritize communify projects that arc incomplctc, ongoing multiyear projecls, and stalled projects fbr lurthcr supportl iii. A clccision is nccdcd rcgarding the financing ol'community inveslmcnts that rcquirc tnaintenancc and sustainability rneasures for the projccts; iv. Subrnissions liorn the committee should be organized in ordcr of priority, as agrccd upon in thc ward public participation forum; and v. Ward projccts should be sourced fiorn the project lists gcncrated during public participation on thc County Integrated Dcveloprncnt Plan (CIDP) and Annual Dcvclopmcnt Plan (ADI,), which servcs as the basis for any financing to the County Government; g) Iclcntilication o1'Ward based projects fbr equitable development rvithin wards "Clause I ( I ) " that thc pro.jects subrnitted by the commiltee s should be in ordcr o1'priority givcn that thc coul1ty cxccutivc cornrnittce mepbcr had dcsignatcd technical ollccrs to thc cornrritlccs in "ClauseT (13)" to handle othcr technical issucs.'l'hcrclore "Clause 8 /li " should thus bc consolidation and hapnonization of ward prioritics in line with thc Coulty Intc-eratcd I)evelopment Plan. ii. 'l'hc CECM should ensure that thc provisions o1'thc l)ublic Finance Managemcnt (Public Invcstrnent Management) I{egulations,2022 arc adhercd to in thc projcct identification, approval, and execution prooesscs. 5

h) Idcntification of ward bascd projects fbr equitablc devclopmcnt within rvards "c/aa'se 10,, that the projects shatl be bascd on the broad priorities of'thc cll)P' A[)l' and County I"iscal Stratcgy Papcr (CFSP)' i) Implerncnrarion of e.;".,, "Clause 12 (4)" that it is csscntial to clcarly dclinc an1' additional lunds allocated to a project, along with thcir sourccs' 'l'hus' thc atrount distributecl equitably to the ward should bc uscd to covcr any additional lunds Irccdccl lor cxisting projects within the ward bcfore considcring ncrv pro'iccts' j) Implcmcntarion of Proiects "Clause t2 5(b)"to inscrt a paragraph stating that cach phase oI thc proicct should havc achicvablc milcstoncs that cnsurcs a pro.icct can bc utilized. k) Implementation of Proj ects "Clause 15 1(l)" querics the role of thc county Iixccutivc committec/cabinet in the operationalization of completcd projccts' whilc the cllcM Ibr Financc rvill report on thc steps takcn. thc responsibility for opcrationalization ancl projectsustainabilitylieswithaltstakcholdcrsinthccountygorlcrntncnt. l) Lnplementation of Pro.ie cts "Clausc 15 (2)" -lhc wording in "Clausc 15( l)"' which uscs the term ,'shall,,, is sulficient to compcl the cllcM to rcport to thc county Asscrnbly' l'hcrefore, Clausc l5(2) can be dclcted' ADJOUIT NMENl'AN D I)A'TI| OFN F]X'T NIIiEI-IN(; MIN/SEN/SCF& ri/l2l 912025 -l'hc rnecting adjourned at 1. 30 p'm p.ur. Ncxt mccling shall bc hcld at thc saulc vcnuc at 2'30 t\ L ..', ..-.-. ... DA'l't,: SEN.(CAPT.) ALI IBRAHIM ROIIA, EGH. MP (CHAIRPERSON L ) SIGNATUITE: . 6

MINUTIIS OF THE TWO HUNDRED AND EIGHTH (208,I'II) MEETING OF THE SI.]NA'I.I.] S'TANDIN(; COMMII"I'EE ON FINANCE AND BUDGET HELD ON 61'rr MAy 2025 IN COUNTY HALI, CROUND FLOOR I}OAITDROOM PARLIAMENT I}UILDINGS AT 9.OO A.M. I'II ES IiN'T l. Scn 2. Scn 3. Scn 4. Scn 5. Scn 6, Scn 7. Scn. (Capt.) Ali Ibrahirn Itoba. EGII, MP Maurcen Tabitha Mutinda, MP (Dr.) BoniKhalwalc, CllS, MP Moharncd FakiM"vinyihaji, CBS, MP Shakila Abdalla Mohamcd, MP Mariam Shcikh Omar, MP Dsthcr Okcnyuri, MI'} Chairperson Vice-Chairperson Member Mcrnbcr Mcmbcr Mcmbcr Mcmbcr AI}SI.,N'I' WITH APOLOGY l. Scn. Itichard Mornoima Onyonka, MP 2. Scn. liddy Oketch Gichcru, MI'} SECRETARIAT l. Mr. Christopher Gitonga 2. Ms. Ilcvcrlyne Chivadika 3. Mr. MitchcllOtoro 4. Mr. I(irninza Kioko 5. Mr. Constant Warnayuyi 6. Mr. Stanlcy Gikorc 7. Mr. Victor Kimani tl. Mr. Jamcs Ngusya IN A'I-T'ANI)NCE ('orrr lrrission <ln Ite verrrre i\llocali<lrr L CPA. Mary Wanyonyi Chebukati 2. Mr. Jonas Kuko 3. CPn. Itoble Nuno 4. Ms. I-incth Oyu_ei 5. Mr. I{cnny MLrtai 6. Mr. Alvin Walula Mcmbcr Mcrnbcr Clerk Assistant Clerk Assistant Legal Counscl Iriscal Analyst Researchcr Media Relations Offlccr Audio Officer Sergeant-At-Anns Chairpcrson Commissioner Ag. CIIO/ Secretary Director, Economic Aflairs Deputy Dircctor PA to the Chairperson Or sElr 1'UESDAY.

Council of Gov ernors 1. IIon. FCPA. Fernandes Barasa' OGW MIN/SE,N/S CF&B/I 20 '7 t2025 I,RELIMI NAII.IES MIN/SE N/SCF &ll/1 20912025 CONFI RMATIoNOF NI INUl'TiS OF l'l I l. I'I].EVIOUS STTTING (lovcrnor. Kakarncga/Chair, -l'cchnicaI Corrrrlrittcc on [iinarrcc and I'.conotric Al'lairs Govcrnor, Mal<ucni CountY I'rogratns olliccr ItE\1lOUS .t.hc Minutes of the Two Ilundred and Seventh (201t\ mceting hcl<l on fhursday' 17'r' Apri:. 2025 at 9:00 a.m. were confirtned as a truc record ol' thc procccdings ol' thc Committee having been proposcd by Scn' (Dr') Boni Khalwalc' CIIS' MP' and sccondcd by Scn. Irsther OkenYuri' MP' MATTE RSA 2 MIN/SE N/SCF&r]/l 21012025 RtsIN(; F RON'I .TTI E P 2. I Ion. Mutula Kilotrz'o Jnr" CllS 3. Mr. StcPhen MomanYi 1'hc Chairperson called thc mccting to order at 9:30 a'rn' 'lhis was lbllorvcd by a rvord o1' praycr and follor'ved by a round of introduction' MIN/SEN/SCF&B/1208/2025 ADOPTION OF THE AGENDA .l.hcagendawasadoptedaftcrbeingproposcdbySen.(Dr.)l}oniKhalwalc.CBS,MP,and s"coniled by Scn. Mariam She ikh Omar, MP' as listed below- 1. Prayer: 2. Introduction; 3. AdoPtion of the Agenda; 4. Confinnation of Minutes of 207th Sitting; 5. Matters arising from thc minutcs of the previous sitting; 6. I}riefing on thc Division of Revcnue BiIl,2025 (NationatAsscrnbl.v I}ills No' l0 oI. 2025); 7. Meeting with the- a) Comrnission on Revcnuc Allocation' b) Council of Governors; and c) National Trcasury and L"conomic Planning to dcliberate on tlre Division olI{cvcnu eB1l|,2025 (Nationat Asscrrrbly I]ills No.l0 o12)25)-Committee Paper No' I 3 5; and 8. Adjournment and Date of the Next Meeting' MEETINC

Ex. M in/Scn/SCF& l3l I 2 02/2025 Meetin s with Senate Ma ority Leader Sen. Aaron Cheruiyot , BGH, to deliberateonp rocessins of Bills refcrred to the Comrnittee from the National Asscmbly 'l'hc Cornmittcc noted thc nccd to expedite the arrangement for a mecting with Senate Majority Lcader so that the issuc on processing of Bills Iiom the National Assembly that are similar or have similar provisions to the Senate Bills can be resolved. Ex. Min/Scn/Scf&B/1204/2025 Consideration of Penclins Leeislative Ilusiness bcfore thc Committee a) Six Mcrnbcrs confirmed attcndancc to the schcdulcd rnulti-sectoral consultation mceting on the County Wards (Equitable Development) Ilill, 2024 set for Monday, l2th May,2025 in Machakos County. 'lhis constituted requisite quorlrm for the mceting to procecd. b) Mcmbcrs wcrc also infbrmed of the county visits to Kitui County on Monday, l91h May , 2025 , and Kisii County on Monday, 26th May , 2025, on the issue of pending bills. c) Mcmbcrs rcquesled lbr constant reminders about the scheduled Committce activities. M r N/S EN/SCI-& B/l 2 I t t2025 BRIEFING ON THE DIVISION OF REVENUE BII,I,.2025 (NATIONAL ASSEMBLY BILLS NO. 'l'hc Comrnittcc noted thc considered Committee Paper No.I35 on the Division of Ilevenue l\i11,2025 (National Assernbly Ilills No. l0 of 2025) and noted that- a) In lrY 2025/26. thc shareablc revenue is expcctcd to grow lrorn the projcclcd Ksh.2,5'75.9 billion inl;Y 2024125 to Kshs.2,835 billion. 'I'his represented a growth of l0.l%. IIowcvcr, by the end of the financialyear 2024125. b) Out of the projcctcd sharable revenuc of Ksh.2,835 billion, thc Ilill proposed 1o allocatc Ksh.2,419.4 billion to the National Govcrnmcnt, Ksh.405.l billion to thc County Govcrnmcnts, and Ksh.10.6 billion to thc Equalization l;und. c) 'l'hc allocation to the National Governmcnt is equivalent to 853% of thc total sharcablc revenue. ,uvhilc the county equitable share accounts for 14.3%o. d) 'l'hc allocation of'Ksh.405.I billion to county governmenls represents an increasc of Ksh.17.7 billion (4.5Yo growth) frorn tho previous allocation of Ksh. 387.4 billion fbr lrY 2024/25. c) On l5tr' April, 2025, thc Nalional Assembly approvcd the audited accounts ol- rcvcnuc ol'Ksh. 1,920,434,085,078 as the l"otal nationally collcctcd revenue lor FY 202v22. 3 IO OF 2025\ (COMIVIITTI]E PAPER NO.I35)

f) 'l'he abovc implicd that the lrlost reccnt audited rcvcnuc rcccivcd and approvcrl b1' NationalAsscmblytobcappliedforthcDivisionol'Revcnucin2025isKslr.l920.4 billion for FY 2021lzzand not thc Ksh. 1,570.6 billion {or l;Y 2o2ol2l as proposcd inthel}ill..theI(sh.405'lbillioniscquivalcntto2l.0go/oolthclatcstauclitcdand approved rcvenuc. g) ,l.hc Bill proposed an allocation ol Ksh.7.85 billion to thc Ilclualiz,alion l;Lrncl rr,lrich iscquivalcnttothc0.5%asprovidedinArticle204ol.thcConstitution'Iiorvcvcr" due to the changc in thc ycar and thc figure of the most rcccnt auclitccl and approvcd revcnuc. rhe Ksh.7.g5 uittion is equal roo.4lokof thc Ksh.1.920.4 billion. h) 'fhcre is a lurthcr allocation of Ksh.2.74 billion in the FY 2025126 as partial payrncnt toarrearsowedtothellqualizationl;und..l.hcarrcarstothcl;r.rndatthccndol.liY 2023lz4stood at Ksh.4gbillion. lnFY 2024125,thc allocation rvas Ksh'8 billion' butithassinccbcenrevisedtoKsh.6.2billionintheapprovcdSupplcmcntarl'll estimatcs. i) whercas thcrc havc been consistcnt allocations and appropriations to thc UqualizationliunclbythcParliament,thcrehasbccndctayintransl.crstothcljrrtrd, 'l-hc total disburserncnt t0 the I;uncl as o1 Junc 2024 was Ksh' I 3 '4 billion out ol'thc total cntitlement of Kshs'62'4 billion' MEETING WIT}I STAKE iloI,DEIIS TO DELII}EITATF] ON TItE DIVIS N OF- REVENUE IO BILL. 2025 NATIONAL ASSEMI]LY I]II,I,S Mcctin g rvith Conrm ission on Rcvcnu cA I loc:r tio n iJpon invitation. the chairperson o1'the commission submittcd commission's cotntrrcnts as Iollows- a)Clausc3oithcBillonobjectandpurposcofthcBillnccdtobcarncndcdtotnakc re lerencc to the correct Article of the constitution, Articlc 202 instcad ol Articlc 203.Article203providcsforcriteriaforsharingofrevcnucsubjcctlo202(i).rvhilc zl2(l)provides ior sharing ofrevenuc alnong national aud county govcrnancc' b).l.hcrchasbcenadcclincinthecountycquitablcsharcallocation(llY2024125t<l |.Y2025126)iiornlO,4Yo|og,3ohandincrcaseinallocationtothcNational I]xecutivefrom56..TYoto5.T.SYo,Thishasnegativeimpactonserviccdclivcryand amounts to claw back on objects of devolution' c) 'fhe Commission rccommcnded that national governmcnt be allocatcd Ksh.2.409.75,andcountygovcrnmcntsKsh.4l7'4billionascquilal.llcsharclorlrY 2025126. d) l'hc llill Presentcd items ol' uational inlcrcst as bcing sYnonylnotts ttl naticlnal can be irnplerncntcd by cithcr lcvcl ol'govcrllmcnt 4 governmcnt Prioritics Yet they M IN/SEN/SCF&B/I 2 1 2/2025 NO.r0 0F 2025)

bascd on the law o1'subsidiarity. The national government should not isolate sornc of its lunctions and budget for them as national interest. c) 1'hc Ilill providcd othcr allocations like NG-CDF and Affirmative Action Fund as deductions to bc rnade bclbre arriving at sharable revenue. 'lhe allocations arc supposed to bc tnaclc liorn national govcrnrnent's share of rcvenuc pursuanl to ssction a(l)(a) ol'thc NG-CDIi Act,2015, and Legal Notice No.52 of PFM Act (National Govcrnmcnt Afllrmativc Activc Fund) Regulations, 2016. 1) 1-he Ilill provides that al1er considering all the mandatory expenditurcs under Article 203 <tl'Constilution, balancc lcft for sharing between two lcvels of governmcnt is Ksh.353.4 billion and balance for national governmcnt as Ksh.(64,522). 'l-his slatclrcnt \\'as nol factual since a number of national governmcnt functions had been providcd for. g) 'l'hc Scnatc should provide guidance on Basis which will be used in sharing revenuc among countics. h) 'l'hc linancing ol Irqualization lrund arrears amounting to Ksh.2.7 billion is not enough adcquatc cornmitmcnt to clear the pending arrears to the Fund. 'l'hc Cornrniltce commcndcd thc Commission's for comprehensive, detailed and wcll lhou-eht out submissions on thc Bill. 'l'his would bencfit the Committec in fonnulating its ilnal rccommcndations to the Scnatc. Mcelins rvith Council of (lovcrnors lJpon invitation, thc Chairpcrson of thc Council's l'cchnical Committce on l;inance and Irconomic Allhirs subrnittcd thc follor,ving gencral and spccilic commcnts on thc Bill- A. Ii.esource Allocation Framework: 'l'hc Council subrnittcd that- a) I)cspitc Lhc cxpandcd fiscal spacc and pro.iccted stablc economic growth at 5.3o/o ovcr thc mcdiutn-tcrtn, lbr the previous 5 years, FYs 2020/21 - 2024/25, counties equitablc sharc had grown by a marginalKsh.70.9 billion while that ol'the national govcrnmcnt had grorvn by Ksh.702.6 billion. b) 'l'hc national e.ovcrntnent's allocation has bccn consistent with the ordinary revenuc grtlwth, rvhilc thc countics'sharc has ahnost stagnated fbr the past 5 years, thus indicating arbitrary allocation rcvenue to countics that is not congruent to the cconornic growth trcnds and macroeconemic pcrformance. c) Conscqucntly, thc Council proposed a minimum allocation to countics of Ksh.536.88 billion for FY 2025126. I]. Attendant Resourccs relating to the delineated and gazetted functions of l6th December 2024: d) 'l'he Ilill failcd to take into account the recently delineated and gazetted functions of thc national and county governments which consequently had a financial 5

implication. e).lhcrcisnecdforurgentidcntilicationofthcattendantrcsourccsliornthecurrcnt budgetasabaselineallocationandtransfcrthesatnctothccotrnticsthroughthc Division of Ilcvcnue I\111,2025' rral go'cr,r.,cnr l) Ilascd on IiY 2024125 budgct' sotnc of thc allocatiolls to natro Ministrics, l)cpartmcnts und-Ag"ntits (MDAs) arc lbr dcvoh'cd lirnctions' Baseline Allocation g).lhcCouncilaverrcdthatthecountics'equitablcsharcbasclincallocationshouldbc tlreinitialallocationofKsh.400'll7billionasopposcdtoKslr.3tt7.425bilIion. C l) E. Unmct County financial obligations ancl deficits from the 2024125 budgct cttts: - .i) I)csP itc thc reduction olcountics' cquitablc sharc inl'Y 2024125. tltcrc has bcctl no allocat ion to counlics to mcct thc outstar.rding non-cliscrcti <lnrtt')' cxl'lcncl itttrcs cxpcctcd to bc ltnanccd by counttes in the prcvailing liscal ycar and thc mcdiurn tcrm k) Countics budget imPlementatton reduction and the deiays in passing Cabinet Rcsolution on State Corporations Reforms h) 'l'he Cabinet on 21st Januarv 2025 approvtg tn:1n:o]'9.1j-1..t1'tc Corporatiotis withoverlappingmandatesinto20,dissolutionl6StateCorporations,translbrol9 CorporationstorclcvantMinistriesorothcrStateentiticsandrcstructuringol.6..I-hc StatcCorporationstobcdissolvedincludcdthc6Rcgionall)cvcloptlcnt Authorirics.Ilorvcver.thcrcisncltrlcntionolthctrarrs[.cro[.thoscpcrlbrnring clcvolve<llunctionstoCountics.Sorrrco[.thcStatcCorporatiorrspcrlbrrning devolvcd functions recommen6ed for rnerging includc National watcr I larvcsting and Storage Authority' KURA and KcRRA' i) I-.ollowing the princiile of rcsources lollowing funotions., thcrc should bc a transltr ol.thcscstatc-owncdfirmspcrlbrmingdcvolvcdlunctionstocor-rnticstogcthcrlvitli thcattcndantresourccs..i.hisshouldalsoinlbrmtlrcallocationsinthcl)ivisionol I{evcnuc lor FY 2025126 lor FY 2024125 was constraincd liorn thc thc County (iovcrnrncnts Adclitional Allocations r) IBi|\.2024. .I.hcDivisionol.ItcvcnucIiilI'2025shoulclhavctakcnnotcoltl-tcntln.discrcl'ionarl cxpendituresbycounticsetnanatingliomnationalgovcrntncntpriorit-v-policics. prograrnrncs and projccts amountin; to Ksh'73'78 billion' 'l'hcsc includc Ilousing levycicductions-4.05uittinn;EnhancedcontributionstoNSsl;(scttodoublcinllY 2025t26)_6.0 billion; nn"i.n,r* altocations for the CAIPs Project-11'75 billion; Matching allocations for cou]rrunity Hcalth Promotcrs Prograu-3'23 billioti; Cost of Procurement of new medical equipment-39'0 billion;' Annual Wage increments(IPPD)annualadjustrnents-0.:ouittion,andSustainabiliryofthe 6

basic salary increment as per the Doctors CBA 201 7-2021 and executed RTWF- 3.45 billion F. Variation in revenue (Revenue shortfalls) r:r) Whcrcas thc Division of Itcvenue Acts have bccn providing lor protcction of cour.rtics' cqr"ritablc share liom revenue shortfalls, enforcement o1'thc salnc has not been adhcrcd to. n) Counties suflered a Kshs.13 billion cut in the current t'^Y 2024125 due to projected shortfalls contrary to scction 5 of the Division of Revenue {ct,2024. o) Whilc Countics suflcrcd this cut, the national govemment has almost gone to the initial budgct bclbrc thc budget cuts. This is contrary to the need for stability and prcdictability in rcvcnuc allocation as providcd for under Article 203 ( 1Xi). G. With regards to specific comments p) 'fhe Schedule to thc Bill should be arnended to allocate Ksh.2,290,308,164,884 to thc National Government and Ksh.536,880,000,000 to the County Governments inlbrmed by thc lollowing: i. Itevcnuc grorvth: 'l'hc economy in general is projected to grow at 5.3% in the next FY and rcmain stable over the medium term. Additionally, thc projcctcd shareablc rcvcnue has grown by 7.78% which should be equitably allocalcd. ii. Unrnct non-discrctionary expenditurcs by countics due to policy shilis by thc National govcrnmcnt and other priority progralnmes/projccts iii. Unbundlcd and dclincated functions: As baseline allocation, thc 2024/25 budgetary allocations to MDAs should be identified and transfi:rrcd through the Division o1'l{evcnuc Bill, 2025. iv. Basclinc allocation following FY 2024/25 budget cut: Due to improvcd rcve nucs, thc bascline allocation should be Ksh.400.l l7 billion. q) 'l'hc Schcdulc to thc llill bc amcnded by delcting the row providing lbr lJqualisation l"und Arrcars. 'l'his is bccausc- i. I:ach lrinancial year, the Division of Rcvcnue Act provides lor the Ilqualisation l;und which is specific to thc IrY (0.5%). Once allocated, it fbllows that thc funds are appropriated in line with Article 203(3)(a)of the Ctlnstitution. ii. Providing Ibr thc arrcars in a differcnt year's Division ol' Rcvcnuc Act arnounts to doublc allocation and by extension reduce the shareablc rcvenuc. 'l'he Ijqualisation Irund arrears should only feature in the subsequcnt Appropriation Bills. iii. 'l'hc total liqualisation Fund arrcars arc in cxcess of Kshs.60 billion and providing lbr thc arroars in the Division o1'li.cvcnue Bill lirnits thc scopc and paymcnt plan o1'thc arrears rvhich idcally should only be donc through an Ilqualisation Irund Appropriation Act. l

lrollorvin,e delibcrations, thc Committec obscrvcd that- a)Indeterrniningthccountycquitableshareo[Ksh.536.SSbillion.thcCounciluscd thc fbllorving- i. Basclinc allocation of Ksh,400.12; adjustrncnt fbr rcvcnuc grou'th at 5'3% equivalenttoKshs'2l.2lbillion;l;ourlht}asisStabilizatiorrl:actor AllocationaSrccommendedbyCRAKsh.l2billiouAdditionalrcvcnLlc fromunmctnon-discretionarycxpcndituresemanatingliornNational governmentpriorityprojects/programmes/policics-Ksh.73'78and AdditionalltevenuefromallocationstoNationalgovcrntncntMl)As perforrrringdevolvcd|unclions(bascdon|;Y2024125budgctcstinratcs-Ksh. 29.1'7. ii.TheCouncilrvasinlbrmedthatthcmostrcccntauditcdaccountsol.rcvcnuc rcccivedandapprovedbytheNationalAsserrrblyarelbr|;Y202|12022o1 Ksh. I ,920,434,085,078 ' iii.SomccounticshavcsubscribcdtoCountyPccrl{cviervMcchanistn.rr.hcrc governorscngageindiscussionsandcxchangcdideasonimproviltgscrvicc deiivery and ensuring that governancc practiccs align rvith thc nccds and exPcctations ol' thc citizcnrY' l.hc comrnittce commcnded thc council's comprchcnsivc. dctailcd and rvcll thought out submissions on the Bill. 'l'his rvould bencllt thc Cornrnittcc in lbrmulating its linal rccotnmendations to thc Scnatc l\r Mectin e with Natio nnl Trc:rsurv and Econtl rnic PIilnnlng Thc Council proposcd thar thc an'cars bc scparatccl and protcctcd li'onl revisions through thc National govcrnlncnt's Appropriation Acts a)'fheCommittcclvasinlortncdthatthcCabinctSccrctary(CS)hadrcspondcdto Committec,sinvitationbystatingthathcwasattcndingaCabinctn-rcctirl.qand would be unable to attend th" m""ting and requcstcd that thc mccting bc rcschcdulcd to a later date. b)Followingdeliberations,andnotingthatpassageofthcl]illiscriticaltocnsuring scamlcssbudgetp'"put'tionp'o"t"atboththcnationalandcountl'lcvclso[' govcrnmcnt'thcCornrrrittccaccededtoCs,srcqucstandrcsolvcdtorcschcdulcthc rnceting rvith tlrc Cabinct Sccretary lor National .l.rcasury atrtl I:conorrric I)lannirrg to deliberate on the Ilill to 'l'hursday' 8th May' 2025' a)'l.hemecting'rvasinlbrtnedofaletterlromCountyAsscrnbly,I:tlrLrttrrcqucstirrglbr a meetingwith the Co''''ittt" on ?3"lto 24tl' Ma'v'2024' to discuss atnong othcr issues, the recurrent cxpcnditure budget ceiling for cotrnty asscmblics lbr thc l]Y 8 MIN/SEN/SCF&B/12I312025 ANY OTHER BUSINESS

MIN/S 2025126. IIowcvcr, due to urgcnt legislativc work awaiting considcration. the Cornmitlcc agrccd to requcst the County Assemblies l;orum to submit their views on the Itecurrcnt Irxpenditurc Budget Ceiling for county assemblics for the l'Y 202512026 in writing, and witl engage CAI'- at a later date during processing o[ thc County Allocation of Revenue Bill. b) Furthcrmore, thc Committee noted an invitation liom the National Council for Iropulation and Developmcnt's to a scnsitisation meeting on establishment ol'a Parliamcntary Caucus on Population and Dcveloplnent on 8'l'May,2025.llowevcr. duc to prcssing urgent legislative work. the Comrnittcc noted unavailability to honour the invitation. EN/SCF'& ll /1214/2025 ADJOURNMENT AND DATE OF NEXI' NT I'['TING 'l'lrc rnccting ad.iourned aL 12:28 p.m. Next mecting shall be by notice .-:, 65 SIGNA'tT]ItE: .. DATE: . SEN.(CAPT.) ALI IBRAHIM ROBA, EGH, MP (CHAIRPERSON 9 t

Annex 3- Submissions from Stakeholders

COUNCIL OF COVERNORS LEGISLATIVE MEMORANDUM ON THE DIVISION OF REVENUE BILL, 2025 (NATIONAL ASSEMBLy BtLL NO.ro OF zoz5) TO THE SENATE STANDING COMMITTEE ON FINANCE AND BUDGET FROM THE COUNCIL OF GOVERNORS 1

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4 3. Baseline Allocation: We note that the baseline .ll"*T:'"'il;:'iilfir' equitable share is Kshs.387.4z5 billion as opposed to the initial allocation of Kshs.4oo.tr7 billion. The National government's allocation has been enhanced and almost reinstated the initial allocation through the recent Supplementary Budget owing to improved revenue projections negating what informed the cuts. However, the County governments continue to suffer cuts through both equitable share and conditional grants. lt is the Council's opinion that the baseline allocation should be Kshs.4oo.tr7 billion in accordance with the Division of Revenue Act, zoz4. Cabinet Resolution on State Corporations Reforms: - The Cabinet on 2rst-January zo21 approved the merging of 4z State Corporations with overlapping mandates into 2o, dissolution t6 State Corporations, transfer of 9 Corporations to relevant Ministries or other State entities and restructuring of 6. The State Corporations to be dissolved include the 6 Regional Development Authorities. However, we note that there is no mention of the transfer of those performing devolved functions to Counties. Some of the State Corporations performing devolved functions recommended for merging include National Water Harvesting and Storage Authority, KURA and KeRRA. Following the principle of resources following functions, there should be a transfer of these State-owned firms performing devolved functions to Counties together with the attendant resources. This should therefore inform the Division of Revenue for Fy zoz5lz6. 5. Unmet County financial obligations and deficits from the zoz4lz5 budget cuts: - Despite the reduction of Counties'equitable share in FY 2024125, there has been no allocation to Counties to meet the outstanding non-discretionary expenditures expected to be financed by Counties in the current fiscal year and the medium term. Counties budget implementation for FY )c24125 is already constrained from the reduction and the delays in passing the County Governments Additional Allocations Bill,toz4. The Division of Revenue Bill, zoz5 should therefore provide for the non-discretionary expenditures by Counties emanating from national government priority policies, programmes and projects (Annex 3). Variation in revenue (Revenue shortfalls): - Whereas the Division of Revenue Acts have been providing for protection of Counties, equitable share from shortfalls, enforcement of the same has not been followed through. Specifically, Counties suffered a Kshs.r3 billion cut in the current FY due to proiected shortfalls yet Section 5 of the Division of Revenue Act provides otherwise. While Counties suffered this cut, the national government has almost gone to the initial budget before the budget cuts. This is contrary to the need for stability and predictability in revenue allocation as provided for under Article zo3 (r)(i). The Senate should therefore ensure that Counties' allocations are protected as envisaged in the Constitution and the Division of Revenue Acts. 6 5

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that the arrears be separated and protected from revisions through the National government's Appropriation Acts. ScHEDULE (AMENDED) ANNEX T: ALLOCATION OF REVENUE RAISED NATIONALLY BETWEEN THE NATIONAL GOVERNMENT AND COUNTY GOVERNMENTS FOR THE FINANCIAL YEAR 2025126 ANNEX z: PROPOSED RECOMMENDATIONS ON THE VERTICAL SHARING OF REVENUES FOR FY 2025126 County Governnrents Equitable Share of Revenue 2<lr.5/26 FY COT,, NC IT OF GoVT RNOIIS o Type/Level of Al location Amount in Kshs. Percentage (%) of FY zozol2l audited and approved Revenue i.e., Kshs.r,57o,552,945,o14 A. Total Sharable Revenue 2,835,o4o,979,6o9 229o'Jo8,164,884 C. Equalization Fund 7,852,814,725 o.5o % D. County Equitable Share 5J6,88O,OOO,OOO 34.18% CoG Proposal (Ksh Billion) CRA Recommenda tion (Ksh Billion) NT Proposal (zoz5 BPS) (Ksh billion) 387.43 )87.43 4OO.12 Baseline (i.e. allocation in the previous year zoz4lz5) B. National Government

(OUNCIL OF COVERNORS o tion t: Adjusted Adjustment for Revenue Growth 2. Fourth Basis Stabilization Factor Allocation 3. Additional revenue from unmet non-discretionary expenditures emanating from National government priority projectsiprogrammesipolicies. (As per Annex r hereinbelow) 4. Additional Revenue from allocations to National government MDAs performing devolved functions (based onFy zoz4lz5 budget estimates as per Annex z hereinbelow) Percentage of the last audited and approved accounts of Ksh.r,57o.6 billion (For FY zozolzl) Percentage of the total proiected shareable revenue for Fy zoz5lz6 of Ksh.z,835.o billion Sources: Division of Revenue Bill, zoz5 & CRA Recom mendation for Fy zoz5lz6 ANNEX 3: COUNTY GOVERNMENTS UNMET NON-DISCRETIoNARY FINANcIAL oBLIGATIoNs 17.64 21.21 (at 5.3% 1Z 12 r8 29.77 Computed Equitable share of revenue 417.43 405.o7 536.88 26.57% 25.79% 'r4.72% r4.23% t8.94% Cost implication on County governments for Fy zoz5lz6 9 1 8.78 34.18i( Item ( N on-discretionary Expenditure)

Housing levy deductions 4.o5 billion (Minimum) Enhanced contributions to N55F - (set to double in FY zoz5126) Matching allocations for the CAIPs Proiect Matching allocations for Community Health Promoters Program 6.o billion (Minimum) rr.75 billion 1.23 billion Cost of Procurement of new medical equipment 39.o billion Annual Wage increments - IPPD annual a d ju stmen ts 6.3o billion Sustainability of the basic salary increment as per the Doctors CBA 2o17-2ozt and executed RTWF Total 3.45 billion ( Ot,NCIL OF COVERNORS 71.78 billion Source: County governments ANNEx 4: SAMPLE OF BUDGETARY ALLOCATIoNS TO NATIONAL GOVERNMENT MDAS FOR DEVOLVED FUNCTIoNS lN FY zoz4lz5 1o821o5ooo Upgrading Hospital of Children Ward - Kibugua Level 3 FY zoz4lz5 BUDGETARY ALLOCATIONS TO NATIONAL GOVERNMENT MDAS FOR DEVOLVED FUNCTIONS - BASED ON SUPPLEMENTARY ll ESTIMATES MDA Vote Dro8z State Department for Medical Services NET AMOUNT (KSH) TOTALS (KSH) HEADS 2,O49,OOO,OOO 10821o060o Free Maternity Program (Strategic lntervention) r082ro22oo lnfrastructural Support to Kigumo Hospital r0821o31oo Procurement of Family Planning & Reproductive Health Commodities 2,O27,OOO,OOO 1o821 ol8oo Vaccines Programme 5O,OOO,OOO I 10 5O,OOO,OOO 5OO,OOO,OOO

COUNCIL OF COVERNORS 1o821o51oo Upgrading & Equipping of Maternal & New Born Ward Endebess Hospital TO,OOO,OOO 1o821o5600 Upgrading and Equipping of Lusigetti Hospital Kikuyu 'l oo,ooo,ooo ro821o74oo Construction and Equipping of Health Centres 22O,OOO,OOO to8zroT6oo Reproductive, Maternal, Neonatal Child & Adolescent Health Proiect l,8oo,ooo,ooo to8zroT8oo Construction and Equipping of Level 4 Hospitals 25O,OOO,OOO toSzroTgoo Construction and Equipping of Level 5 Hospitals lOO,OOO,OOO Sub-total MDA Vote DloJ6 State Department for the ASALs and Regional Develo ment HEADS to36to3zoo Dry Land Climate Action for Community Drought Resilience 858,5ro,ooo 1oJ61ol4oo Ewaso Ng'iro North Catchment & Riparian Conservation Project-BETA 149,969,484 1o36ro42oo Mango Value Chain Programme-BETA 129,OOO,OOO 1oJ610760o Cherengany Watershed Conservation programme- BETA 25,OOO,OOO 1ol6108ooo Malindi lntegrated Social & Health Dev. programme MISHDP .BETA JOO,OOO,OOO 1ol6112ooo Drillin of Boreholes - LBDA lO,OOO,OOO 11 7r2l6rooorooo

aiJ .9v 'U ro L! bDc )o = 0) = rE -o t-o o !ro d o o o\ \o t 00 sr- o\ l.rt or.\r\ ^l oo o r\ o o o co oo o o oo r-\ ooo o ooo o o r\ o a.l oo o o co ooo o od o oo r\ ooo- oood 00 o Y c .9 ro .so ! PE bD fo o oo a{ o -o tr m f =d lUz iri tr o, E c ,,F rgbo 'tr: !-c, -o = rI, E O ..J /"r (U 5; S'a \Otr rh :Y Ea -Yo-aEIJ -o rc t-ot-t- oi E 0]E a .F rt, ho 'i-- t- t- c,! I o E r-l) oo <- \o o U OJ'a t-o- t- OJ rE = .E r!bo .C: (t, .C fboc -c = = bo C .g :Z ooo5< \O= na E ro -o o 5Y -v.>z o .o) 6:z o-3 '-'\ O- -o-a ^Co.9 oO: --o o \z t- coU ! oiI !C ro .9!t-o 'tr F trJ m oo \o \o o ozzr! --t-o c U !ooiI-o rI, .9.!t- 'tr o- F trJ co oo \o \o ad F ot- o t-, !ooE ! ro .9P !-o 'tr o_ Ft! co N\o \o o o co J t- o !ooE !c rt, .0J! 'tr F L]J oo !O \o o o 6 t- !oo Lr ! rg .gI 'tr o- F tlJ co o $ \o o o v1z t.u E c ! E -o rE .g2 t-o 'tr o- Fr! co oo \o \o E. o- = .9 -o 'tr ,9ot- OJ ro = OJ rO o- .9 LTJ o o, \o l "'1 !t!o d. Lo Ptr o, t-t!o. c,o oP IE IA o\o o qJ o \no d. tr.i oo Y oo o\o (I, o .o l, o E z u zl d CoE lt- 1) troU I o o a,J a.,J

a COUNCIL OT GOVERNORS to91165ooo Access Roads to lndustrial park Facilities 29O,OOO,OOO 10911677oo Rural Roads Gravellin II 1o911701oo Rural Roads Murrammin 4O,OOO,OOO 1o9117o8oo Rural Roads Murrammin X 15,OOO,OOO ro9rrT5zoo Sta e Construction 2O3,OOO,OOO Sub-total lrol1r25OrOOO MDA Vote Dlo4 State De rtment for lrri ation 11o41oo2oo Small Holder lrrigation programme 7,OOO,OOO r1o41oo6oo Community Based lrrigation projects 1,OOO,OOO,OOO 5ub-total I,OOTTOOOrOOO MDA Vote Dl109 State Department for Water & Sanitation 11o91ol5oo Water Harvesting program (LVSWSB) 53,OOO,OOO 1ro91041oo Kikuyu Springs Croundwater Conservation 7,OOO,OOO 11o91042oo Lamu Croundwater Conservation lO,OOO,OOO rrogro48oo Drilling and equippingof 4o no boreholes 5o,ooo,ooo 11o91o6Joo Maua water and drainage project 25,OOO,OOO 1io9t70oo Affordable Housing Water Supply - BETA TO,OOO,OOO 13 75,OOO,OOO

11o91287oo Restoration and Conservation of Water Catchment Areas 22O,OOO,OOO 4li5rooo,ooo sub-total MDA Vote D1152 State De artment for Ener v 1,4OO,OOO,OOO 11521140oo Critical Rural Access Last Mile Connectivity 2OO,OOO,OOO 11521142oo Street Li htin REREC 25O,OOO,OOO Sub-total 1r85o,ooorooo MDA Vote D1162 State Department for Livestock Development 11621045oo Livestock Production lnterventions 2O,OOO,OOO 1r621o59oo Establishment of Feedlots, Fodder and Pasture 5O,OOO,OOO Sub-total Vote D1l69 State De artment for A riculture MDA r r 69r o33oo Fertilizer subsidy pro ramme 14,5OO,OOO,OOO tt69ro39oo Food Security and Crop Diversification Project-BETA 14O,OOO,OOO 11691ro1oo Crop Post-Harvest Management Jl O,OOO,OOO 11691'to40o Development of Aggregation Centres 9O,OOO,OOO 15,04O,O OOTOOO ( o(rNctt oF GovttlNoRs Sub-total T 14 7 OTOOO,OOO 1i521 o27 o o Last M ile Electricity Con nectivity-B ETA

COUNCIL OF COVERNORS MDA Vote Drljl State Department for Environment & Climate Change 1jJ11or3oo National Solid Waste Management 4O,OOO,OOO rJ3r1ol70o Plastic Waste Management and pollution Control 22,5OO,OOO 13j1to2ooo Sound Chemicals and Waste Management Kenya 12,OOO,OOO 13311044oo Enhancing Community Resilience & Water Security loo,ooo,ooo Sub-total 74,5OO,OOO GRAND TOTAL 29,77 4,229,484.oo Source: National Treasury Budget Books :oz4iz5 Fy 15

NATIONAL TREASURY SUBMISSION TO THE SENATE STANDING COMMITTEE ON FINANCE AND BUDGET ON THE DIVISION OF REVENUE BILL 2025 NATIONAL ASSEMBLY BII,I,s No. 10 0F 202s i. Introduction Article 218 of the Constitutioa requires a Division of Revenue Bitl (DORB) which divides revenue raised by the National Government among the national and county levels of government in accordance with the Constitution; and a Counly Allocation of Revenue Bilt (CARB), which divides among the counties, the revenue allocated to the county level of government, to be introduced in Parliament at least two months before the end of each Jinancial year (Fy). DORB provides for the equitable division of revenue raised nationally between the National and County Governments for each FY in accordance with Article 202(l) of the Constitution. CARB provides for the equitable allocation of revenue among the County Governments from revenue raised by the National Government in a financial year and the responsibilities of National and County Governments with respect to such allocation, in accordance with the determined basis of the division of revenue among counties as approved by Parliament pursuant to Article 217 (7) of the Constitution. Section 191 (I) of the PFMA, 2012 requires that each year when the Budget Policy Statement (BPS) is introduced, the Cabinet Secretary responsible for matters relating to finance shall submit to Parliament a DORB, a CARB and a County Governments Additional Allocations Bill(CGAAB) for the financial year to which that Budget relates. ii. National Treasury's Proposal on Division of Revenue for Fy 2025126 The National Treasury had projected total sharable revenue of KSh. 2,835.0 billion for the Fy 2025/26 as contained in the Division of Revenue Bill,2025 submitted to Parliament in February 2025.The Bill proposed allocation of Ksh. 2,419.4 billion to the National Government, Counry Governments KSh. 405.1 billion as County Equitable Share; and KSh. 10.6 billion for Equalization Fund, being the sum of KSh.7.9 billion forFY 2025/26 (0.5 percent of the mosr recent audited and approved revenue of KSh. 1,570.6 billion for FY 2O2Ol2l as required by the Constitution), and KSh.2.7 billion (as arrears to the Fund). The allocation of KSh.405.l billion as County Equitable Share translates to 25.79 per cent ofthe most recent audited and approved revenue. The National Treasury has further reviewed the performance of ordinary revenue since the submission of the Division of Revenue Bil,2025 to Parliament in February 2025. As indicated in the Chart 1, revenue collection in FY 2024125 has consistently lagged behind target and the ordinary revenue shortfallhas widened each month reaching a cumulative shortfatl of Ksh 142.g billion in March 2025. The National Treasury therefore estimates that the overall ordinary revenue fot FY 2024/25 will be Ksh 2,435.1 billion, reflecting a shortfatl of Kshs.482.l billion relative to the original budget for FY 2024/25. 1

Chart l: ordinary revenLle cumr.tlative shortlall I 1:". I 1a)O.€; Fe:r-25 93.2 I 5,-:>i - ?-, T 71 .6I I .'-:,. i ,l:. l.': I ;\.'g - 2l Following the depressed ordinary revenue performance inFY 2024125, it is now evident that the ordinary revenue forecast o1Ksh.2,835.0 billion lor FY2025126 as contained in the Division of Revenue Bill,2025 may not be achievable. To retain the forecast as contained in the BPS 2025 would therefore be irnprudent and would undermine the credibility of the budget and further lead to accumulation of arrears. We therefore recommend downward revision of the ordinary revenue forecast forFY 2025/26to Ksh 2,757.0 billion, which is Ksh 78.0 billion lower than the Budget Policy Statement 2025 projection of Ksh 2,835.0 billion. iii. Factors infornrirrg thc JI'optrsr.rl I)i1.ision of Rt'r'entre [or F\' 2(i25/26 The proposed division of Revenue forFY 2025126 is inforrned by the following factors: i. ['i,tle:ctcti ()rtliittti.\ /irr'.'r;ii iir l')' 2())i ]tt It should be noted that the projected ordinary revenue for FY 2025126 Ksh 2,757.0 billion is inlormed by the lower baseline of Ksh 2,435.1 billion being the FY 2024125 revised ordinary rcvenue targets against an initial target of KSh 2,917.2 billion. It is important to note that ovel the period 2016/17 1o2023124 actual ordinary revenue has ahvays been below target except for FY 2OZll22, and as such even the FY 2025126 may experience such shortfall. 2

The need tofinance man,7atory expenditto'es undet'Article 203 (t) of the consilrution Table I summarizes the mandatory expenditures under Article 203(1) of the Constitution, to be financed in the FY 2025126 Table 1: Summary of Considerations Under Article 203 (l) of the constitution Item Description for FY 2025126 Allocation (KSh. million) Ordinary Revenue (Excludin AIA) 2,756,979 National Interest [Article 203 ( I )(a)] l09,ss l Public debt (Art. 203 [][b]) 1,437,87 9 246,268 Other National obligations (Article. 203 [l][bl) 8t0,324 Emergencies [Art. 203 (1Xk)] 2,000 E ualiza tion Fund Art. 203 (1) (g) and (h 10,590 Of which. a. Allocation in FY 2025/26; and 7,85 3 b. Arrears 2,737 Total Mandatory Expcnditurcs 2,616,613 Balance to be Shared b the 2 Levels of Goyernment r 40,366 County Governmentst allocation from revenue raised nationally; - Of which. 417,963 a) County Equitable Share Of Revenue 40s,069 2,946 c) Conditional Additional Allocations Government's Share Revenue from National 9,948 Balance left for the National Government (277,597) In summary, the share of the revenue is as follows: - Budget Item Amount (million KSh.) l. Ordinary Revenue: - 2,756,979 2. Less: Mandatory Expenditures 2,616,613 3. Balance left for vertical sharing 4. Less: Allocation to Counties Of which: a. Equitable share b. Additional allocations Balance left for National Government 140,366 417,964 (405,069) (t 2,884) ) (277,597) Pensions, Constitutional Services and Other b) Unconditional Additional Allocations from National Government's Share Revenue

This fiscal deficit in financing other major National Government functions has allvays occasioned additional borrowing which continues to distort the fiscal framework set out in the annual Budget Policy Statements and furthet'r,rndermine government fiscal consolidation plan. Over the years, alter taking into account all the mandatory expenditures contemplated under Article 203( I ) of the ConstitLltion, there has always been minimal and sotnetimes as shown above, no resources lelt to finance otherNational Government obligations, such as defence, roads, etlergy and Education. iii. l:ittuitcittg c'o;t'l: ttiitt.: tlLr,, trt litit'rctl ir..t.s.t lo fittt,nt't' irt tltc ,it-titrt.!tit- ttnd iitlt't'ttulirtittl 7i'tttitt'iu! t k€ t.\ Kenya's borrowing fett sholt of the targeted access for both domestic and foreign financing respectively over the years. The same trend has also been recorded in the first hatfofFY 2024125- lr. f.ltc Nttlionctl (jott,t'itr:tc it! ,-.t , i t t i t , t t t' .t lL' .solt,lt ht', t' .s.lr,trifulf t irt rtt'c'tttte itt ttrt.t gitt'tt liitttitr'ial .t eui . Over the years, Cor,rnties have always received full allocation of eqLlitable share of revenue despite shortlalls in perlormance of ordinary revenue. TheNational Government Ministries, Departments and Agencies, therefore, lrave continued to bear the full burden ofrevenue shortlall through budget cuts. In cases where there is delay in disbursement ofrevenue during the financial year, the arrears have always been disbursed in subseqtrent financial year. Due to underperformance of revenues dLrring FY 2023124, the National Treasury was not able to transfer KSh. 30.8 billion to Counties (being the equitable share allocation for June 2024) implying thar the total budgeted equitable share for FY 2024125 amount to KSh. 418.3 billion inctuaing the June 2024 balances carried forward. Further, as at end offirst quarter FY 2024125, disbursement to counties rvas behind by KSh.63.9 billion. Note that this increased financial commitment to County Governments shalt be funded from a Iower projected ordinary revenue for FY 2024125, further constraining the fiscal space in the medium-term including FY 2025126. It should also be noted that Article 219 of the Constitution provides that "county's share of revenue raised by the national governmerlt shall be transferred to the county without undue delav and rvithout deduction , except when the transler has been stopped under Article 225." r. l-ligh cosl tf ptrblit' debr .sut ic't' This is largely due to a relatively stable but stitt high exchange rate to the dollar, as well as high interest rates in the domestic markets. Public debt service in FY 2025126 will account for 52 percent of ordinary revenue lvhich is higher than the average (41 percent) over the period FY 20161;17 to 2024/25. i r,. l,rolxt.setl l-Jori:ttittLt! slr,rriit;! r,i t'tlttitithla sl.r.tra ol L.\lr loi.l ltillittrr in Fl' 2015 l(t The Nationat Treasury has proposed that equitable share ol KSh. 405.I billion to County Governments io FY 2025126. This allocation is a 4.6 percent increase from the FY 2024125 allocarion ol KSh 387.4 billion which is consistent with the provision of Article 203(1) that envisages stable and predictabte allocations of revenue to County Governments. The allocation of KSh.4b5.l biltion is based on the macro fiscal framework which relies on expected revenues and 4

expenditttre commitments for FY 2025/26. This shall be shared 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. This is informed by the fact that the proposed Fourth determination of the basis of the division of revenue among counties by the Commission for Revenue Allocation had not been approved by Parliament as at l5th February,2025, the statutory deadline for submission of CARB to Parliament in accordance with Section l9l as read with Section 25 of the PFMA. t,, Propo.sed,4dditional Allocation to Coung,Governments in FY 2025/26 In addition to the Equitable Share allocations, Article 2OZ (2) of the Constitution provides that County Governments may be given additional allocations from the National Governments Share of revenue either conditionally or unconditionally; while Article 190 of the Constitution also provides that Parliament shall by legislation ensure that County Governments have adequate support to enable them to perform their functions. Further, Section 4 of the County Governments Additionat Allocations Act (CGAAA), 2024 requires that additional allocations shalI be funds agreed upon by the National Assembly and the Senate during the consideration of the Budget Policy Statement and shall comprise of County Governments' additional allocations financed from either the National Government's Share of Revenue or proceeds of loans or grants from Development Partners. Pursuant to Section 5 of the CGAAA 2024, funds for additional a[locations to County Governments shatl be included in the budget estimates of the National Government and shall be submitted to Parliament for approval. In the 2025 Budget Policy Statement, the National Treasury proposes to allocate KSh 69.8 billion as additional allocations (conditional and unconditional) to County Governments. Out of this, KSh 12.89 billion will be financed from theNational Government's share of revenue. and KSh 55.07 billion from proceeds of loans and grants from Development Partners. HON. FCPA JOIJN MBADI NG'O GH 5 CABINET SECRETARY/ NATIONAL TREASURY & ECONOMIC PLANNING

I ) Bojeti Hub CPAK I (-tfr.ra-t Joint Memorandum to the Senate Standing Committee on Finance and Planning on the Division Of Revenue Bill, 2025 (National Assembly Bills No. 1O of 2O25) Submitted on Monday, May L2,2O2S Contact Personl Dr Abraham Rugo Muriu Executive Director, Bajeti Hub Email : aruoo@baietihub.org Moblle; +254721431083 Page 1 of 13

I ) Bojeti Hub I CPAK lt..!, kr*!.L rdr. About Bajeti Hub Bajeti Hub (formerly International Budget Partnership Kenya - IBP Kenya) is a Kenyan non-profit organization working to advance transparency, accountability, participation, and equity in national and county budgeting processes. Bajeti Hub's work is focused on strengthening the impact of civil societlr advocacy and citizens on budget policies and outcomes at both levels of governance in Kenya. Through deep and sustained engagement, Bajeti Hub provides support to build expertise and skills of civil society actors and citizens involved in budget advocacy. Citizen advocacy, generation of .rid".r"., technical assistance, learning, and networking are all integral components of Bajeti Hub's work About the Institute of Certified Public Accountants of Kenya (ICPAK) The Institute of Certified public Accountants of Kenya (ICPAK) is the statutory body of Accountants established in 1978 and draws its mandate from the Accountants Act No.15 of 2O08. It is also a member of the Pan African Federation of Accountants (pAFA) and the International Federation of Accountants (IFAC), the global Accountancy umbrella body- Preamble The Division of Revenue Bill, 2025 is prepared in accordance with Article 218 of the Constitution to provide for the equitable division of nationally raised revenue between the national and county governments for the FY 2025 126' Th'is Bill ensures that both levels of government receive adequate resources to fulfil their respective mandates and facilitate effective service delivery to its citizens. It also considers public debt obligations, economic conditions, and national priorities, ensuring a balance between {iscal sustainability and the resource needs of both ievels of government. iurthermore, the Bilt outlines mechanisms for addressing revenue shortfalls or surpluses, ensuring that the national government absorbs any revenue dehcits while any surpluses are used for debt repayment or fiscal adjustments while aligning with Kenya's economic stratery. Page 2 of 13

I ) Bojeti Hub I CPAK 0l- H,..r5. &-{r.t Chapter eleven of the Constitution of Kenya 2010 establishes a two-tier government, National and County governments, and provides specific functions for each levei. Article 187 (2)(a) requires that, if a function is transferred, arrangements should be put in place to ensure that the resources necessary for the performance of the function or exercise of the power are transferred. Further, Article 202 provides that revenue raised nationally shall be shared equitably between both levels and that; county govemments may be given additional allocations from the national government's share of the revenue, either conditionally or unconditionally. It is against this background, that the National Treasury prepares a Division of Revenue Bill annually, while taking into consideration the recommendations of the Commission on Revenue Allocation and the Intergovernmental Budget and Economic Council, as provided for by Section 12 (h) of the Public Finance Management Act, 2012. Further, Section 191 (1) of the Public Finance Management Act 2Ol2 requires the Cabinet Secretary to submit the Bill to Parliament for review and consideration. The table below provides a detailed submission of the Bill; Clause Submission Recommendation Clause 6 remain concerned about the declining percentage of county equitable share to total sharable revenue since the DORA 20 18. Despite the nominal increase in county allocations, the percentage of total sharabie revenue allocated to county governments has continued to decline, dropping to 14.29o/oin2O2S, compared to 14.6lokin2024. The implication of this is that while the national government has been meeting the legal requirement of providing an equitable share of at least 15 percent of the most recently audited measure of its revenue, County Governments have been experiencing a continuing decline in the resources avaiiable to them as a share of overall shareable public resources. The table below shows the revenue allocation of both National and County governments across the years under review: An analysis of previous Division of Revenue Acts is shown below: We 1. The Senate adopt the CRA's Recommendation of Ksh. 417.4 billion as the equitable share to counties. 2. The National Treasury to consider infiation rates as opposed to revenue growth rates to inform the Division of Revenue in future. Page 3 of 13

I Bojeti ) Hub I CPAK G{.r.ihld.-krrri} Source: Diui.sion of Reuenue Acts 2O 18-2024 and DORB 2023 & 202s In the FY 2025126 Division of Revenue Bill, the National Treasury has allocated Kshs. 405.1 billion as the equitable share for county governments. However, the Commission on Revenue Allocation (CRA) recommends a higher allocation of Kshs. 417.4 billion, creating a funding gap of Kshs. 12.3 billion between the two proposals. While the national treasury's proposal is based on revenue forecasts and fisca1 constraints, The CRA recommended figure represents a more needs- based approach to ensure counties receive adequate funding to sustain devolved functions effectivelY. The Kshs. strrctured 417.4 billion county allocation was dctermined using a formula that considers multiple factors affecting service Recommendation Submission Clause r.688.0 2, l4l .o t ,77 5.O 1,856.0 t,877 o 2,571 2 2.6(J2.1 Total Sharable t.39a.o 1,533.0 1,554 o 2,t77 4 | ,7 64.O 2.214.3 National Govemmcnt 2,4AO.9 370 0 316.0 316.0 345.4 385.O County E4uitable Sharc 4t a.o 14,.8 18.6 I 7.3 20.8 t7 .o I4. fJO 14.74 '% of County Govemment to Total Sharable 82.8 8l.l 82.4 85. iO ol, of Nationel Govemment to Total Sharable Rcvcnue Re!6auo Shlte DORB 2025 IX)RA lAaE.l 2024 DORI 2023 DORA 2022 DORA 2021 DORA 2020 DORA 2019 Page 4 of 13 DORA 20la 2,835.O l,369.0 370.0 23.0 77.O a7.51

I ) Bojeti Hub I CPAK Clause Submission Recommendation delivery across counties. The formula distributes funds based on population size, equal share, poverty levels, geographical size and income distance. Finaliy, a stabilization factor is applied to prevent drastic changes in allocations compared to previous years, ensuring smoother transitions in county funding. Therefore, County Allocation y = | (O.42 " population Index y) +(O.22 * Equal Share Index y) + (0.14 + Poverty Index y) + (0.09 * Geographical Size Index y) + (O. 13 * Income Distance Index y) * Stabilization factor yl. When this formula is applied to all counties and their individual allocations are summed up, using the previous year's allocation as the baseline, it results in the proposed total equitable share allocation for counties. Additionally, the county equitable share, calculated at 25.79% of Kshs1,570,562,945,O14, should be Kshs 405,048,184,000, not Kshs 405,069,420,197. Clause 22 - Equalization Fund & Audited Revenue We note with concern the continued use of the FY 2O2Ol2I audited financials as the baseline for determining allocations. This approach raises questions about the accuracy and relevance of the figures used in financial planning and resource distribution. For the upcoming fiscal year, a proposed allocation of Kshs. Z,BS2,BL4,Z25 which represents 0.5% ofthe last audited and approved actual revenue for Fy 2O2O/21 , has been set aside for the Equalization Fund. Additionally, an amount of Kshs. 2,736,739,351 has been earmarked as part-payment of arrears from previous years. While these allocations contribute to addressing the current funding gaps, the reliance on outdated revenue baselines may lirnit the fund's effectiveness. 1. The Senate as part of Parliament should explore measures to have the National Assembly expedite the approval process of audited hnancial statements. 2. The national treasury should ensure the allocation of funds is based on trp-to-date revenlle figures. Page 5 of 13

I Bojeti ) Hub I CPAK r5 'd-.i..d{} Recommendation Submission Clause 3. The national treasury should provide a detailed payment pian ior unremitted funds to track disbursement effectiveness. 4. The national treasury should imPlement monitoring mechanisms to ensure funds are used for their intended purPoses in marginalized areas. The administrative challenges surrounding the Equalization Fund remain unclear, particularly the lactors contributing to its low disbursement rate over the past decade. Unlike other funds aimed at supporting service delivery and addressing marginalization such as the Constituency Development Fund, Affirmative Action Social Development Fund, Women Empowerment Fund, Youth linterprise Development Fund, and National Drought Emergency Fund, the Equalization Fund appears to be less effective in achieving its intended purpose. Understanding the underlying reasons behind this disparity is crucial for improving its functionality and impact 12.400.000,000 Source: Auditor General Report 2O24 Amount Transferred lo the Fund (Kshs.) . FinancialYear 2011t2012 2o1rei13 2i1n2o'ri 201412015 2015t2016 20I6!i011 2017QUa 20,l8/2019 2019n020 2020t2021 2oa1t2olz 2022t2023 Total 6.400.0m.000 6. OOO.000.000 Amount o, Equalisation Fund Entitlement (Kshs.) 2.340.759.850 2.&6soo.ooo 2.64 6-. 3bo.oo0 3 .884 .500.000 3.884,500,000 3.S84.500.000 3.884 .500.000 3.884 .500.000 3,884 .500.000

q._7qq1s0,000

6.788,490.000 7.068.474,200 51,586,214,050 Approved Audited Revanues (Kshs.) 468.151.970.000 529.3oo.ooo.ooo 529.300.000.000 776.900.000.000 776.900.000.000 716.god.ooo.ooo 776.000.000.000 776,900.000.000 776.900.000.000 . _ 1 .3s7.6!q.oo0.000 - 1 .357.684t.000.000 i.4'13.694,&o.boo 10,3't 7,233,810,000 For each item under National Interest the Nationai Treasury must 'lhere necds to be more clarity on the proj ects an programmes 203 [1]). For does Youth budgeted lor under the lines of National Interest (Art le, what projects, programmes or activities d examp C1ause 9 and 10 - National interest Page 5 of 13

I ) Bojeti Hub I CPAK Clause Submission Recommendation Empowerment' exactly comprise? What informs its allocations in the DORB each year and Ksh. 11.175 Billion in DORB 2025? 1. Provide an explanation of the allocations to the identified programmes of national interest, and what informs the change sin these from one DROB to the next. A good example is provided in Clause 12, which explains the large increase in the NSNP allocation. 2. Indicate how the identified programme is related to the criteria under Clause 11. Clause 1 6 - Costing of Functions The onset of devolution was 20 13, when Kenya's population was roughiy 45 million and the cost of a unit of electricity was Ksh. 12 - 19 per unit. Kenya's population is currently projected to rise to 53.3 million in 2025, with the price of electricity having risen to Ksh. 3l per unit, reflecting not only a higher service detivery demand but a higher cost of delivering public services. Therefore, the growth in population and rise in the cost of basic factors like electricity alone diminish the utility of using a 2013 expenditure for devolved functions as a baseline to allocate revenue to counties io 2025. 1. We recommend the Senate to request the National Treasury together with IGTRC to commission an update costing of expenditure for devoived functions based on the recent delineation of functions by the IGTRC. Revenue Projections Ordinary revenue is projected to grow to Kshs 2.84 trillion in Fy 2025 / 26 frorn the projected Kshs 2.58 tritlion in Fy 2024 /2 5. The revenue estimates are as shown below: 1. The government's focus should be on fiscal consolidation and Page 7 of 13

I Bojeti ) Hub I CPAK r..ri..*- |da+ Recommendation Submission Clause reduction of tax leakages is needed to further enhance ordinary revenue performance. 2. The government should regulate revenue from government assets, dividends from state- owned enterprises, and user fees to reduce overreliance on taxation. 3. Ensuring that the revenue projections are reflecting realistic economic growth rates, inflation trends, and external shocks. The revenue estimates over the years, as depicted in the chart, indicate a consistent increase in both projections and actuai collections. However, actual revenue has often failen short of estimates, emphasizing the need for realistic revenue forecasting and effective I is I J9l 56 : i:l 9: l :i:J:6 .:5 Source: National Treasury . Ordur:'\- P-? \ Et:'lr!!tlDO?-d revenue collection strategies :JO :c0 100 0J0 ::;.,.. I l:rl::r . .i. $.i Ord'.r..!' P-.1 l. 1 . Improve county revenue coliection strategies to reduce over-reliance on equitable share allocations. the chart below highlights a persistent s Revenue (OSR) collection compared to annual targets, indicating inefficiencies in revenue mobilization and overestimated projections. Despite fluctuations, revenue collection has consistently underperformed, with the largest gap in 2023 /24 (Kshs' 22 billion shortfall). This raises concerns about weak enforcement, revenue leakages, and unrealistic target setting, which impact county budget execution and service delivery. hortlall in Own Source Clause i 5 - Own Source Rcvenue Pagc 8 of 13

I ) Bojeti Hub I CPAK (-rr r!....i5 tr-{..t Clause Submission Recommendation Own Source Revenue Vs Annual Target It is also worth noting that a few factors contribute to the underperformance of revenue : 1. The Auditor General's County allocation assessments are based on outdated financial baseline, potentially leading to misaligned budgetary recommendations and oversight 2. Weak linkage between planning and budget formulation. 3. Under-performance in own-sorlrce revent.re, 90 80 I I 0 10 c :to @50 ,E E40 lo^^ EJU 20 10 2023124 58.9 80.9 2022/23 2027122 37.81 35.91 57.37 60.42 Fina ncial year 2020/21 34.44 53.66 I OwnSourceRevenue & Anuual Targets Page 9 of 13

I ) Bojeti Hub I CPAK lrrr h.iL- rd{.q Recommendation Submission Clause l. The government should ensure strict adherence to legal debt thresholds as per the Pubiic Finance Management (PFM)Act. 2. The National Treasury should improve on enhancing public debt reporting focusing on detailed disclosures on the contingent liabilities, maturity profiIes, and debt sustainability analyses. 4. The projections provided in the DORBs should align with hgures from the Public Debt Management Offrce (Annual public debt reports) to ensure that the total shareable remalns revenue accuratc Kenya's public debt stock increased from Ks end of June 2023 to Kshs. 10,58 1.98 billion by June 2024, refTectinga growth of Kshs. 303.1 billion. This expansion has resulted in public debt reaching 63.00/o of GDP, emphasizing the country's continued reliance on borrowing to ltnance national expenditures. While a slight decline in the overall public debt-to-GDP ratio may suggest attempts to moderate debt accumulation, the present value of debt exceeding the recommended threshold signals persistent debt stress' 'lhis raises concerns about fiscal sustainability as high debt levels may limit the government's ability to invest in critical development programs without improving hnancial vulnerabilities' The graph below represents public debt to GDP ratio for FY 2018/ 19 to FY 2023/24: hs. 10,278.88 billion at the Clause 13 Public debt Page 10 of 13

I ) Bojeti Hub I CPAK ln-r ,l*J- &d*r Clause Submission Recommendation Revenue Share DORB 2025126 DORA 2U24l2s DORA O23124 DORA 2022123 DORA 2U2r 122 'total Sharable (biUion) 2,835. 04 2,948.l 2.14 t.o 1,775.O County Equjtable Sharc (billion) 39 r.1 370.0 370.0 Debt servicing Share in million (DoRB 2025, 20241 Sour ce : 2 O 2 5 M e dium T erm D e b t M anag e me nt S trate g g For the fiscal year 2025/26, the allocation to public debt repayment is projected to increase by Kshs. 265.8 billion, further emphasizing the growing burden of debt servicing. The table below shows the allocation in public debt repayment in comparison to total sharable revenue and (r:.: (r'..:.4 2ol8/r9 2o!3/2.1 .tli 3 bt.1 county equitable share across the years under review (,11.(, (rs: 2or9/2o 2o2ol2t -Public debr/ GDP 2o2rl22 2o22l2g -PV of debr/cDP (,:i. r 1,606.42 1.352.61 t,la7 7a 930-35 l.l74.o I 5 Page 11 of 13

I Bojeti ) Hub I CPAK tn{.lt,hlt-j.&irr-t Submission Clause 9t7,77a 7AO,62a | ,ss7 ,122 I,19c1,436 (Annual Dcbt 2023- million Public report 20241 Debt Servicc in 49.2,8 -269,OA2 256,235 369,334 Deviation from the figurcs in thc annual public debt repon Source: DORA 2O2O/21- 2024/25 & Annu The increasing public debt burden raises concerns about ltscal sustainability, as debt servicing costs continue to consume a significant portion of government revenue, showing that the upward trend in debt repayment limits fiscal space for deveiopment programs. We also note that the figures provided in the latest annual public debt report of 2023-2024 conflict with those provided in the Division of Revenue Bills 2025 and2024.ln case the actual figures are higher than those in the DORB 2025, then it means that the Counties'share will ublic debt is a non-discretionary payment al Public Debt report 2023-24 be less, as p 1. The Finance and planning Committee must demonstrate the responsiveness of the DORB to the recent gazette notice from the IGRTC delineating functions of national county governments, The Committee should compel the National Treasury to provide an explanation ol how this DOR framework aligns with and supports the enhanccd Page 12 of 13 Recommendation General Submissions:

I ) Bojeti Hub I CPAK devolution of functions, particularly in light of the IGTRC notice delineating the roles of county and national governments.l 2. We recommend an increased allocation to counties within the DOR framework, especially in the face of recent national level legislation across sectors that places greater administrative, or service delivery demands on county governments. The Iiscal framework for FY 2025126 and the Medium-Term indicates a projected decline in the proportion of expenditure allocated to counties, dropping from lO.4ok to 9.3o/o of the total projected expenditure. However, recent reforms in the health sector include the Social Health Insurance Act, the Digital Health Act, Facility Improvement Financing Act and the Primary Health Care Act, which all assign counties new administrative roles e.g. the establishment of data banks, hiring of accountants at facilities among other roles. 3. We further contend that to create hscal space for more allocations to counties through the equitable share, the Committee can compel the National Treasury to expedite ongoing reforms in State Corporations that duplicate county functions. For example, annual allocations to the Regional Development Authorities could be diverted to Counties through the equitable share, given that many of these authorities play a duplicative role to county governments in the WASH sector, as identified by IGTRC. 4. We further recommend the Finance and Planning Committee to: a' Strengthen intergovemmental fiscal relations to ensure both levels of government collaborate effectively in revenue allocation and utilization. b. Enhance financial oversight and accountability in both National and County governments to minimize waste and inefficiencies by arresting and prosecuting officers that pilfer public resources. c. Promote fiscal discipline by ensuring revenue projections align with realistic economic assumptions and past performance. d. Enhance public participation in budget processes to enhance transparency and responsiveness to citizen needs. 1 GAZETTE NOTICE NO. 16472 httos:i/iortc.oo .ke/Downloads Page 13 of 13

REPUBLIC OF KENYA COUNTY ASSEMBLIES FORUM (CAF) Flamingo Tolvers, 5th Floor Win Inlarl:communI8, Mara Road, Upper Hill Po Box 73552- 00200 Nairobi Kenya Tel:0 ,-canon@<ounrya;rmbhclforum.org w'vw'countY'stembllcsforum'org MEMoRANDUMToTHESENATESTANDINGCoMMITTEEoN FINANCE AND BUDGETON ON THE DIVISION OF REVENUE BILL' 2025 701 046 933 TO: Kenya. FROM: Forum. Mr. Jeremiah Nyegenye, CBS, Clerk of the Senate, Parliament of The County Assemblies DATE: 24rH APRIL,2025 1 ,

r 1.0 Introduction 1,1.1 The County Assemblies Forum [CAF] is thc coordinating body of the 47 County Assemblies in Kenya. CAF seeks to institutionalize the law making, representation and oversight capacities for the County Assemblies in Kenya and form linkages with othcr arms of governmcnt' The primary mandate of CAF is to promotc nctworking and synergy amongst the 47 Assemblies, coordinate intergovernmental relations and ' enhance good practice in legislative deVelopment, 1.7.2 This memorandum presents CAF's position on the proposed equitable share revenue for the county Sovernments for the FY 2025/2026 and sets forth reasonecl and evidence-basecl recommendations to guidc deliberations on the Division of Rcvenuc Bill, 2025. 2.0 Background 2.1.1The Division of Revenuc Bil[, 2025 proposes the allocation of equitable share to county govemments as follows: Expenditure Item CRA (B i llion) National Treasury (Billion) Variance (Billion) 1. Equitable Revenue Share in F'Y 2024/2s 387.425 387.425 0 Add: 2. Increase Revenue Allocation ln 30.000 17.644 't2.366 TOTAL EQUITABLE SHARE REVENUE OF 4"t7.425 405.069 't2.366 Source: National Treasury 2

2.1.1 Commission on Revenue Ksh.477.4 billion Altocation (CRA) recommendation: t 2.1.2National Treasury proposal: KShs'405'1 billion 2.1.3Counry Assemblies Forum (CAF) position: Ksh'450 billion 2.1.4While both thc CRA and National Treasury agrcc on maintaining the F\ 2024/25 baselinc of Ksh'387'425 billion' they differ on 'thc incremcnt for i zpx/zb'CRA proposcs an additional Ksh'30 billion' while thc National Trcasury ProPoscs a lowcr incrcmcnt of Ksh'17'6-14 biltion,'crcatitgl "t'"^tt'of Ksh'12'366 billi<in betwecn thc two rccommcndations' 2.1.5CAF ProPoses an enhanced cquitablc sharc of Ksh'450 billion' on the basis that this allocation is morc rcflcctivc of thc realities on thc ground and the incrcasing obligations of county goverffnents' 3.0 CAF Position on the Division of IlevenueBill'2025 3.1 CAF ProPoses an equitable share of Ksh'450 billion to County Governments for the Financial Year 2025/26' This figure is based on a realistic assessment of current county-lcvel obligations, inllationary Pressures, the nccd to anchor new devolved functions' and thc neccssiry of safeguarding constitutional principles of devolution and equitY' 4.0 Justification for CAF's Proposal of Ksh'450 billion 4.1.1 Escatating Non-Discretlonary Expenditure at the County Level 4.l.2Counticsarcincreasinglytacinghighnon-discretionary expcnditurc, including thc Housing !1vy' cmployer conrr-ibutions to thesocialrrorrtnr*"r*nccFun<l(SHIF)'therolloutofUniversal Health Coverage (UHC)' and statutory salary incrcments' Thcse obligations u'"itg'tty binding andcannot be deferrcd' yet thcy are not fully provideifor undcr the National Trcasury's Ksh405'1 billion proposals' Anallocation of Ksh'450 billion will providc counties with tlrefiscalsPacetohonourthcscobligationswithoutsacrificingservice delivcry or dcvclopmcnt spcnding' 3 ,

4.1,.3 Strengthening Oversight, Legislation, and Representation Functions of County Assemblies 4'1'.4 County Assemblies continue to be underfunded, hinclering their ability to carry out their legislative, representative, and oversight mandates effectively. The proposed Ksh.450 billion allocation allorvs for strengthening the institutional capacity of County Asscmblies, including thc work of Public Accounts Committees (pAC) and public 'lnvestments Committees (plC), which are esscntial for f iscal accountability and safeguarding public funds at the county level. 4.L'5 Inflationary and Economic pressures on County Budgets 4.1.6 _ Economic assumptions by the National Treasury project a 5.3% GDP growtir and infration within the 512.5% band. However, the cost of implementing counly functions especially healthcarc, agriculture, and early childhood education has significantly increased due to inflation, rising energy cos ts, and currency depreciation. A static or marginally increased allocation, such as the one proposed by the National rreasury, faits to account for trrese economic rearities. A Ksh.450 billion allocation accommodates in{ration and alrows counties to maintain, if not improve, current service levels. 4.7.7 Alignment with the Principles of Article 203 of the constiturion 4.1.8 Article 203(1)(d) of the Constitution requires that revenue allocation takc into account the fiscal capacity and efficiency of county governments. Further, Article 203(2) mandates a minimum of 15% of the latest auditcd and approved national revenue to be allocatccl to counties. The proposed Ksh.450 billion represents approximately 28.5% of the last approved revenue, thereby aligning with both the spirit and letter of Article 203 by ensuring counties are predictably and adequately resourced in light of thcir growing responsibilities. 4.7.9 Realizing the Gains of Development Agendas Devolution and Supporting County 4.1.10 Devolution has demonstrably improved access to public services. However, to sustain and deepen thcse gains, counties need increased resources to complete stalled development projects, improve health 4 I

--------- 4.3 4.4 4.5 4.1. 4.2. facilities, and fund countyJed economic development priorities' including County Aggregated .lndustrial Parks .and .yo:th cmPowerment prograrrisl CAF', p.oporal is aimcd at catalysing grassroots transforJration and reducing fiscal dependency through targeted and productive spending. 4.1.11 Pending bills CAF.'s Recommendations to the Committee Approve Ksh.450 billion to Empower Counties for Sustainable Growth' We urge the Committee to 3pprove thc Ksh'450 billion' a figure w[rich reflects the grolving fiscal needs of counties and ensures they can meet their obligations without compromising service delivery' Secure Adequate R"rorr.",'fo' devJlopment' CAF advocates for the Ksh.450 billion allocation to enabte counties complete the stalled projects' expand industrial parks, and invest in youth and women emPowerment' hence accelerating the impact of devolution' Align the allocation wittr ttte Constitutional Mandate' CAF calls for the upp".ouul of Ksh.450 billion to ensure compliance with Article 203 of the Constitution, which mandates equitable resource distribution based on the fiscal caPacitY of the counties' Cushion Counties Against Economic Strains' CAF urges the Committee a upp.ou. the Ksh.450 billion to help counties navigate fluctuating energy/ tuel cosls, currency fluctuations' fluctuating inllation rates' by .*rling that they continue providing essential services without extreme financial constraints' 5,0 Conctusion and Asks 5.7.'l In light of the abovc' CAF respectfully urgcs the Senate Standing Committec on Finance and Budget to: 5.'1.2 Reject the National Treasury's proposal of Ksh'405'1 billion on grounds of fiscal insufficicncY' 5.1.3 Consider but improve upon the CRA's rccommendation of Ksh.417.4billion by aligning with actual county financial obligations' 5.1.4 Adopt CAF's p'po*f of Ksh'450 billion as the equitable share for countiesinFY2025/26toguaranteesustainedscrvicedelivery, instih:tionalcaPacitystrengthening'andtheconsolidationofdevolution gains. 5.1.; Wc thank the Committee for its continued supPort for devolution , 5 I i

and reaffirm CAF's commitrnent to $ro national stakeholders to ensure counties ' funded. 6.0 DORA since devolution rking collaboratively with all are -adequatelY and equitablY Summary/Flighlights 6.1.1 ?t 2013/'14 had the lowest allocation of 190 billion' 6.1.? F-Y 2024/25 had the highest allocation at387'43 billion' 6.1.3 In terms of percentages, the allocation for f'Y 20'14/15 had the highest at 437" though with inclusion-of other allocations including equalization funds to counties. 5.1..4 Allocation for F\ 2023/24 in terms of percentage was the lowcst since devolution with 23.03%. 6.1.5 Generally, the allocations to counties have been fluctuating sincc devolution in terms of percentages. 6.7.6 Currently, the audited and approved accounts by the Parliament that is being used to divide this revenue is for the w 2o2o/27 with total amount of 1'57 trillion. 6.7.7 Summary of DORA Since Devolution No Financial Year Al location in billions Percentage % Co mnrents 1 2073/2074 190 B 27.9 Equitable shareable revenue onl 2 2014/2015 2268 43 This was total allocations to counties including equalisation fund J 2015/201.6 259.77 JJ Equitable sharcablc 4 201,6/2077 280.3 30 Equitable shareablc rcvenue onl 5 2017 /2018 302 32.28 Equitable shareable re\tenue orrl 2018/19 374 Equitablc si'rareable revenue onl 7 201,9/2020 31,6.5 30.49 Equitable shareablc rcvcnue onl 8 2020/2'l 316.5 23.31' Equitable shareable revenue onl t 6 revenue only 6 JJ.O

9 20?t/22 370 onl L-quitablc sharcablc rcvcnuc I 2022/x 370 onl Equitable sharcable rcvenue 1 202j/24 385.43 onl Equitable shareable revenue 1 2024/25 387.43 onl Equitable shareable revenue 1 2025/2026 405 Equitable share as proposed by National Treasu ( You rs sincercly, HON. SETH KAMANZA, CHAIIIPERSON, LEGAL AFFAIRS SUB.COMMITTEE a ( 7 26.17 2i.03 24.67 25.4

Tel: 254 (zo) 4z98ooo Email: info@cra.go.ke Website: r,r'vwr'.crakenYa.org Prism Towers 3'd Ngong Avenue z8th Floor P.O. BOX 1310 - oo200 NAIROBI a CONIMISSION ON RE\IENUE AILOCATION REF: CRA/ADM/SEN/BPS/oz Vol'III (:.rS) DATE: zgth April zoz5 J.M.Nyegenye, CBS Clerk of the Senate Parliament Buildings P.O Box 4r842-ooroo NAIROBI Dear Nyegenye, INVITATION TO A MEETING TO SUBMITVIEWS ON THE DTYISION OFRE\rENUEBILL,ZOZ5(NATIONALASSEMBLYBILLSNOTOOF zoz5) The Commission acknorvledges receipt of your letter reference number SEN/DSEC/F &BlzozSlo+S (c) dated 22nd April, zoz5 inviting the Commission to a meeting to submit vier.r,s on the Division of Revenue Bill,zoz5 (Nationai Assembly Bill no. ro of zoe5. The Commission has reviewed the Bill and wishes to submit a memorandum r.r,ith the comments attached herein as Appendix I. The Commissions also confirms its attendance to a meeting of the Standing Committee on Finance and Budget on 6th May, 2025 to sr-rbmit and discuss the views. Thank you for your continued cooperation Yours sincerely, C Roble Nuno ENCL- F Ae. COMMISSION SECRETARY/CEO

D I )r'<> t tt ttt i nc1 art )lqt t itu b I e Sor:ie.ty Schedule S.4: Allocation of revenue raised nationally bctween the national and county governments for the FY zozglz6 MEMORANDUM ON THE DIVISION OF REVENUE BILL zozs Appenclix I rlhe decline in the share of allocations to the county government has a negative inrpact in the ability of governments to improvc on selvice delivery to the citizens and this amounts to a claw back on thc obiccts of devolution. -County Bovernlnents have conditional financial obligations that were rneant to cornnrence in fi.nancial year zoz4/zg. However, due to the downward revision of plojected ordinary revenue for the finirncial yeat 2o24f25. i11',plementation of specific -The Courrnission in its FY zozg/26 veltical recontmendation, recornmended that thc uational governlnerlt bc al)ocatcd Ksh. 2,4o9.75, and county governments Ksh. 417.4 billion as equitablc shaler; for the financial year 2025i26. No. Pr'ovision of the Bill Issuc Pr'oposal .I ustificatiorr 1 -The Bill provides the object and purpose of the Act is to provide for the equitable sharing of revenue laised nationally among tl-re nati<lnai and countl, governlneDts in the financial ycar zoz5/26 in accoldance with Article zo3(z) of thc Constitution. -The con'ect reference of the sharing of revenue among the national and county govel'nments is in accoldance with Alticle zoz(r). -Alticle zo3 provides the criteria f<lr the shaling ofrevenue subject to zoz(r). -Decline iu the equitable share allocation to the county govelnment froru ro.4 pelcent to 9.3 percer)t aud arr inclease in the allocation to the nationai executive from 56.7 perccnt to SZ.s percent*(see Table r below). Section 3: Object and pul'pose of the Act.

at 1.\() Justificntiorr P roposa l Issrrc i) t'oJ il (lcl :]t crs ll c (: s d ll ro il lI llt s c p p d ce all 1llt ful CC l1 l) hil c ot ll o lr o h Ks Provisiolr of tltc Bill -The provisiott to gover-ntnents an additio FY zoz5/26 docs not arriount to equity in the shaling of nationally t'aised t'evcuucs. allocate 47 county rral Ksh. rz.6 billion fcl' -The natior-ral illtcrests call be irnplcntcnted bY cither level ofgovernurent based on thc law of subsidialiry. -Thc Bill plesents itetns of national intcl'est as bciug synonymous to natioual govcnrntent prioritics. 3 Table z: Evalttatiort of the Bill agaiust Article zo3(r) of the Constitution Rr>to A: Notionol interest the NG-CDF Act, 2015 DI. Fund cot.tsisting of an amount uot lcss tlran e.5% of the nationa'l qovernnrent's equitable share of t'evenue' Il-cgal Noticc Nt-r'52 of thc Public Fittaucc Managemerrt Act,2o12 (National Governurent Affirniativc Action Fund), Regulation zo16 established tlre natiotlal govcrnnlent affirtnative action as an allocation fronr the national govet'trtllent's cquitablc share of -Section + (r)(a) of established the NG-C I'evelluc The NG-CDF Affilmative actiou Funds are not part of itenls in Article 2o3 to be collsidered before an'iving at the shareable l'everlue. 'I'he allocatiou into the two Funds at e urade from the national Sovcrnment's equitable shate of revenuc. aud The Bill pl'esertts othel statutory allocations nanrely NG-CDF and Affirnrativc Action Fund as deductions to be tnade befole arriving at thc shateable teverrue . Table z: Evaluation of the Bill against Article zo3(r) of the Constitution Rou.t D: Otlrcr stotutory ollocotions tl obligation are intPlernented undel the national level of goveurment. intelest and -Thc national 4 2o2o was to bc used for -Thc'f hild Basis as aPProved by Parliament in SePternber 5 -'l'he Bill provides that after consideling all the tnandatoty cxpenditulcs under Article zo3(r) of the Constitution, the balance left for sharing betrveen thc two levels of govet'nurent is Ksl.t 353.4 billion (row G) and thc balance left fol the national govcl'nnrcnt is Ksh. (64,522) (row -The palagraph in this Scction nrakes urention of the Third Bar;is -It is not cntirely factuaI to state that the Table z: Evaluation of the Bill against Alticle zo3(r) of thc Constitution Row G: Balance to be sharecl by the tuo Ieuels of gouertunert No 27 of the explanatorl' notes of the Bill national gorrerutnetrt is always left with . u n"guIir" balance. Thc Constitution established only two levels of g,overnment' -The Cotntnissioti has dcveloped and subrnittecl its recotntrrcndatiou ou the Frourth II

t 'l':rblc r: Surnnra of Brr et Alloe ttions Rcf T'atrlc I) c I -2() 2 lll,s CFS:(Foleign and Domestic Debt, Pension and Sal aries for state officerc) No. Plovision of thc Bill Issrrc Formula as applicable from firrancial ),ear' 2o2o f 2t to zoz5lz6 I'ro;rosal .Itrstilication Basis fol shaliug levellue among county govel'nments to Parliament for considelation. financial years: 2o2o/21 to zoz4/25. -Parlianrent need to provide guidance on the Basis r,,,hich will be used for sharing I'e\rclrue among tlre county governlnents florn the fitrancial yeat 2o2s/ 26. 6 No 29 of the explanatory notes of the Bill The explanato$/ llotcs in zg(i) provides that in arriving at the respective revenuc shares, the National Treasury consider.ed that the Equalisation Fund aLrear.s of Ksh.:.7 billion will be financcd from the national governn.rent's equitable share. -The financing of Equalisation Fund arlcals amounting to kish. 2.7 billion is not enough justification against fufther increasir:g the county govelnnrerrt's equitable share. Allocation 2024/25 2ro25/26 1 National Govelnr.nent 59.1 Of Which: a) Exccutive b) Parliament C Juclicia 56.7 1.O o.6 57.5 1.O o.6 CFS 31.6 :) Cottn Govcrnrncnts to.4 -Article 204(1) of tlle Constitution plovides the Equalisation Fund as a special purpose Fund into which one half per cent of all revenue collected by the national governlnent each yeal' shall be paid. 58.3 31.3 9.3

',1)) /,' '.i, t0 I lt t -.--\ A|n ,015 25t'r'Apt'il 2s To Tlrc Clcrk, Tlrc Sctt:ttc, P.O. Box 4 l842'00100, Nalrobi. (l' l,', 1,' l r,tlt,n' a 0 )\to 5r_? 't't I ti .\'tiNA't,,, I_'l ,'l'l'(] lrlili Dc;rr Sir', OL aol. \ RE: SUBMISSION OF MEMoRANDUM ON E rvl ON OF REVENUE BtLL, 2025 (NATIONAL ASSEMBLY BILL N F 2025 The Coast Civil Socicty Nctwork fot'Flrtntrtt Rights is I [rt'o:rtl co;rlltlorl of clvll socicty orglnizltiorrs, rcligious instittttions:rntl all lrrstitutiotts worl<ing to cttllltlcc ltulttln rlglrts;ttt<l good governlncc :tt thc Co:rsr. Tlrc Nctwork lns plr.ticuhrly raken rrotc of the fact tlrlt tlto Divisiorr of Rcvcttttc Blll 2025, proposes co allocltc Kslrs. 405.1 billion to Courrtics. Thc Corrttrrlssiorl oll rcvclltlc allocatiorr on r5e otlrer lr;rnd, lrlving considcrcd all frctors, rccottttttcrtdcd :rlloc;ltiotl of l(shs. 4 17.4 t:illionr. Following the c;rll by thc Scnate for tttcttttrcrs of tllc ptrblic to strbtltlt tttcttlorrn<l;l on tlrc Division oI Rcvcnuc Bill, 2025 (Natiorr:rl Asscrnbly Bill No. l0 of 20?'5) [ry tlrc 29'r' April 2025, plc;rsc find below our pt'oposlls: Corrstitutional Basis for tlrc Division of Rovcntto Articlc 203 (2) of thc Constitutlon of Kcnyt 20 l0 surtes tltlt tlrc cqtritrtrlc slr;tt'c to cottttty govcrnn.tcnrs is to bc dctcrnrincd:rnntnlly frorrt tltc r'cvcrl(tc rliscd rrltiorlllly lrr<l tll;rt it shall nor be lcss th;rn fifrccn pcrccnr (15%) of rll t'cvctrttc collcctctl by tlre tl:ltiortrl govcrnnlcnt. Arriclc 203(3) ln plrricrrhr smtcs tlnt tlrc cqtritlblc slllrc is crlctrl:rtc<l ott tllc basis of tlrc nrost rcccnr lu<titcd;lccoullis of rcvcnrtc t'cccivc<|, rs a|pt'ovctl by tlrc Nltiorr;rl Asscmbly. On accounr of infor.rlatlon ln tltc public, thc N;ttlorrrl Tt'crsttt'y. proiccts tll;rt irr tlrc FY 207512026. tlrc ordin:rry rcvcnuc collccrccl N;rtlorurlly to Kslrs. 2h4 trilliorr. Tlrc Nrtiorrll uar{ &..-,L -*_! fri lI \0 I\ \r\ .10 1 Clause 27 ot tho Explanatory Mcmorandum to Division of Rovontto uill, 2025 li ,i ri il jl 20 ll rl 0 2 I'lnY 2025 ,t ti(:t it \/ tit, .l 1t ;1'1; 1111,, (

t Assenrbly has allocatcd Kshs. 405. I billion to counties. This is 14.26 Percent of the amount expected to be collecred nationally. This conlravenes article 203(2) of the constitution' Further, we are concerned that while the lacest audited accouncs of revenue by the Office of rhe Audiror General is for the 2073124 Financial Year, the audited revenue of accounrs that was used as the basis for the Division of Revenue bill 2025 is for the 2020/2 I Financial Year. The total ordinary revenue {or the 2023124r Financial Year according to the Kenya Revenue Authoricy is Kshs.2.407 trillionr. ln the case we used as the latest audited accounts as the basis for Division of Revenue, at the current ProPortion of 25'79%, counties should receive ar leasr Kshs.620.705 billion in the subiect financial year. This consideration is imporcant because of the following reasons: a. The revenue share to the councies have been tradually reducing compared to the amoun! allocared to National Governments since 2017/2017 FY' b. The controller of budget and the public accounts commiffee have cited counties to be operating with less development voce, this is the opponune moment for the Senate to correct this anomalY. c. The National government already devolved further duties co counties in the FY 2023t2024 like library services. Thus, the roles under counties have increased and deserve more allocations. We further, are concerned by National Assemblies rejection of recommendations of commission on Revenue Allocation (cRA) which is the public body that is constitutionally mandared under Arricle 215(l) (a) of the Constitution to make recommendations on the basisforequiublesharingofrevenuebecweenthetwolevelsoftovernrnent.TheCRA proposed Kshs.4 17.4 billion{ as the equicable share to the county Sovernments for current financial year. This rejection is not premised on any reason laid down by the National Assembly and treasu rY. The Place of equalisation Fund: Under the explanatory notes to the memorandum of objecu, ir is spelr out that the amoun! due for equilisation funds shall be provided through Nacional Governmen!. Pursuant to arricle 204 of the Constitution of Kenya, Equalisation Fund is esrabtis6ed ro prop up marginalized areas by facilitating Provision of services including warer, roads, health facilities and electricicy. Article 204 (3) (b) allows the National Governmenr to provide conditional tranr in facilitating the role of Equilis:rtion Fund. pursuanr to schedule 4 of the Consticution, the roles enlisted under the service of the ftrnd are responsibilities of the councies. Thus, all amounts allocated through the Nrtion;rl Government should be allocated as grants to the counties and performed by the cotlntie:. Delay in Transfer of Functions to County Governments 2 h(rpsJ/wlvw.orSkeny:.go.kdwp.conccnr,/uplo1dr2o24/06/AUolToR-G ENERALS.SUMMARY-REPORT'ON' NATiONAL-GOVERN MENT'2022'2023-wirh-cover.pdf 3 ARP - 8072024 - KRA Page on revenue performance 202312024 ' o Eorrtxrrion -icvenue Allocation (?025). Recommend!tion on the brrit for cquitrble shrring of rcvenue bcrwcen nrrionrl and county 8ovcrnmcnu for rhe finrncirl ycrr 2025/2026

MEHORANDUM E Drvrq!9]'|.flf R li JI BI 202S (NATIONAL ASSEMBLY B ILL NO 2s) PRESENTED TO TH E sEN BY THE KEN br-uriqry,cl!t,r- 5octerv oicaNtzATtoNs' woRKtNG GROUP ON TH tl rl, YA DEV EVENUE IbJor zo I ATE L Dlt e of S b nrission: 29'h A ril 7025 i-\ r,.f f: C )- t r,.'\. <(l\. 3 0 APR ?025 a To The Clerk The Senate, P.O. Box 4l 842-00100, Nairobl. Dear Sir, RE: SUBMISSION OF HEMORANDUM ON THED ENUE BlLL, 2025 (NAT|oNAL ASSEHBLY BILL NO. l0 OF 2025) Kenp Devolution Civil Socier/ Organizations (CSOs) Working Group (KDCWG) is a national umbrella forum of the Kenyan civil society neworkS across the 47 counties with a foCus on srenSthening devolution. The forum provides rhe civil sociery and Kenyan citizens with a common platform for collective parcicipation in the implementation of devolution and for leaming and sharinS of experience The objective of the KDCWG is to contribute to rhe effectiveness of devolution in Kenya for the realization of the constitutional promise on devolved govcrnance. The KDCWG has panicularly taken nore of the fact that the Division of Revenue Bill 2025' ProPoses to allocatc Kshs.405.l billion to Counties. The Commission on Revenuc Allocation on tlre other hand, having considered all factors, rccommended allocation of Kshs. 417.4 billiont. Following thc call by the Senare for members of the public to submir memorrnda on the Division of Revenue Bill, 2025 (National Assembly Bill No. l0 of2025) by the 29o APril 2025, please find below our proposal:: Constitutional Easir for the Division of Revenue Memorandum lo Division of Revenue Bill, 2025 P t\ i\ Dt-v tM [,n Di N TI-i E SENATE RF,- FIl/ED 3 0 APR ?U25 DDPUTY CLERI( 't , [aoI &) 0t !t Anicle 203 (2) of the Consriturion of Kenya 2010 statcs thrt thc equitable share co county governments is to be determined annually from the revcnue raiscd nationrlly and rhrt it shall not be less than liftcen percent (15%) of all revenue collected by the national tovernment. Anicle 203(3) in Particular states that the equitablc share is calculated on thc basis of the most recent audited accounts of revenuc received, as approved by the National Assembly. On accounr of information in the ptrblic, che National Treasury proiects that in the FY 2025/2026' the ordinary revenue collected Nationally to be Kshs. 2.84 trillion. The Division of Revenue Bill has allocated ! Clause 27 of the Explanatory =-- Jl K/'/,-, t(

t Kshs. 405. I billion to counties. This is 14.26 perccnt of the amount expected to bc collected nation;tlly' This contravcnes anicle 203(2) of the constitution' Further,weareconcemedthatwhilethelatestauditcdaccountsofrcvenuebytheofficeofthe Auditor General is for the 2023/24 Fin:rnclal Year, the audited rcvcnuc of accounts (hat was used as the basis for the Division of Revenue bill 2025 is for the 2020/21 Financial Year' Thc total ordinary revenue for the 2023/24r Financial Year according to the Kenya Revenue Authority is Kshs 2 407 trillion'' In the caJeweusedasthelatestauditedaccountsasthebasisforDivisionofRevenue.atthecurrent proportionof15.Tg%,countiesshouldreceivea!leastKshs.620.T05billioninthesubjectfinancialyear' This consideration is imPortant because of thc following reasons: a- The reyenue share to the counties have been gradually reducing compared to the amoun( allocated to National Governments since 20 l7120 I 7 FY' b. The Office of the Controlter of Budget and thc Public Accouns Committee have cited counties to be operaring with less development vote, this is the opportune momen! for the senate to correct this anomaly c. The National government already devolved {urrher dutics to counties in the Ft'207312074 like libraryservices.Thus.therolesundercountieshaYeincreasedanddeservernoreallocations. We further, are concerned by National Assembly's reiection of recommendations of Commission on Revenue Allocation (cRA) wtrich is t}e public body that is constitutionally mandated under Article 216(l)(a)oftheconstitutjontomakerecommendationsonthebasisforequiublesharingofrevenue U".*""i the cwo levels of govemmenl The CRA proposed Kshs.4l7.4 billion' as the equitable share to the counry governments for current financial year. This reiection is not premised on any reason l:id down by the National Assembly and the National Treasury' ThePlaceofequa|izationFund:UndertheexPlanalorynotestothememorandumofobiects'iti! spelt out that the amount due for equalization funds shall be provided through National .GovernmenL p'r.rurn, b article 204 of the Constitution of Kenya, Equalization Fund is established to prop up marginalizedareasbyhcititatingprovisionofservicesincluding}Yater.roads.healthfacilitiesand .i".ir,.,.y. Rnicle 204 (3) (b) -ariows the National Government to provide conditional grants in faciliutingtheroleofEqualizationFund.Pursuant!oschedule4oftheConstitution.therolesenlisted undertheserviceofthefundareresponsibilidesofthecounlies.Thus'alIamountsallocatcdthroughthe National Gorernment should be allocated as tranB ro the counties and pcrformed by thc counties' Delay ln Transfer of Functions to County Governments TheFounhScheduleofthcConstitutionofKcnraassignsrole:tothcnrtionalandcountySovernments. since 2013 to date howevcr, the national government has continucd to perform divcrse (unctions of thc CountySoYernmentsandalsoretaincdthcrelrtedresources.Thefunctionsincludethefunctionsof 2 http r://w'./w.oatkanIl.So.kdwp<on tcny'uplordr/2021/06/AUDITOR'GENERAI-S'SUMMARY-REPORT'ON'NATIONAL' GOVE RNMENT-2022-2023-with-<ov'r'P dl ARP - 8072024 - KRA Pag o on revenue performance 202312024 Committlon on Revenue Allocrti on p025). Rccommendrrlon on the brrlr for cqlllublc rh:rtng of ravcnuc bctw'cn nitlonrl t and coun!/ tovcrnm.nts for tht finrnchl yclr 2025/2016 2 _i l

i Rcgion:rl Dcvclopnlcnr Aurl)oriticat, urb:rn rords, Procrlrcmcnt of mcdical suPPlics, cmPloymcnt of hc:rlth wor.kcrs ind procurcnlcnt and salc of fcrtilizcrs. As a result, county goYcrnmcnts havc not functioncd optimrlly and lr:rve struSglcd to deliver quality scrvices being demanded by the citizcns. Wc arc concerned that despitc thc Presldent's aJscrtion6 that all financial rciources bc calculated and rllocated to Countics in thc FY 7075t2075, thc same does not rcflect on the current Division ol Rcvcnue Bill. The acrual position is thrt thc National Governmcnt spends on the basis of Uxes raised in thc ff 20ZS/2025, according ro thc projcctions whilc the counties shall bc operating on thc basis of the collections done in FY TOtOl}OZl, whcn we \ ere licd to covid 19, a.nd 4 years apan' ln actual sense, the amount allocated to the counties falls shon of the minimum l5 percent constitutional threshold when considered alongsidc the proiections o1702512016. We therefore recommend that thc Senate make reference to the rePorts from IGRTC, presented to it on 23.d Augusr 2023 and adjust thc currcnr allocated ligure by allocating funher Kshs. 272.2 billion which is the cost of sevenl clemenrs of devolved fonctions being held by the by thc National Government. ln Che casc the Senrte plrys it role of protecting thc interests of counties, countiei should 8et the Kshi. 405.1 billion and funher Kshs. 272.2 billion which adds to at least Kshs. 577.3 billion. Delays in Disbursement of Equitable Share to County Governments Scrvice delivery and performance of rhe county governments have regularly been affected b/ Persistent delays in tnnsfer of the equitable rharc of the revenue collected nationally to the devolved unis. Section 17(6) of the Public Finance Management Act (2012) Places on the Nationrl Trersury the responsibiliry to relea:e to county tovernmenB at the beginning of every month and not later thrn the fifteenth day from the commcncement of the month, to facilitate expenditure for the following month. For insance, according to the council of Governors, county Sovernmcn6 hrve received their disbursemenc only up to FebruarT 2025, yct wc are aPProachins end ol FY 707412025' We are concerned by the perslstent delays of disburuementt over the years' which conrravenes Anicle 219 of the Constltution, which providcs thrt a counry shrre of revenue raised nationally rhall bc transferrcd to thc county without unduc dclry and without deduction. lt is apprlling that the Senrte hrs not trken action !o rerolve this challenge eYcn (hou8h the sectors hrve been nising this concern on ever/ oPPortune moment. New Funds lntroduced with thc roles under counties: the Division of Revenue Bill should consider the Housing Levy and rhe social Hcalth lnrurance Fund. The two treams hrve introduced hu3e revcnue to the Nationrl Government yct rhe functions housing and herlth are counry functions' The luthg.itie! ln.lude K..io V.llc/ Dcvalopmcor Authorlry, Trn: rnd Athl Rivcrt Dcvclopmcnr Aut'hority Dcvclopmcna Authorlry. 6wrto Nyiro 5outh Dcvclop mcnt rnd Corrt Dcvclopmenr Aurhorlry TTO TRANSFER REMAINI NGCOUNTY ROLES, PRESIDENT RU Lrlc &rin TO - The 6 NATto NAL GOVERNIIEN lficial Wcbsile of the Pr iden or ub fKe 3

\ under thc Explanatory Memoranclunr to thc Dlvislon of Rovcntte, it is indicatcd th;rt public debt is a fiCtor considcrrd in illlocitinB tlle fin:lnccs to coUntics. Thc notcs furtlrcr sUltc that thc Nationll Trclsury and the Nltionll Assembly considered Niltion:tl lntercrt. Tl)e Senatc should consider addrcssing thc two concernr. Secmingly, tlre balloonlng public dcbt will affect the counties negativcly yct thc counticr are never conrulted ln thelr acqulsltion. ln the same vein. the Nationll interest oughr to bc understood in the contcxt thit, lt ctn bc addressed both at nation:l and counry level. Tlrus, allocations intcnded for addresslng Nationrl interests should be brokcn down and addrcssed eYen at countics. Finally, undcr section 3 of the Division of Revenue Bill, the object of the bill is Prcmiscd on article 202 (l). and not the 203(2), which is a principle that should guide the bill. Our Key Asks r) The Senate should propose allocation of at least Kshs, 677 billion considering all the functions earmarked to be devolved to countics by lntergovernmental Relations committee, and in the yery least Kshs. 425 billion on account of l5 pcrccnt of thc amount pro,iected for ordinary revenue by National Treasury, The Senare should institute legal mechanisms to ensure that all the devolved functions are fully costed and transferred to the county tovernments in the current financirl ycar toSether with thc budgctary allocations for each of the functions. The senate should put in place effective mechanisms to compel the National Treasury to ensure that the cquilable share of the county governmenB as stiPulated in Article 203(3) of tie Constitution is transferred ro counry goyernmenrs strictly in line with the provisions of Section l7(6) of the Public Finance Management Act- The senate should institute legal and polltical mechanisms to ensure that the Nrtionrl Assembly approves the audited revenue of accounts cxPeditiously and as a mltter of prioriry within thc financial year they are ubled in Parliament. The leg:rl mechanisms the senrte should put in place shouldamongothersprovidcthatintheeventthaltheNationalAssemblyfailstoapproveany audited repon after submission ro the house for six months, then the rcPort shrll automaticrlly be considered approved by the National Assembly and apply 3s thc brsis for the division of revenue' TheSenateshouldensurctheprssingoftheBillonEqualizrtionfundandconsidcrthcp|rceofthe counties in ensuring equiry by using thc fund' Evans Kibet Boss Convcnor, Kenya Devolution CSOs Working Group 2) 3) 4) s) ll This mcmorandum is a compilation of inputs from mcmbcrs of thc KDCWG Gcncral Assenrbly' which draws membership from CSO networks acrors rhc 47 countics in Kcnya; and hls been approved by members of the KDCWG Steering Committee, listed in the anncxure' tl

Y I a Approved bY thc Steering Committee members on behalf of the KDc\^y'G For further information, please contacc Eyans Kibet Boss, The Convener, Ken;.a Devolution CSOs Working Group (KDCWG) Tet. +254 7ll22lZ94 Email: csodevolutionworkintgrouo@8mail.com or evanskibetboss@Smail com Or KDCwG Secretarirt infoOact.or.ke Region Name No North Rift Rcgiona I Econornic BIoc Evans Kibet Boss 0t North Rift Region Economic Bloc Bcnedine KiPruto 07 Cenral Region Economic Bloc Mkhrel Mburu 03 Cenral Rction Economic Blo c Sherry Muthaura 04 Northcrn Frontier Council Counties Abdi Eillow 05 No Counties ern Frontier Counci Nuria Gollo 06 Lakc Region Economic BIoc Ch ris Owa lla 07 conomic Bloc Lake Region Fridah.lausiku 08 aunti za Pwani Jumuia ya Malusha Abedi 09 Jumuia Ya Kaunti za Pwani Jacinta Mbeyu t0 Economic Bloc South Eastern K enya Jrcob Ngumi South Eastern KenYa Economic Bloc Faith Kiema t7 Bloc Narok Kajiado Economic James Kainkei ll Narok Kaiiado onomlc E loc Juliana Rono l4 Nairobi Ciry County Diana Gichengo t5 Nairobi City Counry Cornelius Oduor PwD RepresentaUYe Halima Sharif t7 II l5

( Annex 4- Public Advert I t

REPUBLIC OF KENYA THIRTEENTH PARLIAMENT I FOURTH SESSION THE SENATE The Division of Revenue Bill, 2025 [National Assemhly Bills No. t0 of 2O25] The public Audit fAmendmentJ Bill, ?O?4[National Assembly Bills No. 4ot2O24l tr I ,v, I ,v, ! \\ I I ! V II INVITATION FOR SUB IsSI RANDA The Division of Revenue Bll,2025 [National Assembly Bills No.l0 of 2025) and the Public Audit [Amendment] 811,2024 [National AssemblyBillsNo.4 otZObqwerereadaFiistTimeintheSenateonWednesday, 16thApril,2025and Thursday' 20,n March,2025 respectively. Thereafier, the Bills stood committed to the Standing Committee on.Finance and Budget for consideration. The Committee is required, under standing order 145[5] of the Senate Standing Orders, to facilitate public participation on the Bills and to take into account the views and recommendations of the public when the Committee makes its report on the Bills to the Senate. The Divislon of Revenue Bill, ZOZS fNational Assembly Bills No.l0 of 2O?5) provides for equitable division of revenue raised nationally between the national and county governments in Financial Year ?025/2026. The proposed shareable revenue is Ksh.2,835,040,979,609 to be allocated as follows- al the National Government to be allocated Ksh.2,419,382,005,336; bj the County Governments to be allocated Ksh.405,069,420,197; and .j the Equaliiation fund to be allocated Ksh.,l0,589'554'076. The public Audit fAmendmentJ Bill, 2024 [t{ational Assembly Bills No.4 of 2O24) seeks to amend the Public Audit Act Cap.4lZB,to clariiy on the administrative powers of the Auditor-General and provide for the powers of the Auditor-General wiih respect to initiating and undertaking forensic audits. The Bill further seeks to provide for the establishment of a Public Audit Fund, to clarify the steps involved in the process of auditing a public entity and to provide for actions to be taken by accounting officers on the recommendations made by the Auditor-General after debate and consideration of audit reports by Parliament or a County AssemblY. ln accordance with the provisions of Article llB0ltbl of the constitution and standing order 145[5] of the Senate Standing Orders, the Standing Committee on Finance and Budget now invites interested members of the public to submit any representations that they may have on the Eills by way of written memoranda. The memoranda may be submitted to the Clerk of the Senate, P.0. Box 41842-0Ol0O, Nairobi, hand-delivered to the Office of the Clerk of the Senate, Main parliament Buildings, Nairobi or emailed to clerk.senate@parliament.go.ke and copied to financebudgetcomm.senate@parliament.go.ke to be received on or before Tuesdan 29th April' 2025 at 5.OO p'm' The Bills and the digests that summarize the contents and context of the Bills may be accessed on the Parliament website at http://www.parliament,go.kelthe senate/house-business/bills' : J. M. NYEGENYE, CBS, CLERK OF THE SENATE.

Machine-extracted text (pdf) from a scanned document — may contain recognition errors. Original PDF — parliament.go.ke.

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Topics

Environment & Climate Devolution Budget & Finance

Legislation referenced 5

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