Standing Committee On Finance And Budget Report On The Division Of Revenue Bill 2025 (national Assembly Bills No .10 Of 2025)

DEPUTY CLERK 1 t- MAY 20?5 II/ED TI_IE SENA lr \t sslo\ VE SEN KIN C NJJ Atv,IAS D GI YA F. T I\I E M A I L R A P ti\i E K F o Y A R E I L III,PUBLTC OF KENYA 'l'HI li.'l' EItN'tH PARLIAMENT - FOl, lt'l' I'ITIi SIiNATE .t"(-. S'|ANI)IN(; COI\,IMITTEIi ON I.INANCI' ANI) I}UDGET REPOR'I ON THE DIVISION OF REVENUtr BILL, 2025 (NATIONAL ASSEMBLY BILLS NO. l0 OF 2025) May 2025 |--.--_-_ .---.-| PAPERS LAID DATE ,f CLENK PJ TI-IE TABLE TABLED 8Y COMMITTEE l $ $c r T\ZIjI t 5 HAY 2025 riKER'S OFFICE 2z -4nC+ Dete:' Clerk's Cl-rambers, Parliament Buildings, NAIROBI. : .'t tt ll

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'[ablc tlf contcnts Contents LIST OF ABBREVIATIONS/ACRONYMS .................'.." ""'" "'3 ESTABLISHMENT AND MANDATE OFTHE COMMIT'TEE -......."""""""'4 MEMIIERSHIPOFTIIECOMMITTEE " " "" """" "s Cr'IATRPEI{SON'SFOREWOIID...........'....... """.' " " 6 Recommcndations........ .....'.. " ' ' """ "" "9 Acknowledgement.................". "" " " """""" " ""'10 OVERVIEW OF'll-lE DIVISION OF REVENUE BlLL,2o25 " " " """" " 12 l.l Lcgal provisions govcrning thc Division ofRevcnuc betrveen National and county Govcrnments,. " """ " """ 12 1.2 Considcration of the Division of Revenue BiIl,2025 by Parliament...,..................,..''...13 1.3 Analysis of the DORB, 2025..... ." """ " . " " " "" 13 ct rAPTEn rWO................ " 16 SUBMISSIONS IIY S'IAKEHOLDERS ON THE BILL.'....... . " " " ."" "" " 15 2.0 Introtluction.......'.............. "" - " """" 16 2.1 Submissions by the National Treasury and Economic Planning " "" "16 2.2 Subrnissions by thc Council of Covernors... " 18 2.3 Submissions by the Commission on Revcnue Allocation (CRA) " " " " "" " ""'20 2.4 J oint Su bm issions by thc Institute of Certified Public Accountants of Kenya (ICPAK) anti llajcti Hub """ '21 2.5 Submissions by thc County Asscmbly Forum (CAF); "" " " "" " " " "23 2.6 Submissions by thc Kcnya Devolution civil society organization working Group" " 24 2.7 Submissions by the Coast Civil Society Network for Human Rights "" "" " " " "" 25 OBSEI{VAI]ONS AND RECOMMENDAIIONS " """"""" " "27 3.1 Obscrvations...................'. "" """ """"""""'27 3.2 ILccom mendations """"""""29 I \'(.'l & ll l?cltot't ott Dit i';ittrr oi llL'\'L'ttttc tiill 1025 2l I

l,l S'l' ( )t" r\ li l] l{li V I A'l'l O NS/r\C l{O N YNI S L./\1.

• (-loun11, Assemblies l;orul
• (lorult)' AssenrblY l:'orurn
• CloLlnty Intcgratcd Industrial Parks
• Co llcctive 13argaining Agreement
• Community I'lealtl.r Promotel's
• (lor,urcil cl1' (lovcrtlors
• Division o1'I{o'cnuc Ilill
• liinancial Ycar'
• (iross I)ourcstic Ploduct
• Institutc o1'Ccltillccl Public z\ccoulllants of Ken)'a
• IntcrgovcrumentaI I{clations feclurical Courmittce
• lntcgrated Payloll and l)ersoutrel l)atabase
• Kcnya l)cvolutiort Civil Society Organization Wor:king Group
• National Social Secr.rrity l;und
• Ou,n Sourcc Itcvcttuc

-l'ublic liinaucc 1\4arlagcmeut

• I{cturn 'l'o Wolk l;orrnula
• lJnivcrsal I-Icalth Covcrage
• Watcl Sunillrtiotr und Ilygicnc

Cr\1r ('i\ ll)s CI]A Cl lPs CoG l)oRIl liY (;l)P IC l)r\ I( rCli'1c II'I'D KI)C\\/G NSSII ( )sl{ I)I:N,I Ii.'l'wF I.JIIC \\i.ASI-l t I 3l \;( l dll liil\ttt t, l)it'ir-iott ol'llefttltrt Bill 1025

PREFACE ESTABLISHMENT ANI) MANDATE OF THE COMMITTEE Article 124 (1) of the constitution of Kenya provides that each House of Parliament may esrablisli commitlees and shall make Standing Orders for the order'ly conduct olits proceedings, including the proceedings of its committees' parliamentary committees consider policy issues, scrutinize the workings and cxpenditules of the National and Counfy Govemments, and examine proposals for lcgislatiol.'lhe e1d rcsult of any process in cornminees is a report, which is tabled in the House for consideration. lhe Senate Standing Commiftee on Finance and Budget is established under Section g(1) of the Public Finance Management (PFM) Act, cap 412A and standing order 228 of the Senate Standing Orders and is mandated to- a) investigate, inquire into, and report on all matters relating to coordination, control, and monitoring of the counry budgets and examine - (i) the Budgct Policy Statement presented to the Senate; (ii) the rcporr on the budget allocated to constitutional Commissions and indePendent offices; (iii) the Division of Revenue Bill, the Counry Allocation of Revenue Bill, the County Governments Additional Allocations Bill, and the cash disbursement schedules for cottnry governments; (iv) all rnatters related to resolutions and Bills for appropriations, the share of national revenue amongst the counties, matlers concerning the national budget, including public finance and monetary policies and pr-rblic debt, planning, and development policy; and b) pur.suant ro Article 228 (6) of the Constitution, to examine the report of the ControllerofBudgetontheimplementationofthebudgetsofcounty goverrunents. \(.-l tl tJ \lcport ttt Divi:;ittrt ,'/'R:vnte Bill )015 4l

MEMBEITSHIP OF THE CONIMITI'EE 'l'he Standing Committcc on lritrance and Budget was constituted by the Senate of the 'I'lrirtccrrth (l3rr,) Parliamcnt on'l'hr.u'sday, 13rl' October, 2022 duringthe First Scssior-r' 'l'lrc conrntince \vas later rcconstituted on wednesday, 12tl' Febl'uary,2025, during the Iourth Scssion.'fhc Committee as currently constituted is compriscd of the follorving ,Vlcmbcrs- 1) Sen 2) Scn 3) Scn 4) Sen 5) Scn 6) Sen 7) Scn 8) Scn 9) Scn (Cnpt.) Ali Ibrahim Iloba, EGH, MP Maurecn 'l'abitha IVIutinda, MP (Dr.) BoniI(halwale, CBS, MP Mohamcd lraki Mr,vinyihaji, CBS, MP I(icliard Momoima OnYonka, MP Shakila Abdalla Mohamed, MP liddy Gicherr"r Oketch, MP Maliam Sheikh On-rar, MP listhcr Okcnyuri, MP Chairperson Vice-ChairPerson Member Member Member' Member Member Member Member I sl \r'l'i(li /le7'oli ,'tr L)it'itittrt ,L-f Rcvcnut ttill 10)j

CHARPERSON'S FOREWORD 'l'he Division of Revenue Bill, 2025 (National Assembly Bills No. 10 of 2025) was published vide a Kenya Gazelte Supplement No. 38 of 2025. The Bill was introduced in the National Assembly, debated and passed without amendments on Vy'ednesday, 9'l' Lpril, 2025 . Conseqr.rently, in accordance with Aticle I 10(4) of the constitution, the Ilill was referrcd to the Senate for consideration. The Bill was read a First Time in the Senate on wednesday, 16'h April,2025. Consequently, pursuant to standing order 145 ofthe Senate Standing Orders, the Bill was committed to the Standing Committee on Finance and Budget for consideLation and i'acilitation of public participation. The Divisiol of Revenue Btll,2025 (National Assembly Bills No. 10 of 2025) is prepared in line with Article 218 of the Constirution. It provides for veftical equitable sharing of rcvenuc raised nationally between the national and county govemments in rl.rc lfinancial Ycar (FY) 2025/26 in accordance with Articles 202(l) and 203 of the Constitr-rtion 1'he projecteci levenue collection for the FY 2025/26 is estimated at Ksh.2,835.040 billion. out of this, the National Governments share is Ksh.2,419.382 billion, reprcsentiltg 85.33% of the total revenue, while the proposed county govetnments' equitable slrale is Ksh.405.069 billion representing14.2SYo of the total revenue. l'lre Bill indicates that the proposed county governments' equitable share is 25J9% o{ tlre most recent audited revenue for the FY 2020/2021 approved by the National Asscnrbly. 1'he Counly cquitablc share is proposed to increase by 4.5% fi'om a baseline o1' Kslr.3 8 7.425 bi llion (allocated in FY 2024 /2025). The Bill also provides an allocation to the Equalization Fund for the FY 202512026 roraling to Ksh.10.589 billion, of which, Ksh.7.852 billion is 0.5% of the FY 2020121 ar.rdircd ald approve<J revenue, as per Article 204 of the Constitution and Ksh.2.736 billion is for fund arl'ears. It is worth noting that during consideration of the 2025 Budget Policy Statement approvcd by the Senate, the Senate made some key financial recommetldations with 6 I \i I l: li lit'/'t)l t 'tr Iii".i'itttt tt! llr 't L' 1? t t t' l; i l l ]lili

rcgard ro thc division of revenue. Notably, the Senate rccommendcd couuty govenlments cquitable shar.e allocation of Ksh.465.0 billion for FY 2025126. 'l'he rccomnrendatiort nas inlorured by the need for county governments to meet new non- discrctiorlary Irnanciat obligations relating to housing levy dedr'rctions, euhanccd cor.rrriburiols ro the National Social Security Fund (NSSF), matching allocations lbr tl-re county Intcgratcd Industrial Parks (GAIPS), matching allocations fol community Ilealtl.r l)rornotcls Program, plocul'ement of new medical equipment, meting the orrtstanding obligation undel'Doctors CBA, annual wage drift' I.'ollowing the relerral of the Bill to the Standing Committee, and pursuant to Article 118 of thc constiturion and standing order 145(5) of the Senate Standing olders, the committee facilitated public participation and took into account the views and rcconrnrendatior-rs ol thc public in its report. An advert inviting the general public to submit n.rernoranda ou the llill was published in two newspapers of r,ationwide circulation ou 19tr' April, 2025. I)Lrring considcration ol'the Bill, the Committee held three (3) meetings (Annex 2- ,ri,utcs ol' the Commitrce) and received submissions from the fblloiving key stakclio Idcrs - a) b) c) d) 'I'he National Treasury and Economic Planning; The Council of Governors (CoG); 'l'hc Commissiou on Revenue Allocation; Ajointsubnrissionl}omThelnstiruteofCertifiedPublicAocoutrtantsol I(enya (ICPAK) and Bajeti Hub; 'l'he County AssemblY FoLum (CAF); 1'he Kenya Devolution Civil Society Organization Working Group; and 'l'hc Coast Civil Society Network for LIuman Rights c) 1) -8) Observations fhe Commitlec tlade sevet'al observations, ampng them- a),flrcrelrasbeentnarginalgrowthintlrecountyequitablesharefromprevious hnancial years, dcspile the substantive growth in shareable revenue' In !-Y 7 | '\'('i'&ll llt/'tltt ltn Dit'ilion o/ l ritnrc lJill :0:5

2025/26 while shareabie revenue is estimated to grow by 10'1 percent (Ksh.259. 1 billion increase), counties are proposed to get an increase of Ksh l T' 7 billion from this revenue growth. b) Noting that over the years, the county equitable share has on average been2.230/o of GDP, and FY 2025/26 nominal GDP is projected to be Ksh.19,272billion, I(sh.387.425 billion should be adjusted to ensure counly equitable share percentage of GDP is maintained at the same level' c) Whereas lhere have been consistent allocations and appropriations to the Equalization Fund by Parliament, there has been a delay in transfers to the Fund' TITe total disbursement to the Fund as of June, 2024 was Ksh' 13.4 billion out of thc total entitlement of Kshs.62.4 billion. d) 'l'he Bill r-rscs the most rece nt audited and approved accounts of revenue for FY 2O2Ol21 , amounting to Ksh. i,570.6 billion. However, the National Assembly on l5th April, 2025, approved the audited accounts of levenue of Ksir. 1,920,434,085,078 as the total nationally collected revenue of FY 2021122. c) Irollowing the change in the most recent audited and approved accounts of rcvcr]ue (fiom Ksh. 1,570.6 billion to Ksh. 1,920.4 billion), the allocation to EqLralization Fund must be adjusted in order to meet the constitutional obligation under Article 204(l). l) Clause 3 o1 thc object and pulpose of the Bill makes reference to Article 203(2) o1'the Constitution instead of Article 202(1) which provides fol the sharing of l'evcnue raisccl nationally between the trvo levels of goverrullent' g) County government expendilure needs have sharply grown due to inclease iu non-discretionary expenditures such as contribution to housing lely, NSSF, Social Flealth Insurance Fund, Matching of contribution to County Agg|egated Industrial Parks, annual wage drift among others. h) As subrnitted by the Cabinet Secletary, National Treasury and Economic Planning, the projected sharable revenue for FY 2025126 had been revised from I(sh.2,835 billion to 1kh.2,757 billion. \-l:'d ll llcltut't on l)it'isirtrr .l/ llL'r'ctlttc llill :015 8l

l{ccour rue ntlittions Ilaving considcr.cd thc llitl and submissions from the stakeholdels, the committee r.ecommcnds that the Scrlate appl'oves the Bill witl'r the following amendments - a) clar-rsc 3 bc amended to mal(e reference to Article 202(1) of the constitution $4rich rcquir-cs revcnuc raised nationally be shared eqr'ritably betrveen thc National and cotulty lci'cls ol'government; and b),i.lrcSchcduletotheBillbcametrdedtoreflectthefollowirrg- i) 1'hc total sharable Revenue Ksh'2,756,978'546'059; ii).I,hemostrecentaccountofrevenueasapprovedbytlreNatiorral Assembly as Ksh.1,920,434,085,078 for FY 2021122; iii) Narional Government share - Ksh'2,219,638, 176'610; iv) County government share - Ksh' 465,001,459'673; v)AliocatiorrtotlreEqualizationFund-Ksh.9,602,170,425(0.5%of lnost recent approved accounts of revenue); and vi)'l'he Iiqual iz-ation lrund art'ears- Ksh'2,7 3 6,7 3 9,3 5 I' el \{ l: ll !1s7t1111r,n l)iri:iittrt ctI llcvntu: l]ill :0:5

Acl<nowledgement The Committee appreciates all the stakeholders who submitted written memoranda or appeared before the Committee to present their comments on the Bill. The Committee appreciates the supporl extended by the offices of the Speaker and the Clcrk of the Senate while undettaking this important assigmneut. 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 nou,my pleasant duty, pursuant to standing order i48(1) ofthe Senate Standing Orders to present the Reporl of the Standing Committee on Finance and Budget on the Division of Revenue P.111,2025 Qllational Assembly Bills No. l0 of 2025). Signatu rc r!,(u 1 Datc.. sEN. (CAl''t'.) ALI IBnAHIM ltOBA, EGII, Ml" CHAIRPEIISON, S]-ANDING COMNIIl'TEIi ON FINANCtr AND BUDGI]T Sr. / Lt'r, Rc'/)i.,/ l utt l)irisittn o.l R(ri.tl ue fsill )l)25 10 1

l\Dol,TIoN OI.- ]'HI.] ii'El,oll'T oF TI{E STANDING CO]VIMITTEE oN I-INANCE AM) I]UDGET ON TI{E DIVISION OF ITEVENUE BTLL' 2025 (NATIONT\t. ASSEMlll,\' BILLS NO.10 OF 2025) \\/c, thc undcrsignccl N,Icrnbcrs ol'the Scnate Stantling Committec on Financc and llutlgct, do hcreb.v appcncl our signatures to adopt this lleport- Nanrc Vice-Chnirpcrson ,) k_ 1 9 Sen. l:sther OkenYuri, MP \r'lr\ir'liLt'itttrttrl)itisionttJ'lic:'entzllill:())j l)esignation Signaturc Sen. Capt. r\li tbrahiln li.oba, llGH, NII' Chairperson I a Scn. i\'l aurocn -I'abitha Nlutinda, MP Scn. (Dr.) Borli Khalu,ale, CIIS, MP lVlember I Sen. Mohamed FakiMr,vinyihaji, CBS, MP Nlember 5 Scn. I{ichald Motloima Onyod<a, MP Sen. Shakila Abdalla Mohamcd, MP Mernber Member 6 Scn. liddy Gichcru Oketch, MI'] Mcmbcr 8 Scn. Maliarn Sheikh Omar', MP I\zlember Member 11 I

CHAPTER ONE OVEITVIEW OF THE DIVISION OF REVENUEBTLL,ZOZ5 1.1 Lcgal provisions governing the Division of Revenue between National and County Governments. 1. Tlie Division of Itevenue Bill is prepared in accordance with the provisions of Article 218 of thc Constirution. The law mandates that a Division of Revenue Bill be introduced in Parliament at least two months before the end of each financial year. 'Ihe Bill aims to allocate revenue raised nationally between the national and county government levels. 2. Thesharing of revenue contemplated in Afiicle 218 is anchored in Article 202(l) of the Constitution, which dictates that revenue raised nationally be shared equitably altlong lational and county governments. Furthermore, section i91(2) of the Public Finance Management Act (Cap. 412,A') stipulates that the Division of Revenue Biil should specify the share ofeach level ofgovernment ofthe revenue raised nationally Ibr the relevant financial Year. 3. Articlc Zl8(2) ol rhc Constitution and section i91(5) of the Public Finance Managcmenr Act (Cap. 412A) indicate that the legislative proposal on the Division of Revenue should bc accompanied by a memorandum that explains the following- i. how the Bill takes into account the criteria listed in Article 203(1) of the Constiltrtion ii. the extent of the deviation front the Commission on Reventte All o cat i on's recommendations iii. the extent, rf any, of deviation from the recommendations of the Intergovernmental Budget and Economtc Council; and iv. any assltmptions and formulae used in arriving at the resPective shares. 4. 'lhe criteria for determining the equitable shares to each level of government is exclusively provided for in Article 203 of the Constitution. The minimum equitable slrar-e to county gover.runents is provided for in Article 203(2), where it is specified tlrat for every financi al year,the equitable share ofthe revenue raised nationally that \('llilLl Rtt,ott n l)iyiliotl,.,f llLt'trttrc Llill i0:5 12 I

is allocated to coLrnty govcrnlnents shall be not less than fiftecn pel'cent of most recent auditcd accounts ofrevenue collected by National GoveLnnrent, as approved by the National AsscmblY. 1.2 considcration of thc Division of llevenue Bill, 2025 by Parliament' 5. Articlc 110(4) of thc constitution requires that il any Bill coucerning cout.ttl' goverlxnent has been passed by one ofthe Houses ofParliament, the Speaker ofthat Llouse shall refer it to the Speaker ofthe othel House. The other Ilouse is requiled to cor1si6er tlic llill and pass it in the form it was passed by the originating House, pass it in atncndcd form, or reject the Bill' 6. 'l'he Division of itevcnuc Bill,2025 (NationalAssembly Bills No. 10 of 2025) was published on 12tl'March, 2025 andsubsequently presented to the National Assembly lor considcration. 'fhe National Asserrbly upon deliberatiorq passed the Bill without anrcrldnlents on Wcdnesday,9th April, 2025.The Bill u'as thereafter ft;rwarded to rhc Scnarc lor copsideratiop under the provisions of Article 110(4) of thc Constitution and standir.rg orders 41 and 142 of the National Assembly Standing Orders. 7. Thc Ilill was r.ead a First Timc ir-r the Senate ou l6tl' Aptil,2025, and pursuant to standing ordcr 145 of the Senate Standing Orders itwas committed to the Standing committec on liinancc and Budget. The committee was |equired to facilitate and undcr.tal<e public participation on the Bill and prepare a report to the Senate, taking into accoturt the l'iews and recommendations of the public' 1.3 Analysis of the DORB,2025. g. .fhc projccred toral shareable revenue for the FY 2025126 is Ksh.2,835'0 billion 'llris r.cpr.escr-rls a7.l percerlt growth (203.4 biltion increase) in shareable l'evenue lronr rlrc projected Ksh.2,63 1.4 billion for IrY 2024125. 'lhe shareablc levcnue as providcd in thc Bill is informed by the perforrnance trends of oldinary t'eventtes of thc goverturrcut outol.lllescttargetcollectionofKslr.2,835.0billionasshareablerevcnuefor.FY 202512(t,theBillproposestoallocateKsh2'419'4billiontotheNational 9 \i'l { ll !l,. itot r ttit Dirisio t'f llcvnrc Llill )025 13 I

Government, Ksh.405.1 billion to the County Govetnments, and Ksh. 10.6 billion to the Equalization fund. Based on this projected shareable revenue of Ksh. 2,835'0 billion, the allocation to the National Government is equivalent to 85'3 percent, whilc that of the county govelrlments is 14.3 percent. This 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 t4 and 15 percent on average. 10.'I'tie ploposccl shareablc rcvenue of Ksh.2.835.0 billion is a growth of Ksh.203'4 billion 1l'orn thc IY 2024125 shareable revenue of Ksh'2,63 i.4 billion Out of the increase of the Ksh.203.4 billion, counties are set to receive an increase of Ksh.17.7 billion li-om the allocation of Ksh.387.425 billion in FY 2024125. Hence, the proposed allocarior.r of Ksh.405.1 billion for the FY 2025126. A revierv of the counfy equitablc sharc allocations indicates that counties receive a marginal increase as an adjuslrncnt for revenue growth florn the preceding year' The highest adjustment'"vas inFy 2021122, with an increase of Ksh.53.5 billion, and the second highest is the proposcd Ifth.17.7 billion for FY 2025/26. I l.'I'hc Consriturion in Article 203(2) sets the minimum allocation to courlties at any givcrl [iuancial year to bc not less than fifteen pelcent of the most recellt audited accounts of revenue collected by the National Government, as approved by the National Assembly. I'he Bill uses the last audited and approved revenue foL FY 2020121, amounting to Ksh.1,570.6 billion. An evaluation of the proposed Ksh.405.l billion against this constitutional threshold indicates that the amoLlnt (Ksh.405.1 billion) is equivalent to 25.79 percent of the Ksh.1,570.6 billion. l2.The Bill indicates that the proposed allocations of Ksh.405.1 billion to counties was ipformed by factors such as continuous underperformance of revenr're by the end ol thc fiscal ycar, incr.eased expenclirures for debt services, the fiscal cor-rsolidation comnritnents olredr-rcing fiscal deficit to 4.3 percent of GDP and the limited access to domestic and external borrowing. I3. 'fhe Bill also pr.ovides for the allocation to the Equalization Fund in accoldance rvitl-l Article 204(l) of the Constitution. Pursuant to Article 204(l)' 0.5 pelcent ol all rcvcuuc collected by thc national government annually, calculated based on themosl \'(. 1 * fi llL'tto|t ,,n Dit'i.\iott ol'R,:\'enttt t-lill :015 t4 I

rcccnl auclitcd and appt'oved l'evcnue accounts, should be allocated to tl.re liund 'i'hc llill proposes ar1 allocation o1'IGIi.7.85 billion to the liqualization Fund. l4.lrr-rrthcr, there is an allocatiou of Ksh.2.74 billion in the FY 2025126 as pailial pa)/mellt lo al.rcars ou,ed to the Equalization ilund. '.[he arl'ears to the Fuld at thc cnd olljY 2023124 slood at Ksh.49 billion. In the period betrveeu the inception ol tlre l:r-rrrd (l;Y 201 1l12) to Junc2024, total disbursement to the Fund rvas Ksh. 13'4 billion out of thc total eutillemet.rt of Ifth 62.4 billion' \'1'l:1( li llsl'111.1 on Dit'isiott L)f ll:\\'ntr: llill 20)5 1sl

CHAPTER TWO SIIBMISSIONS BY STAKEHOLDERS ON THE BILL 2.0 Introduction I5. This Chapter.entails submissions fi'om various stakeholders regarding the Bill. They include the foIlor,r'ing; a) The National Treasury and Economic Planning; b) fhe Council of Governors (CoG); c) The Commission on Revenue Allocation; d) A joint submission from The lnstifute of Certified Public Accountants o1' Kenya (ICPAK) and Bajeti Hub; e) 'I'he County Assembly Forum (CAF); Q 'I'he Kenya Devolution Civil Sociery Organization Working Group; and g) 'I'he Coast Civil Society Network for Human fughts. 2.1 Submissions by the National Treasury and Economic Planning 16. The National Treasury appeared before the Committee submitted the following- a) 'l'he National 'l'reasury projected a total shareable revenue of Ksh. 2.835 tLillion tbr fY 2025/26. From this, they allocated Ksh 2.419 trillion to the National Govcrnmept, Ksh.405.1 billion to County Goverrrments as the equitable share (25.79% of the most lecent audited revenue), and Ksh 10.6 bi]lion to the llqualization Iiund, comprising Ksh. 7.9 billion for FY 2025/26 and Ksh. 2.7 billion in arrears. b) Upon reviewing the performance o{'ordinary revenue since the Bill's submission, tlre 'I'reasury reported that revenue collection in FY 2024/25 had consistently Iagged behind targets, with the shortfall widening each month and reaching a cumulative l(sh. 142.8 billion by March, 2025. They estimate that the overall or-dinary revenue for FY 2024125 would be Ksh.2,435.1 billion, r.r'hich is Ksh.482.1 billion below the original budget target. c) Given the depressed performance, the 'freasury stated that the earlier revenLle fbrecast lbr FY 2025/26 was no longer- realistic. They therefore recommended a \( ly':l; llL!t{ttt in l)iIisiott ttl lltt't:tlttc llill :(l-15 16 I

dou,nu,ard revision of the ordinaly revenue forecast for FY 2025126 to Ksh' 2,757.0 billion, which is I(sh. 78.0 billion lower than the initial projection' d) fhc'l'reasury cxplained rhat several factors informcd thc proposcd division of rcvcnuc lbr l;Y 2025126.l:irstly, the r:evised projection was based on a lower rcvcllllc baselir.re, reflcctir.rg thc consistent underpe t'fbrmance of ordiualy levellLle in tcccut ycars. Secondly, thcy highlighted the need to finance lnandatory cxpenditur.es r.urdel Article 203(1) of the Constitution-including public debt, pepsioqs, copstitutiolal scrvices, and emergencies-which would total Ksh' 2,6\6.6 billion in l.Y 2025126. After these mandatory expenditures, only Ksh' 140.4 billion would remain for sharing belween the two levels of govelruIent' c) Alier accounting for county allocations (Ksh. 417'9 billion, including both cqr.ritablc share and additional allocations), the Treasury noted that the balance Iclt for-the National Goverttntettt would be negative, at -Ksh. 277.6 billion l'his pcrsistcpt trscal dcljcit, thcy said, l-rad lcd to additional borlor'ving over the years, distorting the llscal frarnework and undermining fiscal consolidation effons l'he 'frcasuly also pointcd out that Kenya had faces financing constraints due to limited acccss to domestic ar.rd international financial mal'kets, with bor-rowing consistclttly falling short <l1' targcts. f) Iurther.more, the 'l'reasul) obselved that the National Government continued to bcar the full burden of revenue shortfalls, as counties always received theil full equitablc sharc allocation rcgardless ofrevenue performance. fhis had resulted ip budget cuts a6d detaycd disbursements for national ministries and agencios, tvith arrcars sometimes carried forward to subsequent yeals' 'fhey also highlighted tllat rhe cost of public debt servicing was plojected to account fot' 52 pcrcentofordinaryrevenuc ir.FY2025/26,significantlyhigherthantheaverage ol'41 pcrccr.rt it.t 1'rrevious )'ears. g) I;or rhc horizontal sharing ol thc equitable share, the Tleasury proposed that the I(s1r.405'lbilliorrallocatiorrstocountiesforFY2025l26-a4.6percentincrease lrour the previous year'-be distributed according to the Third determination of the basis ol- division of revenue all,lollg counties, since the Fourlh determination has no1 bcctr approvcd b)'Parliament' \( l'd li llrllt,t t on l)it'i.tiotr ctl llettntte Rill 10)5 17 1

h) Additionally, the Treasury proposed Ksh.69.8 biliion in additional allocations (both conditional and unconditional) to county govemments for FY 2025126' Of this amount, Ksh.12.89 billion would be financed from the National Government's share of revenue, and Ksh.55.07 biilion from loans and grants provided by development partners. 2.2 Submissions by thc Council of Governors i 7. 'l'he CoG appeared before the Committee and submitted as follows- Gcncral Comments a) The Council of Govemors (COG) expressed appreciation for the Senate's support in enabling devolved units to fulfil their mandates through proper financing and ovcrsight. While they acknowledged the Senate's recommendation of Ksh.465 billion as rhe cquitable share forcounties inFY 2025/26, the COG maintained that the amount is insufficient to meet counties' actual financing needs. b) 'l'he Coulcil of Govemors argued that county allocations did not reflect the cxpanded fiscal space or projected 5.302 economic growth. They noted a five- ycar dispariry u4rere counties' share rose by only Ksh.70.9 billion compared to Ksh.702.6 billior-r fol the national goverunent. They called for a review of the revenue sharing fi'amework and proposed a minimum allocation of Ksh' 536.88 billion for l'Y 2025/26. c) 'l'he COG also notcd that thc Division of Revenue Bill, 2025, did not consider thc finar.rcial implications of recently delineated and gazetted fuuctions beNveen national and county governments. They called for urgent identification and transfer of atlendant resources to counties, as required by previous summit rcsolutions, to ensure counties could effectively perform these additional lunctions. d) I{egarding baseline allocations, the COG observed that the curent baseline for counties had been reduced to Ksh.387.425 billion fi'om the earlier Ksh.400.117 billion, even as the national governrpent's allocation was restored through sr"rpplcmcntary budgets. ]'he COG recommended reinstating the counties' baselinc allocation to i(sh.400.117 billion, in line ',vith the Division of Revenue Act,2024. 13 I \( l{tl llL'ltolt,n Dit'isitttt of i?ct'tttttt Llill 1015

e) 'l'hc COG raiscd concel'ns about t'ecent cabinet resolutions on state corpol'atlon rcfornrs, which involvcd rTret'ging, dissolving, or ttansferring several state corporations, including those performing devolved functions. 'rhey emphasized that, ir.r accordance with the plinciple of lesources following functions, any state cor.porations performing dcvolved functions should be transferred to counties along with thcir resoulces, and this should be reflected iu the revenue division l'orl;Y 2025126. i)Additionally,tlreCoGpoirrtedoutthatcountiescontinuedtofaceunmet llnar]cial obligations and deficits due to previous budget cuts, with no additional allocatiols provicled to address outstanding non-discretionary expenditures' 'Ihcy recommendcd that the Division of Revenue Bill, 2025, should plovide for these expenditures arising from national goverrment policies and projects. g) Finally, the COG criticized thc lack of enforcement of legal provisions meallt to protcct counties'equitable share from 1'evenue shortfalls' Despite legal salbguards, counties had suffered budget cuts while the national govetnment's budgct vvas restorecl, undermining the stability and predictability of revenuc allocalion. 'l'he COG urged the Senate to ensule that counties' allocations were protccted as envisaged in the Constirution and relevant laws' Spccific Commcnts h) 'i'he CoG lecommended that the Bill's schedule be amended so that the national govcl'nmenl receives Ksh.2,290,308, i 64,884 and counties receive Ksh.536,880,000,000,irlsteadoftheproposedKsh2,419,382'005'336forthe rlalional govcrtlrllcrlt and I(sh. 40 5,0 69,420,191 for counties' i) 'l'hc Council of Govemols (COG) proposed the removal of the Equalisatior.r Ilund arrcars itcm from the Division of Revenue schedule. They argued that each year's lund allocation is specitic and including arrears in fufure Division of Revenuc Acrs leads to double allocation and rsduces shareable revellue. with arrears cxcccding l(sh.60 billion, thc council recommended that they be addressed rlrr.oughaScparateEqualisationFurrdAppropriationActandprotectedlronr changes under National Government Appropriation Acts' \t / (( /i ./i,./1r)/r ,,n l)ivisiott ,,i llavcntrr llill :0:i 1eI

2.3 Submissions by the Commission on Revenue Allocation (CRA) 18. CI{A appeared before the Committee and submitted the following- a) CRA noted the need to correct the constifutional basis for equitable sharing bctwcen the national and county governments which is Article 202(l), notArticle 203(2), which only outlines revenue-sharing criteria' b) 'l'he Commission highlighted a significant decline in county govermrents'share olthe national budget, from 10.4Yo inFY 2024/25 to 9.3Y0 inFY 2025/26, while the nalional executive's share increased. CRA recommended allocating Ksh 417.4 billion to counties, stressing that lower allocations undermine service delivery and contravene the objectives ofdevolution. c) CRA also objected to how the Bill categorizes "national interest" by including devolved functions such as youth empowerment and irrigation. They argued that national intcrest projects can be implemented by either level of government and must respcct the constitutional allocation of functions under the Fourth Schedule. d) Additionally, CRA opposed the inclusion of the National Govemment Constiluer-rcies Development Fund (NG-CDF) and the Affirmative Action Fund i1 1hc list of statutory dedr-rctions fi'om shareable t'evenue. T'hey clarified that lhcsc are funcled from the national goverrunent's equitable share, not deducted bclbre revenuc is shared. e) 1'he clain that the national government is left with a negative balance after allocations, CItA pointed out that several listed expenditures-such as NG-CDF, state lara, olfice, and the DPP-are national government fr-rnctions. Thus, the clair.p of a de ficit is rnisleading since the Constirution recognizes only two levels of government, f) cRA also corrected the Bill's reference to the applicable revenue-sharing Ibrmula, clariSing that the Third Basis expired with FY 2024/25. The Fouth Ilasis has alrcady bcen submitted to Parliament, and the Senate is expected to guridc its implementation from FY 2025126. g) l.'inally, cRA disagreed with the Tre4stuy's justification that paying Ksh.2.7 billioq in Iiqualization Fund arrears limits capacity to increase county allocations. ;.( l l ll llaltttr t t,tt l)iti.\iott t)l llL'.. ittt.' liill )(t2i 20 I

1'heyemplrasizcdtlrattlreEqualizationFundisaseparateconstitulional obligation and not a valid reason to suppress county equitable share growth' 2.4 Jointsubmissions b)'the Institutc of Certified Public Accountants of Kcnya (ICPAK) and Bajcti Hub Ig.ICPAK and llajeti IIub made the following submissions on the Bill- a)ICPAI(andBajetil:Iubexpressedconcemoverthedecliningpropoftionol counry equitable share in total sharable revenue, which dloppedto 14'29Yo irt 2025 from 14.61% in 2024, despite a nominal increase in allocations. They emphasized that while the legal minimum of 15% of the last audited revenue is mct, counties receive a siuinking portion of the overall public resources They recommcnded adopting the cl{A's proposed allocation of Ksh 417.4 billion and urgccl thc'l'rcasr.rry to use iullation rales ralher than reveuue growth as a basis for dclcrnrinitig cquitable shale. b) 'l'hcy criricizcd the continued reliance on outdated FY 2020121 audited Ievenue figures lor derermining the ]Squalization Fund allocation. Although Ksh 7.85 billion rvas ploposcti totFY 2025126, with Ksh 2.7 billion for amears, they argued rhar this limits rhe Iun<l's rclcvance and effectiveness. 'fhey called for prourpt appr.oval of updated financial statements, a cleat' payment plan for arrears, and robust lnonitoring to ensure funds benefit marginalized areas' c) 'l'hc submission pointed out the lack of clarity around allocations labelled under ,Narional Inrcrcst', sr-rch as rhe Ifth 1l.i75 billion earmarked for'Youth l,imporverment'. 'l'hey called for detailed justifications and consistency u'ith legal criteria, reconrmending transparency in how such programs are identified and funded across fiscal Years. d)I.hcyarguedthatusirrg2013costdatatoallocateresourcesfordevolved Iunctior]s is outdatcd duc to population growth and rising service delivery costs like clectricity. 'I'hey urgcd Parliament to mandate a fresh costing exercise based on reccrlt delineation ol'lunctions by IGTRC' e) while noting projected glowth in ordinary levenue to Ksh2'84 trillion fbr I"Y 2025126, thcy rvarnecl that actual collections often fall shot1, underscoring the nccd lor rcalislic forecasting. 'l'hey recommended improving tax collection, 21 I \r'1.'rllt lltltttr '' l)iiitiott 'f'Rt\!nttc ltill :015

reducing leakages, and diversifying revenue sources to avoid ovetreliance on taxation. f) The submission highlighted a persistent gap between OSR targets and ach-ral coilecrions, with a Ksh 22 biliion shortfall in FY 2023/24. They cited rveak enforcement, outdated baselines, and planning gaps as causes. To reduce reliance on national transfcrs, they recommended strengthening county revenue systems and setling realistic targets. g) I(enya's public debt rose to Ksh 10.58 trillion in2024,hiuing63% of GDP. TlTe growing cost of debt servicing, projected at Ksh 1.6 trillion-was said to crou'd ont dcvelopmcnt funding and potentially reduce county allocations. The team r.ecommendcd stricter adherence to debt limits under the PFM Act, better repofiing, and alignment between the Division of Revenue Bill and official debt data to ensure accurate hscal planning. h) In their general submissions, ICPAK and Bajeti Hub urged Parliament to ensure thc I)ivision of Rcvenue Bill (DORB) reflects recent IGRTC directives that dclilcatc lunctions befwecn the national and county governments. 'lhey cnrphasized thal the National Treasury must explain how the cunent levenue framework aligns with and supports the deepening of devolution. i) 'l'hey recomtnended increasing county allocations within the DOR framervork, cspecially considering rccent national legislation-such as the Social Health Insruance Act and the Primary Health Care Act-r,vhich imposes additional adrninistrative and service delivery responsibilities on counties. Despite this, the fiscal framework for 2025/26 shou,s a decline in the county expenditule share lron 10.4Yo to 9.3%o. j) 'l'hc submission also called on Parliament and the National 'lreasury to create fiscal space for counties by reforming or winding up state corporations that duplicate county functions. They highlighted that entities like Regional Dcvelopment Authorities, particularly in the wASH sector, perfoIlll foles that colurlies arc already rnandated to carry put. k) Lastly, they proposed strengthening intergovernmental fiscal r:elations, improving financial oversight and accountabilify, enforcing tiscal discipline \( l * li llLt,ot t ,t l)iyi\iott t)/ llL'\'.'ttttc I'til! :0:i 22 I

througl.r rcalistic projcctions, and enl.rancing public participation in budgeting to prolnote transparency and responsiveness to citizen needs' 2.5 Submissions by thc County Assembly Forum (CAF); 20. CAI: made the Ibllorving submissions- a) l'hc coluty Asscmblics Forum(cAF) recommended an enhauccd allocation o[' Ksh 450 biltion to counties, stating that it better reflects counties' rising fiscal demands, inflation pressures, and constitutional obligations. They noted that both rhc cRA and 'l'reasur.y had agreed on maintaining the baseline of Ksh 387.4 billion lrom l;Y 2024125 bur dilfered on the iucrement, with CRA proposing Ksh 417.4 billion-still short of rvhat CAF considers adequate' b) cAF justified their. proposal by citing increased non-discretionary expenditures -€ u, the county le'el, such as the I{ousing Levy, Social Health Insu'ance Futld courribr,rtions. and LIFIC rollout costs. These were said to stlain county budgets apd arc not lulty addresscd in the National Trcasuty's lower allocation. Adclitionalll,, CAF higltlighted that Coun Asse blies remail u34eiuudpd, u,hich undermines their ovclsight, Ie islative, and representation Iunctions. ltarricLriaIlv tlrc rvork ol- ct>tllulittees like I']AC and i'lC that ensure lrscai -accoLrntability'. c) 'l'hcy also lclcrcnccd cconomic pl'essul'es, including rising inflation and utiliq' costs, argr"ring that a static or modest increase in counfy allocations would erode scr-vice dclivery capacity. 1'he proposed Ksh 450 billion would provide stability and allow counties to sustain essential services amid economic volatility. CAF also nored that their proposed allocation aligns with Articlc 203 ol the Constitution, as it represents approximately 28.5% of the last audited national rcvcnue, thereby meeting both the legal minimum and the spirit of equitable distribution. d) l;r.rrthernrorc, cAF emphasized that increased fundirig is essential to lealize the V gai^s ol' dcvolutio. a.d to suppolt cotnty developmeut p.iolities, such as indr-rsrr.ial parks, youth and women empowerment plograms, and the completion ol'stallcd projects. s( i r( /i i(ii,r;r'r ,n Dit'i.tiatt Lt[ lle,.ttnrc till :0)5 23 I

e) They concluded by calling on the Senate to reject the Treasury's proposal, improve upon cRA',s recommendation, and adopt the Ksh 450 biilion proposal to cnslu-c counties arc adequately lesourced to meet their obligations and strengthen devo lution. 2.6 Submissions by the Kcnya Devolution Civil Society Organization Working Group 2l . The KDCWG submitted as follows- a) 'l'he Kcnya Devolution Civil Society Organization Working Group (I(DCW(}) submittcd that the proposed Ksh 405.1 billion allocation to counties in the Division of Revenue Bili 2025 fell short of constitutional requirements. TlTey r.roted tlrat this amount represented only 14.2 6%o of rojected national revenue, u4rich contravene Article 203(2) of the Constitution that sets a minimr-rm of l5Yo. 'l'hcy also pointcd out that outdated audited accounts fi'om FY 2020121 were 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 procul'ement, and Lrrbatr ro4Qs. They criticized the rejection of the Commission on Revenue Allocation's recommendation 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 implernentation should be counly-lcd since the targeted services (health, lvater', roads) ate devolved 'l'hey proposed that such funds be given to counties as conditional grants, in line with Schedule 4 olthe Constitution. d) '1'hey furthcr cxpressed concern over persistent de la s ir.r disbursir.rg the e uitable shalc to c<.luntics, noting violetions of Article 219 and Section 17(6) o1-the Pl;VI ;\ct rll 2025, disbursements had only been made up to February.'l'hey also highlighted new revenue streams-such as the Housipg Levy ald Social Flealth Insurance Irund-allocated to the national govemment despite housing and health being county functions. \'i'l & l.t llL'l\v t rn Diti.tiott of'lltre ntt tlill 10--'5 24 I

c) 'l'he gr-or-rp also criticized the impact of ballooning public debt ol1 coulltles, strcssigg that thcy are ncither consulted nol shielded frorn its cousequences.'l'he1' insisfcd that allocaliogs made under the guise of "uational interest" should be broken dowu aud partly executed at the counly level' l) I1colclusiol, I(DCWG urged the Senate to allocate no less thap Ksh 677 bitlion, cnsr.rrc lull coslipg and transfer of all devolved fuuctions, enfolce tinely disbr.trsemcnts, lasl-track apploval of audited fevellue, and pass legislation to opcrationalizc the Equalizatiou l;und with county governments involvement' 2.7 Su.bmissions by the coast civil Society Network for Human Rights 22.'lhe Coast Civil Societl' Nelwork for Human Rights submitted the following; a) 'l'he Coast Civil Society Netrvolk for Human Rights criticized the proposed allocation of I(shs. 405.1 billion to counties, noting that it falls belou' the Comrnission on Revcnue Allocation's recommendation of Kshs. 417.4 billion. Irur.ther, that the allocation amounts to only 14.26% of projected national rcveltgc, lalling short ol thc constitutional threshold of l5Yo as lequiled under Articlc 203(2) of the Constitution. b) 'l'he Netrvolk objected to the use of outdated 2020/21 audited revenue figures in dclermilling county allocations, instead of the more recent 2023/24 accounts. 'l'hcy poinlcd out that using current audited figures would entitle couuties to at Icast I(shs. 620.7 billion, based on the present revenue-to-allocation proportion ot 25.79%. c) 1'hey cxpressed concern that county functions have expanded, inciuding the devolulion o1'services such as libraries, yet the funding allocated has not been adjustcd accordingly. Meanwhile, the national government continues to tetain contlol ovcr functions Iike urban roads, health staffrng, and fertilizer distribution, limiting counties' abiliry to fully deliver sewices' d) 'I'he Netwolk recommended that the Senate revise the allocation upwalds to Kshs. 677.3 billion, comprising Kshs. 405.1 billion cumently proposed and an additional Ksl'ts. 272.2 billion identified by the Intergovertunental Relations 'lecluical Comrnittee as needed for fully devolved functions' \( 1. & lJ ld,/1ot t ,tn l)it'i.siort of llct'cnue Bill :01i 2sI

e) 'l'hey r.aiscd concerns ovct' delays in disbursing county funds, noting that by April 2025, county governments had only received disbursements up to February. They argued that such delays contravene Arlicle 219 of the Constitution and Section 17(6) of the Public Finance Management Act and ulged thc Senatc to intcrvene. 1) 'fhc Nctwork highlighted that new national-level revenue streams such as thc I-Iousing Levy and the Social Health Insurance Fund relate to devolved functions, yet are managed centrally, which undermines counties' financial autonomy and ability to implement their mandates. g) Ihey also criticized the influence ofballooning public debt and vague "national inlercst" considerations in revenue siraring, warning that tl.rese factors unlairly disadvantage counties and that national priorities should be addressed u'ithin county contexts as well. h) 1-he Ncfwork proposed several legal reforms, including compelling full transfer and costing of devolved functions, mandating timely approval of audited rcvenue accounts, and instituting an automatic approval mechanism if the National Assernbly delays beyond six months. i) 'l'hcy called on the Senate to facilitate a conditional grant to Makadara Hospital in Mombasa. whic}r supports several coastal counties but suffers from inadeqr,rate funding and resources. j) Irinally, the Network urged the Senate to pass the Equalisation Fund Bill and ensure thal the fund is administered ttu-ough counties in line u,ith constitutional mandatcs, particularly to support marginalized regions. s; l r\ lt lit1utr.r t'tt l)iri.riotr o! llL'rcntrc lJill )0)5 26 I

CTIAPTEII. THRIiE OI}SERVATIONS AND RBCOMMENDATIONS 3.1 Obscrvations 2i.'l'hc Cor.nmitlcc, having considcl'ed the Bill and submissions from stakeholders' rnade the ibllowing obselvations. Tl-rat- a) 1'here has bcen margillal growth in the county equitable share from pt'evious Ilnancial ycars, despitc the substantive growth in shareable t'evenue. In FY 2025126 whilc shaleable l'eveuue is estimated to grow by 10 1 percent (I(sh.259.1 billion increase), counties are proposed to get an increase of Ksh.l7.7 biilion from this revenue growth. This is equivalent to 6'8 percent of this projected revenue glowth' b) 'fho National'l'rcasury advised the Committee that the performance of ordinaty revcl.lLlc in thc l;inancialYcar 2024/25 had consisteutly fallen belou'target with the shortlall widening each month and reaching a cumulative amount of Ifth.142.8 billion by March, 2025.The National Treasury estimated that the total ordir.rary revenue for IrY 2024125 would be Ksh.2,435.1 billion, lalling slio( of the or.iginal target by Ksh. 482.1 billion. Given this undetperformance, fhe National'lreasury indicated that the earlier revenue forecast for FY 2025126wasnolongerrealisticandproposedthattheprojectedsharable rcvcnuc Ibr l;Y 2025126 should be Ksh'2,756,918,546,059' c) whilc thc Division of Ilevenue Act sets out the allocation to each level of govcrrurent and allocation to the Equalization Fund, there have been budget carryovers (undisbursed funds) of equitable share at the end of the financial ycar. 'l'his mcans the provision under the Bill (clause 5(1)) stipulating that the National (iovemment solely bears the shortfalls in revenue collection is brcaohcd. Ior inslancc, an allocation for IrY 2023124 amounting to Ksh 30'8 billion was transfelred to the counties in FY 2024125' . d) wher.eas thcre have been consistenl allocations and appropriations to the l:iqr-ralizatior.r lrund by Parliament, there has been a delay in transfers to tl-re I'hc total disbulsement to the Fund as of June 2024 was Ksh' 13 4 billion \(.'!:t(Ll l{:l\)tr ln Dit'isiorr r.4/ llctente Bill :0:5 l;und 21 I

our of the total entitlement of Kshs.62.4 billion. Five years to the lapseof the F'und as per Article 204(6), the objectives of the Fund are far from being achieved. e) fhe Ilill indicates that the most lecent audited and approved accounts of revenue are for FY 2020/21, amounting to Ksh. 1,570.6 billion. However, the National Assembly, on 15'l' April, 2025, approved the audited accounts of rovcnue of Ksh. 1,920,434,085,078 as the total nationally collected revenue of l:Y 2021/22. 'l'his means the most recent audited revenue received and approved by the National Assembly to be applied in the Division of Revenue Bilt,2025 is IGh.i,920.4 billion for FY 2021/22. This change in the most recent audited t'evenue implies that the funds allocated to counties, being Ksh.405.1 billion, is equivalent to 21 .09 percent of the latest audited and approved revenue. f) Following the change in the most recent audited and approved accounts of revenue (fi'om Ksh. 1,570.6 billion to Ksh. i,920.4 billion), the allocation to the liqr,ralization lund must be adjusted in order to meet the constitutional obligation uncier Articlc 204(l). g) An analysis of the Bill in light of the provisions of Article 203(1) of the Constitution reveals that the specified mandatory expenditures make up 87.5 perccnl of the cstimated shareable l'evenue fbr FY 2025126. As a result, i1 rnakcs it dilficult to eqllitably share the remaining anlount between the two levcls of govcrnmcnt. h) Clause 3 of the Bill states that the object and puryose of the Bill is to provide for the equitablc sharing of revenue raised nationally among the National and county govemments in accordance rvith Article 203(2) of the Constitution. Article 203(2) of the Constitution however provides the minimum share of revenue due to county governments and the proper constifutional provision providing for the sharing ofrevenue as proposed in clause 3 is Article 202(1) as reacl togethcr with Article 203 of the Constitution. i) Ovcr-tlrc years, tlte oounty equitable share has on average been2.23%o of GDP. Noring rliar in I;Y 2025/26 nominal GDP is projected to be Ksh.19,272 b1l|ion., -_.-...-.\- \'( l (\'l.l lltltot t ttlt l)iri.tiott il Rt't L'tttti! lJill 1()15 t, 28 I

rhc county cquitablc sharc percentage of GDP should be maintained at the samc lcvcl ancl furthcr an additional I(sh.34.93 billion be provided to meet thc cost ol' the non-discrctionary expendifules listed below- i) Ilousing levy deductions- Ksh.4.1 billion ii) Iinhanced Contlibutions to the NSSF- Ksh'6 billion iii) Matching allocation to the CAIPs project- Ksh' 1 I ' 8 billion iv) Matching allocalions for the CHPs- Ksh'3.23 billion v) Annual wage increments -IPPD annual adjustment- Ksh'6'3 billion vi) Basic Salary incren'rent as per the Doctors CBA2olll2l; Execution of thc Retulrl l'o Work lotmula (ItfWF)-Ksh. 3'5 billion' 3.2 llccommcndations 24.lIaving considered the Ilill and submissions from the stakeholders, the Commiftee lccommends that thc Scnate approves tlie Bill with the following amendments- a) Clausc i be amcndcd 1o make reference to Article 202(1) of the Constitution u4rich rcquircs revenue raised nationally be shaled equitably between the National and couuty levels of government; and b) 'l'hc Schcdule to the Bill be amended to reflect the following- i) 1'hc total sharable Revenue Ksh.2,756,918,546,059; ii) 1'he most l.ecent account of revenue as approved by the National Assembly as Kslt. 1,920,434,085,078 fot FY 2021122; i i i) National Government sha:'e * Ksh2,27 9,63 8,1 7 6,6 | 0 ; iv) County govcrrurent share - Ksh.465,001 ,459,673; v)Allocatior-rtotheEqualizationFund-Ksh'9,602,170'425(0'5%of trrost recent approved accounts of revenue); and vi) 'l'he Equalization Fund atrears- Ksh'2,736,739,351' \t l 1\ li ll11tp1 1 ,,n l)iti.tiort t,[ l?erenue l.lill ?(l:5 2eI

r\ppcndiccs 30 I a) Comminee stage Amendments b) Minutes of the Commifiee c) Submissions from stakeholders d) Public Adverl \'(.'l l: tt ttcNn on l)i','i.tiort qi llc't dtttt( Rill :llli

Annex 1- Committee Stage Amendments

ItE I3'r' Ma),. 2025 CON,IIVIITTI'E STAGE AMENDMEN'IS TO THE DI\/ISION OF RIIVItNUE BrLr,,2025 (NAI'IONALASSENIBLY BILLS NO. l0 OF2025) NOTICE is given that Sen. (Capt.) Ali Ibrahim Roba, the Chairperson to the Standing Cornrnittee on Finance and Budget intends to move the following amendments to the Division of Rcvenue BilI, 2025, National Assembly Bills No.10 of 2025, al the Cornmittee Stage- CLAUSIi 3 THAT clause 3 of the Bill be amended by deleting the expression ^203(2)" appearing immediately after the words "accordance with Article" and substiruting therefor the expression "202(l)". SCI IIi,DLII,E THAT the Bill be amended by deleting the Schedule and substiruting therefor the follorving ncw Schedule- SCHEDULE (s.4) ,,\LLOCA'I'ION OT REVENUI' IIAISED NATIONALIJ BIiI'WI]EN TTIE NATIONAI, GOVERNMENI'AND COUNTY GOVERNMENT'S I'OR THE 2025126 FINANCIAL YEAR 'l -vpei Icvcl of allocalion 0.50% b) Arrears D. County equitablc share Dated . . . . . ..1.3.'tl May,.Z_Q.?5 1-- Sen. (Capt.) Ali Ibrahirn Roba, Chairperson, Standing Contnittee on Finance and Budget. I Amount in Kshs Pcrcentagc ('h) of the FY 2021122 auditcd and approved Revenue of I(sh.l 92U 431 035 07li 2,835,040,919,609 2,357 ,700,6t0,t60 A. Total Shareablc Revenue B. National Govcrnlncllt C. Equalization lrLrnd t2,338,909,776 ofwhich, a) 0.5 Per Centunt 9,602,170,425 2,736,739,351 465,001,459,613 'l'he Clerk of the Senate, Parliament Buildings, NAIROtsI. L-

Annex 2- Minutes of the Committee

#t=-,,--.-r{. ETWO HUNDRED AND ELEVENTH (2ttTII) M EETING OF MINU'TES OF TII ]'I{E SF]NATIi S'I'AN DING COMMI TTEE ON FINANCE ANI) I}UDGEl-HI'LI) I2III MAY 2025 IN VICTORIA HALL 1 ARGYLE GRANI) ON MONDAY rro't'u L AT 4.00 l'.M. I'ITESENT l. Scn 2. Scn 3, Scn 4. Sen 5, Scn 6. Sctt (Capt.) Ali Ibrahirn Itoba, EGFI, MI' Maurecn'l'abitha Mutinda, MP (Dr.) Boni Khalwale, CIIS, MP Moharncd FakiMwinyihaji, CBS, MP Itichard Momoitna OnYonka, MP lrddy Oketch Gichcru, MI' Christopher Gitonga I)avid Ngamatc Lucy Radoli Kiminza Kioko Constant WarnaYuYi Itosc Omutcre Jamcs Ngusya Chairpcrson Vice-Chairperson Member Member Member Mcmbcr Merrbcr Mcrnber Mcrnber AI}SI'N.I'WITH APOLOGY l. Scn. Shakila Abdalla Mohamcd, MP 2. Scn. Mariarn Sheikh Ornar, MP 3. Scn. l:sthcr OkcnYuri. MP s t..(-lt l,-'l .\ lt l,\'l' l. Mr 2. Mr 3. Ms 4. Mr 5. Mr 6. Ms 7. Mr }I I N/S uN/scF &ti I122512025 I'hc Chairpcrson callcd thc rnccting to order at4:04 p'rn. This rvas followed by aword ol' ADOPTION OF THE AGENDA 'l'he agenda rvas adoptcd alier bcing proposed by sen. (Dr.) Boni Khalwale, cBS, MP, and sccondcd by Scn. Itichard Mornoirna onyonka, MP. as listed below- a - Clerk Assistant - Clerk Assistant - Legal Counscl - Fiscal AnalYst - Researcher - Audio Officer - Sergeant-At-Arms PRELIMINARIES |lra1t c1'. MIN/SEN/SCF& B/122612025

1. Prayen 2. Adoption of the Agcnda; 3. Consideration of thc draft rcport on the Division ol"llcvcnuc Ilill Assembly Bills No. l0 of 2025); + Adoption of the I{eport on the Division of Itcvenue l}ill, 2025 (National Asscrnbll Bills No.l0 of 2025) 5. Any other Business; and 6. Adjournment and Date of the Next Meeting scF&B/r22712025 CONSIDERATION OF..ITIE t)RAI,I-ItEPOR'I- ON' 2025 (National MIN/SEN/ THE DIVISION OF ITEVEN UI] BILT, 2025 I 2 (NATIONAL ASSEMBLY I}ILLS NO' IO OF 2025) 'l hc Cornnittce considered its draft report on the Division ol'Rcvenuc Blll.2025 (National Asscmbly Bills No. l0 oi2025) and madc thc follorvin,p, obscrvations- a) 'l'hcrc has bccn marginal growth in thc county ccluitablc sharc lj'om prcvi<lt-ts financial years. dcspite the substantivc growth in sharcablc rcvcnuc. lnltY 2025126 while shareable revenue is estimated to grow by 10.1 pcrcent (Ksh'259'1 billion increase), counties are proposed to get an incrcase of Ksh.l7'7 billion liom this revenue growth. b) Whilc thc Division of Rcvcnuc Act scts out thc allocation to cach lcvcl o[' governmcnt and allocation to the Ilqualization n"rnd. thcrc havc bccn budgct carryovers (undisbursed funds) of equitable sharc at thc cnd of thc financial ycar' This means this provision of the National Govcrnmcnt to solcly bcar thc shortlalls in revcnuc collection is not fulfilled' c)Whereastherehavcbeenconsistcntallocationsandappropriationsttlthc llqualization Fund by thc Parliamcnt, thcrc has bcen a dclaf in transl-crs to thc ljund' Thc total disbursemcnt to the Fund as of Junc 2024 vvas Ksh. 13.4 billion out ol'thc total entitlerncnt of Kshs'62.4 billion' d) I'he Bill uses the most rcccnt audited and approvcd accounts ol'rcvcnuc 1br |Y 2020121, amounting to Ksh.1,570.6 billion. Flowever, thc National Asscrnbly on l5,h April, 2025. approvcd thc auditcd accounts ol' rcvcnuc ol' Ksh.1.920,434,085,071] as thc totalnationally collcclcd rcvcnuc of |:Y 2021122. e) I;ollowing the change in thc rnost reccnt audited and approvcd accounts o('rcvcnuc (fiom Ksh. 1,510.6 billion to Ksh.1,920.4 bitlion), thc allocation to Equalization Fund must be adjusted in order to meet the constitutional obligation under Articlc 204(t).

1) Clausc 3 on the objcct and purpose of thc Bill makes refcrence to Article 203(2) ot thc Constitution instcad of Articlc 202(l) which provides for thc sharing of rcvenuc raiscd nationally bctween the two levels of governrnent' g) county government expenditure needs have sharply grown due to increase in non- discretionary cxpenilitures such as contribution to housing levy, NSSF, Social Health Insurancc Ilund, Matching of contribution to County Aggregated Industrial Parks. annr,ral wagc drilt arnong others. h) As subrnitted by thc Cabinet Secretary, National'l'reasury and Economic Planning' tho projccted sharablc rcvenue lbr FY 2025/26 had becn reviscd tiom Ksh'2'1135 billion to Ksh.2,7 57 billion EN/SCF&B 1122812025 ADOPTION OF THE REPORT ON TI{E MIN/S DIVISION OF REVENUE BILL 2025 A'TIONAL ASSE MBLY BILLS NO.l0 0F 2025 I:ollowing deliberations, considerations of stakeholders' submissions, the Cornmittee noted that county equitable share should be informed by reflect thc GDP growh as well as the non-discrclionary expcnditure requirctnent. 'lhus, the Committee resolvcd- a) Noting that ovcr thc ycars, the county equitablc share has on avcragc been2.230k ol'Gt)p, and IrY 2025126 nominal GDP is projected to be Ksh.19,272 billion, Ksh.387 .425 billion should be adjusted such that counfy equitable share percentage of GDP is maintaincd at the same level, and b) Irurthcr, providing lor Ksh,34.9 billion to cater for the lollowing non-discretionary expcnditurc- i) I Iousing lcvy deductions- Ksh.4' I billion ii) l:nhanccd Contributions to the NSSF- Ksh.6 billion iii) Matching allocation to the CAIPs projcct- Ksh' l l '8 billion iv) Matching allocations for the CHPs- Ksh.3.23 billion v) Annualwagc incrcments -IPPD annual adjustment- Ksh.6.3 billion vi) Ilasic Salary incrcmcnt as per the Dootors CBA2017 121 ; Execution of thc Itcturn'l'o Work Irorrnula (R1'WIr)-Ksh' 3'5 billion' Conscqucntly, the Committec unanimously adopted its report having been proposed by Scn. I{ichard Momoima Onyonka, MP, and seconded by Sen. Maureen Tabitha Mutinda, MI). rvith thc rccommcndation that- a) Clausc 3 bc arncndccl to makc rcfcrcncc to Article 202(l) of the Constitution: and b) 'l'hc schcdulc bc amcndcd to rcflcct the fbllowing- i) 'l'hc totalsharable Rcvenue Ksh'2,756,97 8,546,059 ii) 'l'hc mosl rcccnt approved account olrevcnue Ksh. 1,920,434,085,078. iii)'l'hc NationaI govcrnment share- Ksh' 2,279,638'1'7 6'610 iv) 'l'hc County govcrnrncnt share - Ksh' 465,001"459'673 3

v) Thc Equalization Fund -Ksh.9,602.110.425 (0'5% ol'most rcccnt approvcd accounts of revenue) vi) 1'he Equalization Fund arrears- Ksh2,736,7 39,351 ANY OTTIER I}USINESS 'l'hc Chairpcrson inlormcd the Committce thc status olthe motion on thc lburth hasis ancl issucs raised during the plcnary. l;ollowing dclibcrations. thc Con.rmittcc rcsolvcd to convcne a brcakfast meeting, where all Scnalors rvill bc invitcd' on'l'hursday,22"'t May' 2025 rvithin Nairobi City County.'lhc purposc of the mceting rvill bc to brielthc Scnators on the Committee's recornmendation on lburth basis lbr sharing nationally raiscd rcvcnuc among county govcrnlncnts as conlaincd in thc rcport' &lllt230l202s Ar).lo UII.NMENl- ANT) I)ATE, OF NEXI' MIN/SEN/SCF MEETINC 'l'hc nrceting was adjourne d al 4:46 p.m. Ncxt mcetin-e shall bc by noticc SIGNATURE: .....'. DAl-II SEN.(CAPT.) ALI IBRAHIM ROBA, EGH, MP (CHAIRPERSON 4 M IN/S EN/SCF& B/I 229l2025

-Wi=-:-,;=::g=e. MINUI'ES OF .THE TWO HUNI)RED AND NINTH 2g9ttt MEEl'ING OF THF] G COMMITTE EON FINANCE ANI) I]UDGET HELD ON SENATE STANDIN 2025IN VICI'ORIA I HALL ARGYLE HOTEI, NIAC}IAK()S I'RIiSEN'T MONDAY I2IIIMAY (Capt.) AIi Ibrahin Roba,IIGII, MP Maurccn'l'abitha Mutinda, MP (l)r.) Iloni Khalwalc, CIIS, MP Moharncd FakiMwinyihaji, CI3S, MP I{ichard Motnoitna Onyonka, MP Lrddy Okctch Gichcru, MP Mariam Shcikh Omar. MP L Sen 2. Scn 3, Scn 4. Sen 5. Scn 6. Sen 7. Sen Chairperson Vice-Chairperson Member Member Member Member Member Member Mcmber ,\ llsENl'WITH AI'OLOGY l. Scn. Shakila Abdalla Mohamed, MP 2. Scn. Ilsther OkcnYuri, MP SECRETARIAT 1. Mr 2. Mr 3. Ms 4. Mr 5. Mr 6. Ms 7. Ms tt. Mr Christophcr Gitonga I)avid Ngarnatc Luclr l{36o11 Kirninza Kioko Constant Wamayuyi Ilosc Ornetcrc Itita Chudi .lamcs Ngusya Clcrk Assistant Clerk Assistant Legal Counsel FiscalAnalyst Itesearcher Audio Officer Ollicc Assistant Scrgeant-A1-Anns I . I Ion. ITCPA. John Mbadi, IIGII 2. Ms. Iilizabeth Nzioka 3. Mr. Millord Bctt 4. Mr. Collins Mulai 5. Ms. Mildrcd KcnYan 6. Ms. Iraith Jully Cabinet Secretary Director of I'lanning Parliament Liaison Officer (NT) National Treasury National Treasury National Treasury COUNTY AT 9.OO A.M. IN ATTANDNCE National Treasurv and Economic Plannins (NT)

Cornmission on llcvcnuc Allocation 7. Mr. Koitamct Olckina 8. Dr. Isabel WaiYaki 9. Ms.l.ineth OYugi Instittttc oI'Ccrtifietl Public Accott ntants of Kcn a ICI'AK 10. Mr. Andrcr,l' Rori I l. Flilary Onami 12. Mr. 1'ony Juma 13.Ms. Nancy Moraa Countv Assemblics Forunt (CAF') 14. Mr. Seth Kamanza 15. Mr Chege Mwaura i6.Ms. Lonah I-osem 17.Mr. Aharub Khatri 18. Ms. Christinc Mududa 19. Mr. Austin Munenc 20. Ms. Sahna Ali Vicc - ChairPcrson Cotnmissioncr Dircctor. Ilconotnic Aflairs Chair (CAI;) Sccrctary Gcneral (CAF) cBo (cAI;) Spcakcr Mombasa County Asscrnbly Dcputl' Clcrk Mornbasa C" asscmbll' Dircctor, I'lconorric AI Iairs Mornbasa CountY AsscrnblY MIN/SEN/ SCF&B n21s12025 I'he Chairperson called the mecting to ordcr at9.30 a.tn' and the procccdings cotnrncnccd with a rvord of prayer. 'fhis was followcd by a round of introclLrotions by thc Mcmbcrs ol'thc Committee and thc stakeholders. MIN/SEN/SCF& B,n?r612025 .l-hc agcnda r,vas adopted aftcr being proposcd by Sen. Ilddy okctch Gicheru. MI',' and secondcd by Scn. Mariam Shcikh Orrar' MP' as listcd bclou'- i. Prayer; 2. Introduction; 3. AdoPtion o1'thc Agenda: 4. Meeting with the Cabinet Secretary, National Treasury and Economic Planning to deliberate on the f)ivision of Revenue Bill,2025 (National Assembly Bills No' l0 of 2025); (Committee paper No 135-A); 5.MeetingwiththeCabinetSecretary,NationalTreasuryandEconomicPlanning to deliberate on the County Wards (Equitable Development) Bill, 2024 (Committee paper No 136); 6. AnY other Business; and 7. Adiournment and l)atc of thc Ncxt Mceting' 2 PRELIMINARIES ADOPTION OF TItE AGENDA

MEETING WI'fTI THI] CABINET SECRETAII.Y NATIONAL TREASURY AND ECONOMIC PLANNING TO DELIBERATE ONTH E I)IVISION OF REVENUE BTLL,2025 (NATIONAL ASSEMI}LY BILLS NO. IO oF 2025); rcOMMITTI'E PAPER NO t 3 5-,41 tJpon invitation, thc Cabinct Secretary, National Trcasury and National Planning subrnitted as Ibllows- a) 'l'hc Narional1'reasury had projected totalsharable revenue of KSh. 2,835.0 billion lor thc lry 2025126 as conraincd in the Division of Revenue B1ll, 2025 submitted to Parliament in FebruarY 2025. 'fhc llill proposcd allocation of Ksh.2,419.4 billion to the National Governmcnt, Counly (iovcrnrncnts Ksh. 405.1 billion as County Equitable Share; and KSh. 10'6 bitlion lor llqr-ralization Fund, bcing the surn of Ksh' 7.9 billion for FY 2025/26 (0'5 pcrccnt olthc mosl rccent audited and approved revenue of KSh. 1,510.6 billion for lrY 2OZOl2l as rcquired by the Constitution), and KSh. 2.7 billion (as arrears to the Irund). 'fhc allocation of KSh. 405.1 billion as County Equitable Share translates to 25.79 per ccnl oIthc most recenl auditcd and approved rcvenue. 'lhc National 'l'roasr-uy has revicwed the perlorrnancc ol ordinary revenuc sincc thc submission of thc Division of Revenu e Blll,2025 to Parliament in l"cbruary 2025. to be Ksh 2,435.1 billion, reflecting a shortfall of Kshs. 482.1 billion relative to thc originalbudget for IrY 2024/25. 'l'hat with thc forcgoing, that thc ordinary rcvenuc forccasl of Ksh. 2,835.0 billion lbr llY2O25/26 as contained in thc Division o1'Revcnue Bill,2025 rnay not be achicvablc' 'l'hat thc Ministrl, had rnadc downvvard revision of the ordinary revenue l'orccast lbr IY 2025126 ro Ksh 2,l5l.O billion, which is Ksh 78.0 billion lower than the Budget Policy Statcrnent 2025 projeclion of Ksh 2,835.0 billion. 'l'hc Cabinct Sccretary citcd the below as thc lactors infbrming thc proposed Division ol-l{cvcnr.rc lbr FY 2025/26- i) 'l'lrar ovcr thc pcriod 2016117 to 2023124 actual ordinary rcvcnuc has always bccn belorv targst cxccpt fbr IrY 2021122, and as such evcn the FY 2025126 nay expcriencc such shortfall. ii) 'l'he need to finance mandatory expenditures under Article 203 (1) of thc Constitution. iii) 'l'hat llscal dclicit in financing othpr major National Govcrnment functions has always occasioncd additional borrowing which continues to distort the frscal li.arnework sct out in thc annual IJudgct Policy Statements and lurther undcrmine govcrnmenl fiscal consolidation plan' iv) I,'inancing constraints due to limited access to finance in the domestic and international linancial markets. b) c) cl ) c) 1) 3 M r N/S EN/S Ch- &B I t2 l7 12025

v)Highcostofpublicdcbtservice;thatthcpublicdcbtscrviccinl;Y2025/26will account for 52 pcrccnt oIordinary rcvcnuO rvhich is highcr than thc avcragc (4 I pcrccnt) over the pcriod I:Y 20161 17 to 2024125 ' g)'l'hattheNationall'reasuryhasproposcdthatequitablcsharcol'KSh'405'l billionto County Governments in F-y 2025126. 'l'his altocation is a 4.6 pcrccnt incrcasc li'orn thc Fy 2024125 allocation of KSh 387.4 billion r'vhich is consistcnt rvith thc provision ol' Articlc 203(l) that cnvisagcs stable and prcdictable allocations ol'rcvct]uc to Count-v- Governmcnts. .l'he allocation of KSh. 405.i billion is bascd tln thc tnacro liscal liarn$vork which rclies on expectcd rcvenucs and cxpenditurc cotnmitlncnts lbr liY 2025126.'fhis shall bc sharcd in accordance with thc'l'hird dctcrrnination olthc basis olthe division of revenue among counties approvcd by I'arliarrcnt pursuant to Articlc 217 (7) of the Constitution. h) In conclusion, the Cabinct Sccretary infonncd thc Cornmittcc that thc National frcasury proposes to allocatc KSh. 69.8 billion as adclitional allocations (conditional and unconditional) to County Govcrnmcnts.'l'hat arising KSh 12'89 billion will bc flnanced from thc National Government's sharc of rcvcnuc. and KSh 55'07 billion fi'oni procecds olloans and grants from Dcveloplngnt Partncrs' Com mittee Observations I.'ollor.ving thc deliberations the Comrnittce obscrvcd that; a) Ihat division olrevenue was not proportionate in the growth of national rovcnucs ovcr the years: b) That the division did not cater for thc burdened countics whosc cxpcnditurc obligations havc ballooned with thc ncw govcrnment policics likc Social Ilcalth Authoritl' Contributions Ilousing levy, NSSIr lor instancc' c) 'fhc National Govcrnment had factored projccts in its budgct likc thc hcaltli infrastructurc a function which is dcvolved to countics' lior instancc' Ksh' 50' 000'000/ Mugumo health centre d) 'l'hat there was a big variancc in thc National Governtncnts allocations to thc National Refcrral IIosPitals. MIN/SEN/S CF&B/I 21812025 MEETING WITI-l 'tlllr CAI}INE't S ECIi.El-AITY NATIONAL TREASUIIY ANI) ECONOMIC PLANNINGTODELIBEIIATEONTHE COUN TY WARDS E UITABLEDEVELOPMENT I}It,I, MMITTIiIt PAPI|R No t36) 2024 (CO l'hc Committee was as follows- a) Prelimina ry "clause 2" should define the terms 'equitable dcvcloprncnt 'and 'ward Projects Identification Committee' in the contcxt of the Bill' b) Allocation of resources forward dcvelopmcnt projccts "Clause 5 2(b)"' l'hat thc llill dcsignates the Ward as thc fundamental within thc County in rcsourcc shaling 'l'his 4

c) approach has not guidcd on unique characteristics including; i. Allocation to mttnicipalities and cities and; ii. Allocation lo transboundary proiects across wards' "Clau.se 3 (a) " Allocation of 60'lo of resources for ward dcvclopment projccts' 'fhc CS raiscd conccrn ovcr Lhc rationale for allocating no less than sixty percent of the development budget? 'l'hat I'roposing such a high allocation may impedc county govcrnmcnts' ability to undertake these esscntial transformative proiccts. He opincd that thc County Intcgrated Development Plan (CIDP) guidelines providc lor thc idsntillcation and I'inancing oltranslbrmative or flagship projects at the county level' Allocation of rcsourccs for Ward dcvelopment projects "Clause 6 "that the Bill Introduccs a clause to address the challenges that occur when there is a delay in obtaining approval for the Resource Sharing Ilormula following its expiration' In thc Identificarion of Ward based projects for equitable developmcnt within wards ,,Clause 7 (3)", thc CS rccommcnds that the Ward Projects Identification Committcc' although cstablishecl by thc County Executive Committee Member (CECM), shoulcl havc bccn nominated by thc community through a democratic process at the ward levcl, in accordance with thc criteria outlined in "Clquses 7(4) and 7(10)" Idcntification of Ward based projects for cquitable development within wards "Clause 7 (3) " 'l-he schcdule should bc enhanced to ensure that; i. Pro.jccts arc iclentificd by the community at the grassroots lcvel, as indicated in ''Clquse 7 (t2)" 'l'hese projects tnust undcrgo screcning through the pro.icct lnanagcmcnt process to assess cost estimates and viability, including feasibility studies and cnvironmcntal and social safbguards; ii. 'l'hc cornmittce should make provisions to prioritize communiry pro.iects that arc inconrplcte, ongoing multiyear projccts, and stalled projecls for lurther suPPorl"; iii. A clccision is ncedcd rcgarding thc financing of community invcstments that rcquirc tnaintenance and sustainability rncasures fbr the projects; iv. Subrnissions liorn thc cornmittee should be organizcd in order of priority, as agrccd upon in the ward public participation forum; and v. Ward projects should be sourced frorn the project lists gcneratcd during public paflicipation on thc County Integrated Devclopmcnt Plan (CIDP) and Annual Dcvclopment Plan (ADP), which scrves as thc basis for any Iinancing to thc County Govcrnment; Identif'ication of Ward based projects for equitable development within wards "Clause 8 (t) " thatthe projects submitted by the committces should be in ordcr of priority given that the county cxccutivc cornrnittec mepbcr had dcsignated technical officcrs to thc corrrnittccs in "ClauseT (13)" to handle other technical issucs. Thercibre "Clause 8 (,r/ " should thus bc consolidation and hapnonization of ward priorities in line with thc County Intcgratcd Development Plan. ii. 'l-he CECM should cnsurc that the provisions oltlrc public F inance Management (Public Invcsttnent Management) Regulation s, 2022 arc adherecl to in thc pro.ject idcntification, approval,, and exccution processcs. r) d) c) c) 5

h) Identification of ward based projects for equitable devclopment within wards "clouse 10" that the projects shall be based on the broad prioritics of thc cll)P' AI)I'] and County Fiscal Stratcgy Papcr (CITSP)' i) Irnplemcntation of Projects "Clause 12 (4)" that it is csscntial to clcarly dclinc any additional funds allocatcd to a project, along with thcir sourccs' 'l'hr'rs' thc aurount distributed equitably to the rvard should be uscd to covcr any additional lunds nccdcd lor existing projccts within the ward bcfore considcring nclv proiccts. .j) Implcmcntation of Projects "Clause 12 5(b)"to inscrt a paragraph stating that cach phase ol thc project should havc achicvablc tnilcstottcs that cnsurcs a pro.icct can lrc utilized. k) Inrplernentation of Proiects "Clatrse I5 I(t)" queries thc rolc o[thc County Ilxccutivc Comrnittee/Cabinet in the operationalization of completcd projects' Whilc the Cl:CM lbr [rinancc will report on thc stcps taken. thc rcsponsibility lor opcrationalization ancl projcct sustainability lics rvith all stakcholdcrs in thc county govcrnrncnt. l) irnplcmentation of Projects "clausc 15 (2)"'lhc wording in "clausc I 5( I )"' '"vhich uscs the term "shall," is sufficicnt to corrpel the CECM to rcport to thc County Assclnbly' -lherefore, Clause 15(2) can be deleted' MIN/SEN/SC F&t\1121912025 AD.IOUII.N MENT ANT) DATI, OF NEX'l- NILITl'l)l(; I'hc rnccting adiourncd at 1 . 30 p.m. Ncxt rnceting shall bc hcld at thc satrrc vcnuc at 2'30 1\ L/ SIGNATURE: ... r-.?. . DA'I'E: .. SEN.(CAPT.) ALI IBRAHIM ROBA, EGH, MP (CHAIRPERSON 1/ I 1 ) 6 p.ur. D\

7 eNT Or 6 se$ -rcL=r:,.=. MINUTES OF I'HE TWO H UNDITED AND EIGHTH (20g I rr) MEETING OF THE SIINATE STANDING COMMITI'EE ON FINANCE AND BUDGET HELD ON TUESDAY 6'rrr MAy 2025 IN COUNTY HALL GITOUNI) FT,OOR tx)AttDttooM, l'}All LIAMENT I}UILDINGS A'I9.OO A.M. AI]SENT WITH APOLOGY 1. Scn. Itichard Motnoirna Onyonka, MP 2. Scn. liddy Oketch Gicheru, MP SECRETARIAT (Capt.) Alilbrahirn Roba, trGH, MP Maurcen fabitha Mutinda, MP (Dr.) BoniKhalwalc, CBS, MP Moharncd IrakiMwinyihaji, CBS, MP Shakila Abdalla Mohamcd, MP Mariatn Sheikh Omar, MP Ilsther Okenyuri, MP Christophcr Gitonga Ilcvcrlync Chivadika Mitchcll Otoro Kin-rinza Kioko Constant Warnayuyi Stanley (iikorc Victor Kimani Jarnes Ngusya Clerk Assistant Clerk Assistant Legal Counsel Fiscal Analyst Rcsearcher Media l{elations Offi cer Audio Officer Sergeant-At-Ams l. Scn 2. Sen 3. Sen 4. Scn 5. Scn 6, Scn 7, Sen Chairperson Vice-Chairperson Member Membcr Mcmber Mcmber Member l. Mr 2. Ms 3. Mr 4. Mr 5. Mr 6. Mr. 7. Mr. 8. Mr. IN AT'TANI)NCI.] Com mission on Revcnue Allocation 1. CPA. Mary Wanyonyi Chebukati 2. Mr. Jonas Kuko 3. CPA. I{oble Nuno 4. Ms. Lincth Oyugi 5. Mr. Itcnny Muttri 6. Mr. Alvin Walula Chairpcrson Commissioner Ag. CEO/ Sccretary l)ircctor, I:conomic Allairs Dcputy Dircctor PA to the Chairpcrson PItIiSENT Member Mcmber

Council of Governors 1. IIon. I-'CPn. Fernandes Barasa, OGW 2. I lon. Mutula Kilonzo Jnr'. CBS 3. Mr. Stcphcn Momanli MIN/SEN/SCF&B n20712025 MIN/SEN/SCF&B n20812025 ADOPTIO NOFTHE AGENDA 'l'he agenda was adopted after bcing proposed by Scn' (Dr.) Iloni Khalwalc, clls. MI']. and scconded by Sen. Mariam Sheikh Omar, MP, as listcd bclow- Prayer: Introduction; Adoption of the Agenda; Confinnation of Minutes of 207th Sitting; Matters arising from thc tninutes of the previous sitting; Ilrieling on thc Division of Revenue Ilill. 2025 (National Asscrnbly' Ilills No' l0 ol' 2025); 7. Mceting with the- a) Commission on Revenue Allocation; b) Council of Governors; and c) National Treasury and Economic Planning to deliberatc on the Division of Revenu eB1ll,2025 (National Asscrnbly Ilills No' 10 of 2)25)-Committee Paper No. I 3 5; and 8. Adjournment and Date of the Next Meeting' CONFIR MATION oF- MINUl'ES oF ]'Hl, (iovcrnor. Kakamcga/Chair. 'l'cchnical Cornrnittcc on I;inancc and I',conornic AI'(airs Govcrnor. Makucni Countv Programs olllcer 2 J 4 5 6 NIIN/SEN/SCF &li t12091202s 2 PRELIMINARIES 'l'hc chairpcrson called the mecting to ordcr at 9:30 a.rn. 'I'his was Ibllorvcd by a rvord ol' praycr and lollowed by a round ol introduction' PITEVIOUS SITTING -l.he Minutes of the Two Ilundred and Seventh (207t\ mecting held on'lhursday' 17'r' Lpr1l. 2025 at 9:00 a.ll. were confirtned as a true rccord ol thc procccdings ol'thc Committee having been proposed by Sen. (Dr') Boni Khalwalc, CBS.} MP. and sccondcd by Scn. Esther OkenYuri. MI'. MIN/SEN/SCF&B/1210/2025MATTERSARISINGFROMTHEPREVIOUS MEETING

Ex. Min/S cn/SCl'&B/1202/2025 referred to the Committee from the National Assemblv 'l'he Conrnitlec noted thc need to expedite the arrangcment for a meeting with Senatc Majority Lcader so that thc issue on processing of Bills from the NationalAssembly that are sirnilar or have sirnilar provisions to the Senate Bills can be resolvcd. lix. M i n/Se n/S cf& l\ I I 20 4 / 2025 Consideration of Pending Lesislativc li usin css bcfore the Committec a) Six Mcmbcrs conlirmed attcndance to thc schedulcd rrulti-scctoral consultation mccting on the County Wards (Equitable Devclopment) Bill, 2024 set for Monday, l2tr,May, 2025 in Machakos Counly. This constiruted requisite quorum for the mceting 1o procecd. b) Mcrnbcrs rvere also inlormed of the county visits to Kitui County on Monday. I 9'h May,2025, and Kisii County on Monday, 26'h May, 2025, on the issue o1'pcnding bills. c) Mcmbers reclucsted lbr constant rcmindcrs about the scheduled Committee activities. MIN/S EN/SCF&B lt2lt/2025 I}RIIIFING ON THE DIVISION OF REVENUE tJlLl,,2025 (NATIONAL ASSEMBLY I}ILLS NO. 'l'hc Comrnittce notcd the considcr ed Committee Paper No. I 35 on the Division ol'Revenuc Bill, 2025 (Nationat Assernbly Bills No. l0 of 2025) and noted that- a) In l;Y 2025126, the sharcablc revenue is expectcd to grow liorn the pro.iccted Ksh.2,575.9 billion inl:Y 2024/25 to Kshs.2,835 billion. I'his represented a growth of l0.lYo. Howcver, by the end of the financial ycar 2024125. b) Out of the projectcd sharable revenue of Ksh.2,835 billion, the Bill proposed 1o allocatc Ksh.2,419.4 billion to thc National Government, Ksh.405.l billion to the County Govcrntncnls, and Ksh. 10.6 billion to the Equalization Fund' c) 'l'hc allocation to thc National Government is equivalent to 85.3% of the total sharcablc rcvcnuc. while thc county equitable share accounts for 14.3Yo. d) 'l'he allocation of Ksh.405.l billion to county governments represcnts an increasc of I(sh.17.7 billion (4.5o/o growth) frorn tho prcvious allocation of Ksh. 387.4 billion Ibr lrY 2024/25. c) On l5'r, April, 2025, Lhc National Assernbly approved the audited accounts ol- rcvsnuc of Ksh. 1,g20,434,085,078 as the tolal nationally collcctcd rcvcnue lbr IrY 2021122. 3 Mccting with Senate Maioritv Leader Sen. Aaron Cheruivot. EGH. to deliberate on processing of Bills IO OF 20251(COMMITTEE PAPER NO.I35)

l) 'l'hc above implied that the most rccent audited rcvclluc rcccivcd and approvcd b1' NationalAssembiy to bc applied for thc Division of l{evcntrcin2025 is Ksh' l '920'4 billion tbr FY 2O2ll2zand not thc Ksh. 1.510.6 billion lbr IrY 2o20l2l as proposcd in rhe Bill.'fhe Ksh.405.1 billion is cquivalcnt to21.09o/o of thc latcst auditcd and approved rcvcnuc. g) 'fhc Ilillproposed an allocation olKsh.7.85 billion to thc lrqualization [iund rvhich is equivalcnt to thc 0.5% as provided in Arliclc 204 of thc Constitution' Ilo\vc\'cr' due to thc change in thc year and thc figurc ofthe most rcccnt auditcd and approvcd revcnuc,thcKsh.T.85billioniscqualloO,4|%oofthcKSh.i.920.4billion. h) .l-hcre is a further allocation olKsh.2.74 billion in thc liY 2025126 as partial payrrrcrlt to arrears owed to thc Equalizalion lrund. 'l'hc at'rcars to thc Fund at thc cnd ol'l;Y 2023124 srood at Ksh.49 billion. lnFY 2024125. thc allocation was Ksh'8 billion' but it has since bcen reviscd to Ksh.6.2 billion in thc approvcd Supplcrncntary II estimates. i) whercas therc havc been consistcnt allocations and appropriatiolts to thc Equalization l;und by thc Parliament. therc has bccn clclay in transl'crs to thc l;und' 'fhe total disbursenent to the Iund as ol'Junc 2024 was Ksh. I 3 '4 billion out ol'thc total entitlement olKshs.62.4 billion' MEETING WI'IH STAKE TIOLDEIIS 't'o DELII}E RATE ON TIltr DIVISION O F ItEVIiNLII.] BILI-. 2025 NATIONAI, ASSEMBI.Y Ilr l.l.s ( NO.l0 C)F 202s) Mceting rvith Colnmiss ion on Revenuc Allocation Upon invitation, the chairperson o1 the commission submittcd comrnission's cotntncnts as foliows- a) clause 3 of the tlill on object and purpose of the Ilillnced to bc amcndcd to makc reference to the correct Articlc of the constitution' Article 202 instcad of Arriclc 203. Article 203 providcs for criteria for sharing of rcvcnue subjcct to 202( 1), whilc 202(|)providcsforsharingofrevcnuealnollgnationalandcountygovcrnancc' b) 'fhcre has becn a declinc in the county cquitablc sharc allocation (l;Y 2024125 to FY2025126)liorrr|0.4%otog.3ohandincrcaseinallocationtothcNational Executivc from 56.|oh lo 57.5o . This has negative irnpact on servicc dclivcry and amounts to claw back on objects of devolution' c)l.heCommissionrccommcndedthatnationalgovcrnmentbeallocatcd Ksh.2,40g,l5,andcountygovernmentsKsh.4lT.4biltionascquitablcsharcforljY 2025126. d) 'l'he Bill prcscnted items o1' natio government priorities yet they can nal intcrcst as bcing synonylrous to national be implemcnted by cithcr lcvcl of govcrnmcnt 4 M IN/SEN/SCF&B/I 2 I 2/2025

Mecting rvith Council of (lovcrnors lJpon invitation, the Chairpcrson olthe Council's'l'cchnical Committec on Finance and I:conomic Allairs subrnittcd the following general and specific commcnts on the Bill- A. llcsource Allocation Framework 'l'hc Council subrnittcd that- a) I)cspitc the cxpandcd fiscal spacc and projected stable economic growth al 5.3%o ovcr thc rnediutn-tcrtn, lor the prcvious 5 ycars, FYs 2020121 - 2024/25, countics cquitablc sharc had groivn by a marginal Ksh.70.9 billion while that of the national -c,ovcrnmcnt had grown by Ksh.702.6 billion. b) 'l'hc national govcrnrncnt's allocation has becn consistent rvith thc ordinary revcnuc grorvth, whilq thc countics'sl.rarc has almost stagnatcd fbr the past 5 ycars, thus indicating arbitrary allocation rcvenue to countics that is not congrucnt to the economic growth trends and lnacroeconQmic perlortnance. c) Conscclucntly, thc Council proposed a minirnum allocation to counties of Ksh.536.88 billion lor FY 2025/26. Il. Attcndant Resources relating to the delineated and gazetted functions of l6th December 2024: ci) 'I'hc Bill failcd to take into account the rccently delineatcd and gazelted functions of thc national and county governrnents which consequcntly had a financial 5 basccl on the law olsubsidiarity. The national govemment should not isolate somc of its functions and budget for them as national interest. e) 'l'hc Ilill providcd other allocations like NG-CDF and Affirmative Action lrund as deductions to be made bcfore arriving at sharable revenue. The allocations arc supposcd to bc rnadc liorn nalional government's share of revenuc pursuant to scction a(lXa) o1'rhc NG-CDIr Act,2015, and I-egal Notice No.52 of PFM Act (National Government Alfirmative Active F'und) Regulations, 2016' Q 'l'hc Ilill providcs that alter considering all the mandatory cxpenditures underArticle 203 ctf Constitution, balance lcft for sharing between two levels of government is Ksh.353.4 billion and balance for national government as Ksh.(64,522). -l'his statelncnt was not Iactual since a nurnber of national governmcnt functions had been providcd for. g) 'fhc Senate shoukl providc guidance on Basis which will be used in sharing revcnue among countics. h) 'l'hc linancing of Equalization lrund arrears amounting to Ksh.2.7 billion is not enough adcquatc commitment to clear the pending arrears to the Irund. 'l'he Committce commcnded thc Commission's for comprehensive, detailed and well thought out submissions on the Bill. 'l'his would bencfit the Committee in formulating its Iinal rccomrncndalions 1o the Senatc.

implication. e) Thcre is need for urgent identification o1 the attendant rcsourccs liorn thc currcnt budget as a baseline-allocation and translcr thc satnc to thc countics through tlic Division ol-ltcvcnue Bill' 2025' lJasccl orr \:Y 2024125 budgct. sourc ol' thc allocatiotls to natiotral govcrntncnl Ministrics.DcparttncntsandAgcncics(MI)As)arc[br.dcvolvcdlittrctitlns. l) C. Baseline Allocation g) 1'hc Council avcrrcd that the countics' equitablc share basclittc allocation should bc the initialallocation of Ksh.400.l l7 billion as opposcrl to Ksh'387'425 billion' D. Cabinet Resolution on State Corporations Reforms h) The cabinct on 21st January 2025 approvcd thc mcrging ol'42 Statc corporations with overlapping mandates into 20. dissolution 16 State corporations, translbr of 9 Corporations to relevant Ministries or other Statc entities and rcstructuring o1'6' 'l'hc Statc Corporations to bc dissolvcd includcd thc 6 ItcgionaI I)cvclopulcttt Authorities. I'lowcvcr, thcre is no tncntion o['thc transt-cr ol thosc pcrlilflning dcvolved|unctionstoCountics.SomcolthcstatcCorporatiorrspcrlbrrlring devolved functions recommended for rnerging includc National Watcr Ilarvcsting and Storage Authority, KTJRA and KeRRA' i) Following the princiilc of resources following functions, thcrc should bc a transl'cr oi'thesc Statc-owncd firms pcrlbrrning <levolvcd functiclns to cor-rntics togcthcr rvith thcattendantrcsources..l.hisshoulclalsoinlbrrnthcallocatiorrsirrthcl)ivisiorrot. Itevenuc lor ]rY 2025126' E.unmetcountyfinancialobligationsanddeficitsfromthe2024125budgetcuts:- j) Dcspite the reduction of countics'equitablc share in l;Y 2024125. thcrc has bccn no allocation to countics to mcct the outstanding non-discrctionary cx1'lcnditurcs expectcd to bc financcd by countics in thc prcvailing liscal ycar and thc mcdiutn tcrm. k)CounticsbudgetirnplcrnentationforFY2o24l25wasconstraincdliomtlrc rcduction una ir. delays in passing the County Governtncnts Additional Allocations 8t11,2024. I) 'l'hc l)ivision ol-Rcvenuc Blll,2025 should havc takcn notc ol'thc non-discrctionarl' cxpcndituresbycounticsemanatinglromnationalgovcrnmcntprioritypolicics. programmcsundp,o.i".t,amountingtoKsh.T3.T8billion'.l.hcscincludcllousing levydeductions-4.05billion;EnhancedcontributionstoNSSll(settodoubleinlrY 2025/26)-6.0billion;MatchingallocationsfortheCAlPsProject-11.75billion; MatchingallocationsforCommuniryHealthPromotersPrograrrr.3.23billion; CostofProcurementofnewrnedicalequipment-39.0billiorr;AnnualWage increments(IPPD)annualadjustrnents-6.30billion,andSustainabilityofthe 6

basic salary increment as per the Doctors CBA 201 7 -2021 and executed RTWF- 3.45 billion F. Variation in revcnue (Revenue shortfalls) rn) Whcrcas thc I)ivision o1' Itcvcnue Acts have been providing lbr protcction ol- countics' cquitablc sharc lrorn revenue shortlalls, enforcement of the same has not bcen adhcred to. n) Countics sullbrcd a Kshs.13 billion cut in the current FY 2024125 due to projectcd shortfalls contrary to section 5 of the Division of Revenuc Act,2024. o) While Countics sulfcrcd this cut, the national goverrunent has almost gone to thc initial budgct bcfore thc budget cuts. This is contrary to the necd for stability and predictability in rcvcnuc allocation as provided for under Article 203 (1XJ). G. With regards to specific comments p) 'l'he Schedule to the Bill should be amended to allocate Ksh.2,290,308,164,884 to thc National Govcrnment and Ksh.536,880,000,000 to the County Governments inlbnned by thc lollorving: i. Rcvcnue growth: 'l'hc economy in general is projected to grow at 5.3% in the next IrY and remain stablc over the mcdium term. Additionally, the projected sharcablc revcnue has grown by 7.78% which should be equitably allocated. ii. Unmet non-discretionary expenditurcs by counties due to policy shilis by the National govcrnmcnt and other priority programmcs/projccts iii. Unbundlcd and dclincated functions: As baseline allocation, the 2024/25 budgetary allocations to MDAs should be identified and transferred through the Division of Revcnue 8i11,2025. iv. Ilascline allocation following FY 2024/25 budget cut: Due to improved rcvcnucs. thc baselinc allocation should be Ksh.400.I l7 billion. q) 'l'hc Schcdulc to thc llitl bc amendcd by dclcting the row providing lbr Iiqualisation I;und Arrcars. 'l'his is bccausc- i. liach liinancial year, the Division of Revenue Act provides lbr the Ilqualisation Fund which is specific to the IrY (0.5%). Once allocatcd, it lbllows that thc funds arc appropriated in line with Articlc 203(3Xa) of the Constitution. ii. Providing lor the arrears in a dilferent year's Division ol'Rcvcnue Act alnounts to double allocation and by extension reducc the shareable revenue. 'l'he IJqualisation Fund arrears should only feature in the subsequent Appropriation Ilills. iii. 'l'hc total llqualisation Fund arrears arc in excess of Kshs.60 billion and providing tor thc arrcars in the Division oll{evenue Ilill lirnits the scopc and payrncnt plan o1'thc arrcars which idcally should only be done through an lrqualisation Iund Appropriation Act. 7

lv -l'hc Council proposcd that thc arrcars bc scparatcd and protcctcd liotn revisions through thc National govcrnmcnt's Appropriation Acts' Follorving delibcrations. the Committec observcd that- a)IndeterminingthecountycquitablcsharcofKsh'536.t]Sbillion.tlrcCounciluscd the fbllowing- i. Ilaserine allocation oI Ksh.400.12; adiustmcnt ftrr rcvcnuc gro\r'th al 5.3oh cquivalenttoKshs.2l.2lbillion;Fou(hI}asisStabilizationl;actor AllocationaSrecomlTlendedbyCRAKsh.l2billion;Additionatrcvcnuc liomunmctnon-discretionaryexpcnditurcscmanatin-e.IiornNational governlnenlprioritypro.iects/programmcsipolicics-Ksh.73.7t]and AdditionalRcvenucliomallocationstoNationirl-p,ovcrnlncntMI)As pcrfbrmingdcvolvedlunctions(bascdon]l|Y2024l25budgctcstirnatcs.Ksh. 29.77 . ii.TheCouncilwasinformedthatthemostrecentauditcdaccountsol.rcvcnuc reccivedandapprovedbytheNationalAsscrnblyarclbrFY202:112022o1. Ksh. 1,920,434,085,07 8' iii.SomccountieshavesubscribcdtoCountyl)ccrltcvicrvMcchanistl'rvhcrc governorsengageindiscussionsandexchangedidcasoninrprovingscrvicc delivcry and ensuring that govemance practices align "vith thc nccds and expectations oI the citizenry' 'l'hc Cornmittee commcnded the Council's comprchcnsive, dctailcd and rvcll thought out submissions on thc llill. This would bencfit thc Cornmittcc in lbrtnulating its lrnal rccotnmendations to the Senatc Mcctin s rvith National Treasuryand Economic Planning a) 'lhc Cotrrmitlcc u'as inlorrncd that thc Cabinct Sccrclar-v (CS) had rcspondcd to Committce's invitation by stating that hc rvas attcncling a Cabirtct mccting ancl rvoulcl bc unable to attcnd the rneeting and rcqucstcd that thc tnccting bc rcschcdulccl to a later date. b)Irollowingdeliberations.andnotingthatpassagcofthcBilliscriticaltocnsuring seamiessbudgetpreparationp.o.",,atboththenationalandcountylcvclsof. govcrnmcnt.thcCornmittecacccdedtoCS'sreqLlcstandrcsolvcdtorcsclrcdulcthc mcctingr,viththeCabinctSccretarylorNational.l.rcasuryandljconotnicPlarrning to deliberate on the Bill to'Ihursday' 8th May' 2025' MIN/SE N/SCF &tll121312025 ANY OTHE II. BUS INESS a).fhemectingwasinfortnedolaletterfromCountyAsscrnblyl;orutnrcquestinglor amcetingwiththcCommitteeon23"tlo24't'May'2024'todiscussalnongothcr issues,therecurrcntcxpcnditurebudgetceilinglbrcountyasscmblicslbrtlrcl;Y o

2025/26. Ilowcvcr, duc to urgcnt legislative work awaiting consideration" thc cornmittce agrccd to rcqucst thc county Assernblies Forum to submit their viervs on thc Itccurrcnt }ixpenditure Iludget Ceiling for county assemblies lor the FY 2025/2026 in writing, and witl engage cAI" at a later date during processing oIthc County Allocation ol' Revcnuc Bill. b) Irurthcrmore, the Committee noted an invitation fiom the National Council for Population ancl Devcloplrtent's to a sensitisation meeting on establishment ol'a parliarnentary Caucus on population and Dcvelopment on 8'L May, 2025.1-lowevcr, duc to prcssing urgcnt legislative work, the Committee noted unavailability to honour the invilation. MIN/SEN/scF& I]/l2l 41202s JOURNMENT AND DATE OF NEXT AI) MEIiTING l'hc mecring ad.journed aL 12:28 p.m. Next meeting shall be by noticc =- 65 SICNATIJRE: ... .. DATE: . I SEN.(CAPT.) ALI IBRAI-IIM ROBA, EGH, MP (cHAInPERSON 9

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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COUNCIL OF 6OVERNORS Table t: Revenue sharing trends between the FY 2o2o/2t and zoz5lz6 Source: Division of Revenue Acts FYs zozolzr-zoz4lz5 & DoRB, zoz5 While the National government's allocation has been consistent with the ordinary revenue growth, the Counties' share has almost stagnated for the past 5 years as illustrated in figure t below. This points to arbitrary allocation revenue to Counties that is not congruent to the economic growth trends and macroeconomic performance. For instance, the Explanatory Memorandum to the Division of Revenue Bill, zoz5 has not provided any basis or itemized description of what constitutes the Counties share of revenue as is the case with the national government's allocation contrary to the provisions of Section r9r (5)(b) of the Public Finance Management Act CAP 4124. ORDINARY REVENUE SHARING TRENDS FOR THE LAST FIVE YEARS FYS ORDINARY/SHAREABLE REVENUE (KSHS.BTLLTON COUNTY GOVERNMENTS ALLOCATION (KSHS.BTLLTON NATIONAL GOVERNMENT ALLOCATTON (KSHS.BI LLrON 2O2ol21 t,856.7o 316.5 1,5)3.4 2021122 1,775.60 370 1,398.8 zozzlz3 2,141.60 37o 1,764.',| 2o4124 2,571.)O 385 2,177'4 zoz4lz5 2,6j.1.40 )87.4 2,236.O Absolute lncrement 774.70 7o.g 702.6 2o2Sl26 2,8 j5.0o 405.4 2'419.40 3

(OUNCIL OF GOVERNORS Figure t: lllustration of revenue sharing trends for the past 5 FYs (zozolzt-zoz4lz5) Last 5 Years Shareable Reventre Trends c,.9 i5 !;.E >z c. q, o, a:, -.c .E o l, ()(x) 2.!>(X) ),<)(x) 1,5(x) 1,()(X) ':(X) () ( )() ()( ) ()() ()() ()( ) ()() ()() ) ()) (t/ ) I )t))7/2.) )t)) 2/) \ Financaal Years ) ()) t/)4 )t))4/),, +()rt()tNn ltYlsr tAttt n llL L{l vt Nr rt (Kstts.8 I t( )N) -+- ( ( )t,N IY ( '( )Vt ttNMl N IS Al I ()an I l( )N ( Ksl i s.tJ ll I t( )N) Nn lt()Nnl ()a)vt t.(NMt N I Atl()(n tt()N (Ks s tl I t()N) We therefore urge the Senate to review the resource allocation framework to align with the macroeconomic and growth trends. To realize this, the Council proposes for a minimum allocation of Kshs.536.88 billion for FY zoz5lz6. 2. Attendant Resources relating to the delineated and gazetted functions of r6th December zoz4: - The Division of Revenue Bill, zoz5 has not considered the recently delineated and gazetted functions of the national and county governments which consequently have a financial implication. Despite numerous directives being issued to the lntergovernmental Relations Technical Committee (IGRTC) to complete this exercise within the current FY, we note that it is yet to commence. We therefore call for the Senate to cause urgent identification of the attendant resources from the current budget as a baseline allocation and transfer the same to the Counties through the Division of Revenue Bill, 2o25. This aligns with the lrth National and County governments Coordinating Summit resolution that the corresponding resources related to the unbundled and gazetted functions shall be transferred to the county governments commencing July zoz5. As an indicative figure, see attached analysis of allocations to national government MDAs for devolved functions based on FY zoz4l2j budget (Annex 4). 4

Baseline Allocation: We note that the baseline .ll.-t:'J;i;:'i:;"fit' equitable share is Kshs.387.4z5 bilion as opposed to the initiat allocation of Kshs.4oo.tr7 billion. The National government's allocation has been enhanced and almost reinstated the initial alocation 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 giants. lt is the council,s opinion that the baseline allocation should be Kshs.4oo.tr7 billion in accordance with the Division of Revenue Act, 2o24. 3. 4' Cabinet Resolution on State Corporations Reforms: - The Cabinet on 21st Janua ry 2c.25 approved the merging of 4z state Corporations with overlapping mandates into zo, 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 Wder 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 thercfore 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 )0)4125, 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 zoz4lz5 is already constrained from the reduction and the delays in passing the County Covernments Additional Allocations Bill, zoz4. 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). 6. 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 beforethe 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.

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COUNCIL OF COVERNORS Parks; and other priority programmes such as Community Health Promoters compensation (see Annex 3 for details). l. Unbundled and delineated functions: - Following the gazettement of additional functions on 16th December 2024, the National and County Governments Coordinating Summit resolved that the attendant resources be transferred to Counting beginning July 2o25. As baseline allocation, the zoz4/25 budgetary allocations to MDAs should be identified and transferred through the Division of Revenue Bill, zoz5. 4. Baseline allocation following Fy zoz4lz5 budget cut: - Due to improved revenues, the baseline allocation should be Kshs.4oo.rr7 billion. The Schedule is amended by deleting row C (b). C (b) Equalisation Fund Arrears year, the Division of Revenue Act provides for the Equalisation Fund which is specific to the Fy it relates (o.52). Once allocated, it follows that the funds are appropriated in line with Article zo3 (3)(a) of the Constitution. Therefore, providing for the arrears in a different year's Division of Revenue Act amounts to double allocation and by extension reduce the shareable revenue. The Equalisation Fund arrears should only feature in the subsequent Appropriation Bills. Secondly, the total Equalisation Fund arrears are in excess of Kshs.6o billion and providing for the arrears in the Division of Revenue Bill limits the scope and payment plan of the arrears which ideally should only be through an Equalisation Fund Appropriation Act. The Council proposes 7 Each Financial

COUNCIL OI' COVtRNOR5 that the arrears be separated and protected from revisions through the National government's Appropriation Acts. ScHEDULE (AMENDED) ANNEX r: 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 2c25126 Type/Level of Al location Amount in Kshs. Percentage (%) of FY zozol2l audited and approved Revenue i,e., Kshs.r,57o,56 2,9 45,o14 A. Total Sharable Revenue 2,8)j,o40,979,609 B. National Government 2,29O3O8,164,884 C. Equalization Fund 7,852,814,725 o.5o% D. County Equitable Share 5J6,88O,OOO,OOO 34.18% County Covernments Equitable Share of Revenue 2ot5l26 FY CRA Recommenda tion (Ksh Billion) NT Proposal (zoz5 BPS) (Ksh billiorr) Co6 Propos.rl (Ksh Billion) Baseline (i.e. allocation in the previous year zoz4lz5) 387.43 )87.43 4OO.12 o

COUNCIL OT COVERNORS o tion t: Adiusted t. Adiustment for Revenue Growth 2. Fourth Basis Stabilization Factor Allocation 3. Additional revenue from unmet non-discretionary expenditures emanating from National government priority projects/programmes/policies. (As per Annex I hereinbelow) Sources: Division of Revenue Bill, zoz5 & CRA Recom mendation for Fy 2025126 ANNEX 3: COUNTY GOVERNMENTS UNMET NON.DISCRETIONARY FINANCIAL OBLIGATIoNS 17.64 21.21 (at 5.3%) 12 8.78 4. Additional Revenue from allocations to National government MDAs performing devolved functions (based on FY zoz4lz5 budget estimates as per Annex z hereinbelow) 29.77 Computed Equitable share of revenue 417.43 405.o7 536.88 Percentage of the last audited and approved accounts of Ksh.r,57o.6 billion (For FY zozolzt) Percentage of the total proiected shareable revenue for FY zoz5lz6 of Ksh.z,835.o billion 26.57% 25.79% )4.18% 't4.72% 14.23% 18.94% Item (Non-discretionary Expenditure) Cost implication on County governments for FY 2025126 9 12 r8

COUNCIL OF GOVERN()RS Housing levy deductions 4.o5 billion (Minimum) Enhanced contributions to NSSF - set to double in FY 2025,126 6.o billion Minimum) Matchin allocations for the CAIPs Pro ect 11.75 billion Matchin allocations for Communit Health Promoters Pro ram 3.23 billion Cost of Procurement of new medical equipment 39.o billion Annual Wa e increments - IPPD annual adjustments 6.3o billion Sustainability of the basic salary increment as per the Doctors CBA zo17-2ozr and executed RTWF Tota I 3.+5 billion 73.78 billion ANNEX 4: SAMPLE OF BUDGETARY ALLOCATIONS TO NATIONAL GOVERNMENT MDAS FOR DEVOLVED FUNCTTONS tN Fy zoz4lz5 10821o5ooo Upgrading of Children Ward - Kibugua Level 3 Hospital FY ZOZ4IZ5 BUDGETARY ALLOCATIONS TO NATIONAL GOVERNMENT MDAS FOR DEVOLVED FUNCTIONS . BASED ON SUPPLEMENTARY II ESTIMATES MDA Vote Dl082 State Department for Medical Services HEADS NET AMOUNT (KSH) TOTALS (KSH) 10821oo6oo Free Maternity Program (Strategic lntervention) 2,O49,OOO,OOO 10821022oo lnfrastructural Support to Kigumo Hospital 'to82rol1oo Procurement of Family Planning & Reproductive Health Commodities 5O,OOO,OOO 5OO,OOO,OOO 1o82r o38oo Vaccines Programme 5O, OO O, O OO 10 Source: County governments 2,O27,OOO,OOO

(OUNCIL OF 6OVERNORS ro821o5ioo Upgrading & Equipping of Maternal & New Born Ward Endebess Hospital TOTOOO,OOO to8zro56oo Upgrading and Equipping of Lusigetti Hospital Kikuyu lOO,OOO,OOO to8ztoT4oo Construction and Equipping of Health Centres 22O,OOO,OOO to8ztoT6oo Reproductive, Maternal, Neonatal Child & Adolescent Health Pro ect 1,8oo,ooorooo 25O,OOO,OOO sub-total ro8zroTgoo Construction and Equipping of Level 5 Hospitals 7 1216rooorooo MDA Vote DroJ6 State Department for the ASALs and Regional Develo ment HEADS to36to3zoo Dry Land Climate Action for Community Drought Res ilie nce 858,5r o,ooo 10361oJ4oo Ewaso Ng'iro North Catchment & Riparian Conservation Project-B ETA t49,969,484 to36to4u oo Mango Value Chain Programme-BETA 'l29,OOO,OOO to36to76oo Cherengany Watershed Conservation programme- BETA 25,OOO,OOO 1o36io8ooo Malindi lntegrated Social & Health Dev. programme MISHDP .BETA JOO, OO O, OOO lO,OOO,OOO 1o361r2ooo Drillin of Boreholes - LBDA L1. to8ztoT8oo Construction and Equipping of Level 4 Hospitals lOO,OOO,OOO

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COUNCIL OF COVfRNORS 1o91165ooo Access Roads to lndustrial park Facilities 29O,OOO,OOO tt677oo Rural Roads 6ravellin ll 10 75,OOO,OOO 1o91r7oroo Rural Roads Murrammin IV 4O,OOO,OOO 117o8oo Rural Roads Murrammin X 10 ,ooo,ooo ,| rogrrT5zoo Sta e Construction 2O3,OOO,OOO Sub-total 1rO11r25O ooo MDA Vote Dro4 State De artment for lrri ation r1o41oo2oo Small Holder lrrigation programme 7,OOO,OOO 1,OOO,OOO,OOO Sub-total 11o41oo600 Community Based lrrigation projects ITOOTTOOOrOOO MDA Vote Dl109 State Department for Water & Sanitation r1o91oJ5oo Water Harvesting program (LVSWSB) r1o91o4too Kikuyu Springs Croundwater Conservation 11o91 o42oo Lamu 6roundwater Conservation 11o91048oo Drilling and equippingof 4o no boreholes 5J,OOO,OOO 7,OOO,OOO lO,OOO,OOO 5O,OOO,OOO 11o91o6Joo Maua water and drainage project 1109117ooo Affordable Housing Water Supply - BETA 25,OOO,OOO TO,OOO,OOO 13

ro912B7oo Restoration and Conservation of Water Catchment Areas Sub-total Vote Dtt5z State De artment for Ene MDA 11521027 o o Last M ile Electricity Connectivity-BETA r152114ooo Critical Rural Access Last Mile Connectivity 115,z't14)oo Street Lighting (REREC) Sub-total Vote D1r62 State Department for Livestock Development MDA i't6z1o45oo Livestock Production lnterventions rr6zro5goo Establishment of Feedlots, Fodder and Pasture Sub-total Vote D1169 State Department for Agriculture MDA 11691ojloo Fertilizer subsid ro ramme 11691oJ9oo Food Security and Crop Diversification Proiect-BETA rr 6grroroo Crop Post-Harvest Management rr69rro4oo Development of Aggregation Centres COUNCIL OT COV€RNORS 2 ), o oo, ooo JO,OOO,OOO ),ooo,ooo )rooorooo ooo,ooo ooo,ooo ;oo,ooo,ooo ,ooorooo ,ooo,ooo 1, 2: 2t 2t 1. 1t 5 ) 9 435,OOO,OOo 1,85o,ooorooo 7 OTOOOTOOO l5r04OrOOOrOOO Sub-total ooo,ooo 1.4

COUNCIf OF GOVERNORS rI+ PK\/.Y MDA Vote DIJJ1 State Department for Environment & Climate Change 1J31101joo National Solid Waste Management 4O,OOO,OOO rJjl1017oo Plastic Waste Management and pollution Control 22,5OO,OOO 13J11o2ooo Sound Chemicals and Waste Management Kenya 12, OO O, O OO 13311o44oo Enhancing Community Resilience & Water Security 3OO,OOO,OOO Sub-total 374,5OO,OOO CRAND TOTAL 29r1141229,484.oo Source: National Treasury Budget Books zoz4/25 Fy 15

NATIONAL TREASURY SUBMISSION TO THE SENATE STANDING COMMITTEE ON FINANCE AND BUDGET ON THE DIVISION OF REVtrNUE BILL 2025 i. Introduction Article 218 of the Constilutran requires a Division of Revenue Bill (DORB) which divides revenue raised by the National Government among the national and county levels of government in accordance with the Constitution; and a County AUocation of Revenue Bitl (CARB), which divides among the counties, the revenue allocated to the county level of government, to be introduced in Parliament at leasl 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(1) 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 respons ibi lities 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 19l (l) 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, County Governments KSh. 405.f billion as County Equitable Share; and KSh. f0.6 billion for Equalization Fund, being the sum of KSh. 7.9 billion for FY 2025/26 (0.5 percent of the most recent audited and approved revenue of KSh. 1,570.6 billion for FY 2O2Ol21 as required by the Constitution), and KSh.2.7 billion (as arrears to the Fund). The allocation of KSh.405.t 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 Bill,2025 to Parliament in February 2025. As indicated in the Chart 1, revenue collection in FY 2024/25 has consistentty tagged behind target and the ordinary revenue shortfall has widened each month reaching a cumulative shortfall of Ksh 142.8 billion in March 2025. The National Treasury therefore estimates that the overall ordinary revenue for FY 2024125 will be Ksh 2,435.1 billion, reflecting a shortfall of Kshs. 482.I billion relative to the original budget for FY 2024/25. 7 (NATIONAL ASSEMBLY BILLS NO. 10 OF 2025)

Chart I : ord inary revenue cumulative shortlall le."! .i )_.4.f I .rr'-<_!- 7L.6 ... I i I I I I 93.2 I I 5O.6 F e ) -?-a) I St ::r - l.l I Fo[lowing the depressed ordinary revenue performance inFY 2024125, it is now evident that the ordinary revenue forecast o1Ksh.2,835.0 billion for FY2025126 as contained in the Division of Revenue Bill, 2025 may not be achievable. To retain the forecast as contained in the BPS 2025 rvould therefore be imprudent and would undermine the credibility of the budget and further lead to accumulation of arrears. We therefore recommend downrvard 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. Iiactors inforrning thc grropttsetl Dilision of Rt'r en tre for Ir\' 2015/26 The proposed division of Revenue for FY 2025126 is inforrned by the fotlowing factors: i. ['ntjectetl Orrliitui.t /tr'r'( i;r/ iit ltl 2()] 5 -'rj It should be noted that the projected ordinary revenue for FY 2025126 Ksh 2,757.0 billion is informed by the lower baseline of Ksh 2,435.1 billion being the FY 2024125 revised ordinary revenue targets against an initial target of KSh 2,917.2 billion. It is important to note that over the period 2016/17 to2023124 actual ordinary revenue has always been below target except for FY 2021122, and as such even the FY 2025126 may experience such shortfall. 2 I

The need tofinance mandatory expenditures under Article 203 (l) of the Constitution Table I summarizes the mandatory expenditures under Article 203(l) of the Constitution, to be financed in the FY 2025126. Table I : Su mmary of Considerations Under Article 203 (1) of the Constitution Item Description for FY 2025/26 Allocation (KSh. million) Ordinary Revenue (Excluding AIA) 2,756,,979 National Interest [Article 203 ( I )(a)] 109,551 Public debt (Art. 203 [ ][b]) t,431 ,879 Pensions, Constitutional Services and Other 246,268 Other National obligations (Article. 203 [ ][b]) 810,324 Emergencies [Art. 203 (l)(k)] 2,000 Ii ualization Fund [Art. 203 I ) a nd (h)l r0,590 Ofwhich. a. Allocation in FY 2025/26; and 7,853 b. Arrears 2,737 Total Mandatory Expenditu res 2,616,613 Balance to be Shared b the 2 Levels of Governnrent 140,366 County Governments' allocation from revenue raised na tionally; - Of which. 417,963 a) County Equitable Share Of Revenue 405,069 b) Unconditional Additional Allocations from National Government's Share Revenue 2,946 4 Conditional Additional Allocations from National Government's Share Revenue 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 Ilalance left for National Government 140,366 417,964 (40s,069) (t 2,884) (277,597)

This fiscal deficit in financing other major National Goverrrrnent functions has always occasioned additional borrowing which continLres to distort the fiscal frameworl< set out in the annr.ral BLrdget Policy Statements and firrthel underrnirre government fiscal consolidation plan. Over the years, alter tal<ing into account all the mandatory expenditures contemplated under Article 203( I ) of the Constitution, tl.rere has always been nrinirnal and sornetimes as shown above, no resources lelt to finance other National Government obligations, such as defence, roads, energy and Education. iii. !:itttrncing a'oit\tt'dii!tl tlit,. trt lrrttitetl trccc'.!.r lo fiuLtitt'L' irt tlrc ,1,-ttrr,.\'iiL' uttd ittterttuti();!al lirttttti itI nittt kt I;. Kenya's borrowing fell short of the targeted access for both domestic and foreign financing respectively over the years. The same trend has also been recorded in the first halfofFY 2024125. il I'ltt Nttlittttul (.i(tt'trit;it,-iti toi!ti ,itc-s. lt' .solt,ll [,r',,r .t!t,tt'tlullt iit t ttc'trtre lil trrit glti'rr /i rtunr'iaI .t,eur'. Over the years, Counties have always received full allocation of equitable share of revenue despite shortfalls in perlormance of ordinary revenue. The National Government Ministries, Departments and Agencies, therefore, have continued to bear the full burden ofrevenue sl.rortfall through budget cuts. In cases where there is delay in disbursement ofrevenue dLrring the financial year, the arrears have always been disbursed in subsequent financial year. Due to underperformance of revenues during FY 2023124, the National Treasury was not able to transfer KSh. 30.8 billion to Counties (being the equitable share allocation for June 2024) imptying that the total budgeted equitable share for FY 2024125 amount to KSh. 418.3 billion including the June 2024 balances carried forward. Further, as at end offirst quarter Fy 2024125, disbursement to counties was behind by KSh.63.9 billion. Note that this increased financial commitment to County Governments shall be funded from a lower projected ordinary revenLre for FY 2024125, further constraining the fiscal space in the medium-term including FY 2025126. It should also be noted that Article 219 ofthe Constitution provides that "county's share ofrevenue raised by the national governrnent shall be transferred to the county without undue delaY and without deduction, except when the transfer has been stopped under Article 225." v. LIigh cost of puLtlic cl,:bt .'u't ii'c This is largely due to a relatively stable but still high exchange rate to the dollar, as well as high interest rates in the domestic markets. Public debt service in FY 2025126 wi[[ account for 52 percent of ordinary revenue which is higher than the average (41 percent) over the period FY 20161;17 ro 2024125. ir'. I'r'opose tl Llori:otrtul .sltctt irt,q rt/ cclrtitthlt' .tharc ol I',\'lt 1i)5.I ltillirtrt in F.l' 20)i:)(j The National Treasury has proposed that equitable share of KSh. 405.1 billion to County Governments in FY 2025126. This allocation is a 4.6 percent increase from the FY 2024125 allocation of KSh 387.4 billion which is consistent with the provision of Article 203(l) that envisages stable and predictable allocations of revenue to County Governments. The allocation of KSh. 405. I billion is based on the maclo fiscal framework which relies on expected revenues and 4

expenditLtre commitments for FY 2025126. 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 proposecl 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 15tl February,2025, the statutory deadline forsubmission of CARB to Parliament in accordance with Section l9l as read with Section 25 of the PFMA. v, Proposed ,4dditional Allocation to Cottn4, Governments in Fy 2025/26 In addition to the Equitable Share allocations, Article 202 (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 shall be funds agreed upon by the National Assembly and the Senate during the consideration of the Budget Policy Statement and shall comprise oi 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 allocations to County Governments shall be included in the budget estimates of the National Government and shatl be submitted to Parliament for approval. lnthe2025 Budget Policy Statement, the National Treasury proposes to allocate KSh 69.8 billion as additional allocations (conditional and unconditional) to County Governments. Out olthis, 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 JOHN MBADI NG'O GH 5 CABINET SECRETARY/ NATIONAL TREASURY & ECONOMIC PLANNING

I Bojeti Hub I CPAK ) (-l.trr-.Er.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 L2,2025 Contact Person: Dr Abraham Rugo Muriu Executive Director, Bajeti Hub Email : aruqo@ bajetihub.oro Moblle: +254721431083 Page 1 of 13

I ) Bojeti Hub I CPAK t!.*.'.'*r,.rdql 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 society advocacy and citizens on budget policies and outcomes at both levels of governance in Kenya. Through deep and sustained enBagement, Bajeti Hub provides support to build expertise and skills of civil society actors and citizens involved in budget advocacy. Citizen advocacy, generation of evidence, technical assistance, learning, and networking are all integral components of Bajeti Hub's work About the Institute of Certilied 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 g1obal Accountancy umbrella body. Preamble The Division of Revenue B1ll, 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 2025126. This Bill ensures that both levels of government receive adequate resources to fulhl their respective mandates and facilitate effective service delivery to its citizens. It also considers public debt obligations, economic conditions, and nationai priorities, ensuring a balance between fiscal sustainability and the resource needs of both levels of government. Furthermore, the BiIl outlines mechalisms 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 strategf. Page 2 of 13

I Bojeti ) Hub CPAK I 0il* 'ii- k-rlrt Chapter eleven of the Constitution of Kenya 2010 establishes a two-tier government, National and County governments, and provides specific functions for each level. Article l87 (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 governments 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 Intergovemmental 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 Bili; Clause Submission Recommendation Clause 6 the declining percentage of count5r equitable share to tota_l sharable revenue since the DORA 2019. Despite the nominal increase in county allocations, the percentage oi total sharable revenue allocated to county governments has continued to decline, dropping to 14.29%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 available 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 remain concerned about 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 inflation rates as opposed to revenue growth rates to inform the Division of Revenue in future. Page 3 of 13

I ) Bojeti Hub I CPAK (i5rr.,*!r1-. rd{ar Clause Submission Recommendation lotal Sharable 2,a3S.O 2.602. I 2 2 7 2,t4t.o I,775.0 1,856.O 1,877 o I,688.O 2,214.3 2,r77 4 |,764.O 1,398.O 1,5s4 o National Govemment 385.4 370.0 370.0 3t4.0 County Equitablc Shaie 4ta.o 316.O 23.0 I7.3 20.8 18.6 96 ofCounty Government to Total Sharable 14.74 14.E0 t7.o 16. a {l I '/o of National Govemmcnt to Total Sharable Revenuc 8 7.51 85. l0 77 .O 82.6 82.8 al.l Source: Diuision of Reuenue Acts 2018-2O24 and DORB 2023 & 2025 4 17.4 biliion county allocation was determincd using a formula that considers multiple factors affecting service The Kshs. structured DORB 2025 IX'RA lAlllr,l 2024 DORB 2023 DORA 2022 DORA 2o21 DORA 201a Page 4 of 13 ReYeauc share DORA 2C20 DORA 2(,19 I ,533.0 1,369.0 2.44O.9 385.0 788 In the FY 2025 126 Division of Revenue Bill, the National Treasury has ailocated 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 fiscal constraints, The CRA recommended figure represents a more needs- based approach to ensure counties receive adequate funding to sustain devolved functions effectively.

I Bojeti ) Hub Submission I CPAK Clause Recommendation very across counties. The formula distributes funds based on population size, equal share, poverty levels, geographical size and income distance. Finally, a stabilization lactor is appiied to prevent drastic changes in allocations compared to previous years, ensuring smoother transitions in county funding. Therefore, County Allocation y = | p.a2 * populatbn Index y) +(O.22 * Equal Share Index y) + (0.14 + poverty Index y) + (0.09 * Geographical Size Index y) + (0. 13 t Income Distance Index y) + Stabilization factor y]. when this formula is applied to all counties arrd their individual allocations are summed up, using the previous year's allocation as the baseline, it results in the proposed total equitable share:rocation for counties. Additionally, the county equitable share, calculated at 25.79oh of Kshs1,570,562,945,O14, should be Kshs 405,048,194,000, not Kshs 4O5,069,42O,197. deli Clause 22 - Equalization Fund & Audited Revenue e continued use of the FY 2O2Ol2l 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. 7,852,814,225 rvhich represents o.5% ofthe last audited and approved actual rever*ue for Fy 2o2o/2r, has been set aside for the Equalization Fund. Additionaily, an amount of Kshs. 2,736,739,351 has been earmarked as part-payrnent of arrears from previous years- while these allocations contfibute to addressing the current lunding gaps, the reliance on outdated revenue baselines may lirnit the fund's effectiveness. We note with concern th 1. The Senate as part of Parliament should explore measures to have the National Assembly expedite the approval process of audited financial statements. 2. The national treasury should ensure the allocation of funds is based on up-to-date revenlre figures. Page 5 of 13

I Bojeti ) Hub I CPAK Submission Amount o, ApprovedAudited EqualisationFund Revenues Enlitlement (Kshs.) 468.151.970.000 ' 5293-oo,ooo.ooo '52s:oo.0do.ooi 776.900.000.m0 776.000.000.000 ,76.boo,o0o,ooo 776.900.000.000 '776.900,000.000 776,900.000.000 1.352.698.0q0.000 1 .357,689.000.000 1 413.694.840.000 t0.3 t7,233.810,000 (Kshs.) 21q,7q9,8q9. 2.64 6.500.000 2 .64 d.5bo,0o0 3.884 .500.000 3 .884 .500.000 3.S84.5oO.OOO 3.884 .:O0.000 3.8M.500,000 3.884,500,000 6.788.490,000 6, i 68.4 9-.ooo 7.068.474.200 51,586.214,050 Amount Transferred lo the Fund lKshs.) Financial Year 2011tzo12 201zaoi3 mi5noti 2O14r2O1lt 201512016 ,ot62o17 2017 t2018 2018/2019 2019t2020 2A20n021 ,011i2o22 2022.12023 Total 12.400.000.000 Source: Auditor General Report 2024 The administrative challenges surrounding the Equalizatior remain unclear, particularly the factors contributing to disbursement rate over the past decade. Uniike other funds ai supporting service delivery and addressing marginalization sucl Constituency Development Fund, Affirmative Action Development Fund, Women Dmpowerment Fund, Youth En _Development Fund, and National Drought Emergency Fut Equalization Fund appears to be less effective in achieving its ir purpose. Understanding the under\ring reasons behind this d is crucial for improving its functionality and impact There needs to be more claritY on the projects and progr 203 I does Fund s low :ed at rs the Social rprise i, the ended parity mmes ). For Youth budgeted for under the lines of National Interest (Art Clause Clause 9 and 10 - National interest Recommendation 3. The national treasury should provide a detailed payment plan for unremitted funds to track disbursement effectiveness. 4. The national treasury should implement monitoring mechanisms to ensure funds are used for their intended purPoscs in marginalized areas. For each item under National Interest the National Treasury must example, what projects, prograrnmes or activities Page 5 of 13 6.400,000.000 l , ': 6.000.000.m0

I Bojeti ) Hub I CPAK (re.r.rl*!*rdr Clause Recommendation Empowerment' exactly comprise? What informs its allocations in the DORB each year and Ksh. 1 1. 1 75 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 16 - Costing of Functions onset of devolution was 20 13, when Kenya's population was roughly 45 million and the cost of a unit of electricity was Ksh. 12 - lg per unit. Kenya's population is currentiy projected to rise to 53.3 million in 2025, with the price of electricity having risen to Ksh. 31 per unit, reflecting not only a higher service delivery demand but a higher cost of delivering public services. Therefore, the growth in population and rise in the cost of basic factors like electricit5r alone diminish the utility of using a 2013 expenditure for devolved functions as a baseline to allocate revenue to counties in 2025. The 1. We recommend the Senate to request the National Treasury together with IGTRC to commission an update costing of expenditure for devolved functions based on the recent deiineation of functions by the IGTRC. Revenue Projections Ordinary revenue is projected to grow to Kshs 2.84 trillion in FY 2025/26 from the projected Kshs 2.58 trillion in Fy 2024/25. The revenue estimates are as shown below: Page 7 of 13 Submission 1. The government's focus should be on fiscal consolidation and

I ) Bojeti Hub I CPAK Recomrrrendation Submission Clause reduction of tax leakages is needed to further enhance ordinary revenue performance. 2. TLe government should regulate revenue from government assets, dividends from state- owned enterprises, and uscr 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 actual collections. However, actual revenue has often fallen short of estimates, emphasizing the need for realistic revenue forecasting and effective revcnue collection strategies. : is : :;t :a I :.:r. :: :6 0:::5 il.l Source.' N ational Tre asury ol :r0 t00 110 lm 0J0 c00 .Or&urvPf ! Erllr.a.t |DOP-{) i .r.. nrt I OrClr..tv P-.r :0t: l-i :rll :l i;l 1 . Improve county revenue coilection strategies to reduce over-reliance on equitable share allocations. The chart below highlights a persistent shortfall in Own Source Revenue (OSR) collection compared to annual targets, indicating inefficiencies in revenue mobilization and overestimated projections. Despite fluctuations, revenue collection has consistenfly underperformed, with the largest gap in 2023 124 (Kshs. 22 billion shortfall). This raises concerrrs about weak enforcement, revenue leakages, and unrealistic target setting, which impact county budget executir:n and service delivery. Clause I 5 - Own Source Revenue Page 8 of 13

I Bojeti ) Hub I CPAK t*t,**&-a' 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, potentialiy leading to misaligned budgetary recommendations and oversight 2. Weak linkage between planning and budget formulation. 3. Under-performance in own-source revenlre, 90 80 I I 0 70 c :to o50 .c E40 fo-- .3U 20 10 2023124 s8.9 80.9 2022/23 2O2Ll22 37.81 35.91 57.37 60.42 Financialyear 2O2O/2t 34.44 53.66 t OwnSourceRevenue E Anuual Targets Page 9 of 13 r I

I ) Bojeti Hub I CPAK otrar r--&. d{.t Clause Subrnission Recornmendation Clause 13 Public debt Kenya's public debt stock increased from Kshs. 1O,278.88 billion at the end of June 2023 to Kshs. 10,581.98 billion by June 2024, reflecting a growth of Kshs. 303.1 billion. This expansion has resulted in public debt reaching 63.Ooh 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. This raises concerns about fiscal sustainability as high debt levels may limit the government's ability to invest in critical development programs without improving hnancial vuinerabilities. The graph below represents public debt to GDP ratio for FY 2018/ 19 to FY 2023124: 1. The government should ensure strict adherence to legal debt thresholds as per the Public Finance Management (PFM) Act. 2. The Nationai Treasury should improve on enhancing public debt reporting focusing on detailed disclosures on the contingent liabilities, maturity prohles, and debt sustainability analyses. 4. The projections provided in the DORBs should align with hgures from the Public Debt Management Ofhce (Annual pubiic debt reports) to ensure that the totai shareable revenue remains ac-curate Page 10 of 13

I Bojeti ) Hub CPAK I Clause Submission Recommendation Revcuue Share DORB 2025126 DORA 2024l25 DORA O23124 DORA 2022123 DORA 2O2Ll22 Total Sharable (biUion) 2,835.O4 2,94U.1 2,571 .2 2,t4t.o t,775.O County Equitable Share (billion) 405. l 391 .l 385.4 370.0 370.0 D€bt servicing Share in million (DoRB 2025, 2O24!. ) ,606.42 Source:2025 Medium Term Debt Management Strategg 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 coun\r equitable share across the years under review: {,ll.r ) 6s.s 6-1.{ 6:t.r 62.4 r)5.() 2018/r9 2oz3l24 (,' :is.s 2or9/!o 2o2o/2r --puuic debt/ CDp 2o2rl22 2022123 .+PVotdebr/GDP I ,352.6l r.ra7 -7a 930.3S 1 l74 01 Page 11 of 13 4li.:t (rli:.:

I Bojeti ) Hub I CPAK (rst,hr-5 rdrll Recommendation Submission Clause | ,557 ,t22 1,199,436 Servicc in Debt million Public report 20241 (Annual Debt 2023- 9t7,77a 7tao,62a -369,334 -269.O42 256,235 49.28 Deviation f-rom the figures in the arrnual public debt report Source: DORA 2O2O/21- 2024/25 & Annual Public Debt report 2O23-24 The increasing public debt burden raises concerns about fiscal sustainability, as debt senricing costs continue to consume a significant portion of government revenue, showing that the upward trend in debt repayment limits fiscal space for development 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 2O25 and2024.ln case the actual hgures are higher than those in the DORB 2025, then it means that the Counties'share will be 1ess, as public debt is a non-discretionary payment. General Submissions: 1. The Finance and Pianning Committee must demonstrate the responsiveness of the DORB to the recent gazette notice from the IGRTC delineating functions of nationa-I county governments. The Committce should compel the National Treasury to provide an explanation of how this DOR framework aligns with and supports the enhanced Page 12 of 13

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 fiscal framework for FY 2025126 and the Medium-Term indicates a projected decline in the proportion of expenditure allocated to counties, dropping from 10.4%o to 9.3Yo 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 rvhich all assign counties new administrative roles e.g. the establishment of data banks, hiring of accountants at facilities among other roies. 3. We further contend that to create fiscal space for more allocati,ons 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 couid be diverted to Counties through the equitable share, given that many of then: 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 rto: a. Strengthen intergovernmentai 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 cfficers that pilfer public resources. c. Promote liscal 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. Page 13 of 13 I GAZETTE NOTICE NO. 16472 httos: //io rtc.qo. ke/Downloads

REPUBLIC OF KENYA 2025 TO: Kenya. FROM: Forum. Mr. Jeremiah Nyegenye, CBS, Clerk of the Senate' Parliament of The CountY Assemblies DATE: 24rH APRIL,2025 1 COUNTY ASSEMBLIES FORUM (CAF) Ftamingo Torvers, 5th Ftoor w-ir[ffira Road, upper Hi Po 8ox 73552- 0O2OO Nairobi Kenya Tel:0701 046 933 Ematt:commun"icrnonCa(o!ntyarsemblrcrforum.org wrvw.countvattamblicsforumorS MEMORANDUM TO THE SENATE STANDING COMMITTEE ON .FINANCEANDBUDGEToNoNTHEDIVISIoNoFREVENUEBILL,

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 other arms of governmcnt' The primary mandate of CAF is to promotc nctworking and syncrgy amongst the 47 Assemblics, coordinate intergovernmental relations and ' bnhance good practice in legislative deVelopment. '1.1'.2 This memorandum presents CAF's position on the proposed equitable share revenue for the county governments for the FY 2025/2026 and sets forth reasoned and evidence-based recommcndations to guidc deliberations on the Division of Rcvenuc 8i11,2025. 2.0 Background 2.1.1The Division of Revenuc Bill,2025 proposes the allocation of equitable share to county govemments as follows: Expenditure Item CRA (Billion) National Treasury (Billion) Variance (Billion) 1. Equitable Revenue Share in I,Y 2024/25 387.425 387.425 0 Add: 2. Increase Revenuc Allocation tn 30.000 17.6M "12.366 TOTAL EQUITABLE SHARE REVENUE OF 41.7.425 405.069 T T L2.366 Source: National Treasury )

Allocation (CRA) recommendation: 2.1.1Commission on Revenue Ksh.417.4 billion 2.1.4While both the CRA and National Treasury aSrccon ml::tainl18 the w 2024/25;;';;;i Ksh'387'42s biilio;' thcv difrcr on 'thc increment f or F't 201},/26' CRA ProPoses an additional Ksh'30 billion' while the National Trcasury ProPoscs a lowcr incrcmcnt of Ksh'17'6{4 billion, creati;;;;;'tJ'of Ksh'12'366 billicin betwecn thc two rccommendations' 2.1.5CAF ProPoses an enhancctl equitablc sharc of Ksh'450 billion' on thc basis that ttti'""lf"t"irt^ t' mo'" rcflcctivc of thc realities on thc ground and the incrcasing obligations of county Sovcrnmcnts' 3.0 CAF Position on the Division of Revenuc Bill' 2025 3.1 CAF proposc5 6n eguitabts sharercf Ksh'450 billion tp County GovernmentsfortlreFinancialYearzoaslzd.ThisfigureisblTdo" a realistic assessment of current countyJcvcl obtigations' inllationary Pressurcs' the nced to anchor new devolved functions' and the necessiry of safcguarding constitutional principles of devolution and 2.1.2NationaI Treasury proposal: KShs'405'1 billion 2.1.3Counry Assemblies Forum (CA$ position: Ksh'450 billion equitY 4.0 |ustification for CAF's Proposal of Ksh'450 billion 4.7.7 Escalating Non-Discretlonary Expenditure at the County Level 4.1.2 Counties are incrcasingly facing high non-discretionary expcn<iiturc' "i'oi^' thc H-ousingrevy' cmPloyer contributions to the Social ';;;;""'nco rund (sHir;' ttt" rollout of Universal Hcalth Coverl'" i'ntl' and sta.tutorv salary incrcments' These obligations ""i"')" uinaing 110:u"iot bc rlcfcrrcd' yet thcy are not fully o'";J;;;'ndcr th-c "i!:'^t'Trcasury's Ksh'405'1 billion proposals' ;;;;;"; of Ksh'450 billion will providc counties with thc fiscal 'pot"-iJonour thcsc obligations without sacrificing service delivery oi d"ucloprnent spcnding' 3 ,

4'1.3 Strengthening Oversight, Legislation, and Representation Functions of County Assemblies 4'7-4 County Assemblies continue to be underfunded, hinclering their ability to carry out their legistative, representative, and oversight mandates effectively. The proposed Ksh.450 billion allocation allorvs for_ strengthening the institutional capacity of County Asscnrblics, including thc work of Public Accounts Committecs (pAC) and public 'lnvestments Committecs (plC), which are esscntial for fiscal accountability and safeguarding pubtic funds at the county lcvel. 4.1.5 Inflationary and Econonric pressures on County Budgets p\rwrrJ u/ Lrre ltdLlUrlldl trcd5uty pfO,eC(.1 J.J70 GDP growth and inllation within the 512.5% band. However, the cost of implementing county functions especially healthcare, agriculture, and early childhood education has significantly increased due to inflation, rising energy costs, and.rr.*.y depreciation. A static or marginally increased allocation, such as the one proposed by the National rreasury, fails to account for these economic rearities. A Ksh.450 billion allocation accommodates inflation and allows counties to maintain, if not improve/ current service levels. 4.7.7 Alignment with the principles of Article 203 of the constitution 4.1.8 Article 203(1)(d) of the constitution requires that revenue ailocation take into account the fiscal capacity and efficiency of county governments. Further, Article 203(2) mandates a minimum of tSZ of the latest audited and approved national revenue to bc ailocated to counties. The proposed Ksh.450 bilrion reprcsents approximately 28.5o/o of the rast approved revenue, thereby aligning with both the spirit and lettcr of Article 203 by ensuring counties arc predictably and adequatery resourced in right of thcir growing responsib irities. 4.7.9 Realizing the Gains of Development Agendas Devolution and Supporting County 4.1.10 Devolution has demorstrably improved access to public services. However, to sustain and deepen these gains, counties need increased resources to complete stalled development projects, improve health 4

- 4.J. 4.5 4.7 4.2 financial constraints' 5.0 Conctusion and Asks 5.1.1 In light of the abovc' CAF respectfully urgcs the Senate Standing Committee on Finance and Budgct 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.4"t7.Abillion by aligning with actual county financial obligations' 5.^1.4 Adopt CAF's pt"opo*f of Ksh 450 billion as the equitable share for countiesinrvzozsl-26toguatanteesustainedservicedelivery, instihrtional capacity strengthening' and the consolidation of devolution gains. 5.1.5 We thank the Committee for its continued suPPort for devolution facilities, and fund county-led economic development priorities' including County Aggregated .lndusrial Parks .and .y":'n empowerment progranisl iAF', proporal is aimed at catalysing grassroots transformation and reducing fiscal dependency through targeted and productive spending' 4.1.11 Pending bills CAF.'s Recomnrendations to the Committee Approve Ksh'450 billion to Empower Counties for Sustainable Growth' we urge the Committe. ;; ;;;'"" thc Ksh'45Q billion' a figure wfrich reflects the grolving fiscal needs of counties and eruures they can meet their obtigations without compromising service delivery' Secure Adequate R.rou..."fo' deviopment' CAF advocates for the Ksh.450 billion auocation to enabre counties compretc the stalted projects, expand industrial parks, and invest in youth ancl women emPowerment' hence accelerating the impact of devolution' Align the allocati,on witi tf'e Constitutional Mandate' CAF calls for the approval of Ksh.450 billion to ensure compliance with Article 203 of the Constirution, which mandates equitable resource distribution based on the fiscal caPacitY of the counties' Cushion Counties Against Economic Strains' CAF urges the Committee a ,frrou" thc Ksh'450 billion to help countics navigate fluctuating energy / fuel costs, currency fluctuations' fluctuating inJlation rates' by ;;r;i;g that they continue providing essential services without extreme 5 4.4.

and reaffirm CAF's commitme national stakeholders to ensure funded. 6.0 DORA since devolution nt to rvorking collaboratively with all counties are adequately and equitably Summary/Flighlights 6.1.1 F\ 2013/1'4 had the lowest allocation of 190 billion' 6.7.? Fy 2024/25 had the highest allocation at387.43 billion' . 5.1.3 In terms of percentages, the allocation for FY 20'14/15 had the highest at 43% though with inclusion of other allocations including equalization funds to counties. 6.1.4 Allocation for FY 2023 /24 in terms of percentage was the lowcst since devolution with 23.03 %. 6.1.5 Generally, the allocabions to counties have been fluctuating sincc devolution in terms of percentages. 6.1..6 Currently, the audited and approved accounts by thc Parliament that is being used to divide this revenue is for the w 2o2o/21, with total amount of 7.57 trillion. 6.7.7 Summary of DORA Since Devolution No Financial Year Al location in billions Percentage o/o Comments 1 2AB/2074 190 B 27.9 Equitable shareable only rev cn uc 2 20'14/207s 226B This was total allocations to counties including equalisation fund J 201s/201.6 259.77 33 Equitable shareable only revenuc 4 201,6/2017 280.3 30 Equitable shareablc only revenue 5 2077 /2078 302 32.28 Equitable shareablc only revenuc 6 2018/19 374 33.6 Equitable shareable only revenue 7 2079/2020 Equitable shareable rcvenuc onl 8 2020/2'l 316.5 23.31.', Equitable shareable revenue onl 6 43 376.5 30.49

9 207t /22 370 onl [quitablc sharcablc rcvcnuc 1 2022/23 370 onl Equitable sharcabld revenue 1 202i/24 385.43 onI Equitable shareable revenue 1 2024/2s 387.43 onl Equitable shareable revenue 1 202s/2026 405 Equitable share as proposed by National T You rs sinccrely, ( ( 7 26;t7 2i.03 24.67 25.4 HON. SETH KAMANZA. CHAIITPERSON, LEGAL AFFAIRS SUB.COMMITTEE

Prism Towers 3'd NSong Avenue z8th Floor P.O. BOX 1310 - oo200 NAIROBI \' COMMTSSION ON REVENUE AILOCATION REF: CRA/ADM/SEN/BPS/oz Vol.IIi (rrS) DATE: zgth Aprii zoz5 J.M.Nyegenye, CBS Clerk ofthe Senate Parliament Bui)dings P.O Box 4r84z-ooroo OBI Dear Nyegenye, INVITATION TO A MEETING TO SUBMIT VIEWS ON THE DTVISION OFREVENUEBILL,2025(NATIONAIASSEMBLYBILISNOTOOF zoz5) The Commission acknorvledges receipt of your letter reference number SEN/DSEC/F &B / zozs / o +s (c) dated 22nd April, zoz5 inviting the commission to a meeting to submit vier,r,s on the Division of Revenue Bill,zoz5 (National Assembly Bill no. to of zoz5' The Commission has reviewed the Bill and wishes to submit a memorandum u,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, 2c.25 to submit and discuss the views. Thank you for your continued cooperation Yours sincerely, F Roble Nuno C ENCL, Tel: 254 (zo) 4zgSooo Email: info@cra.8o.ke Website:',wwr'. crakenYa. qrg Ae. COMMISSION SECRETARY/CEO

I )ro t tt oting an lhy r il a b I e Society Schedule S.4: Allocation of revenue laised nationally bctrvecn the uationa'l and county governments for the FY zozglz6 MEMORANDUM ON THE, DWISION OF REVENUE BILL zoz.S Ptoposarl Appendix I -The decline in the sharc of allocations to the -The Corunission in its FY zoz5/26 vet'tical recommendation, tecornmen&d that the national governlnertt be allocated Ksh. 2,4o9.75, and county Bovernments Ksh. 417.4 billhn as equitable shaler; for 6ire financial year zoz5lz6. county government lras a negative inrpact in the ability of govelnurents to improve on service delivery to the citizens aud tltis amounts to a claw back on the obiects of devolution. -County governlnents have conditioual financial obligations that were meant to comrrlence in fi.nancial year zoz4/25. Howet eL, due to the downu'ard levision of ptojected ordinary revcnue for the financial yeat zoz4lz5, in.'.plementation of specific No. Provision of the Bill Issuc Justific:rtion 1 Section 3: Object and purpose of the Act. -'fhe Bill provides the object and purpose of the Act is to plovide for the equitable sharing, of revenue laised nationally arnollg the natioual and cou ntl, govenulents in the financial ycal zoz5/26 in accordance with Alticle 203(2) of the Constitution. -'Ihe collect reference of the sharing of reveuue among the natioual and courtty governmenLs is in accordance with Alticle zoz(r). -Alticle zo3 plovides the clitclia for the sharing of revenuc subject to zoz(l). -Decline in the equitable share allocation to the county govelnment flonr ro.4 percent to 9.3 percent and an increase in the allocation to the uational executive from 56.7 pcrccnt to S7.s percent*(see Table t below).

'lable z: Evaluation of the Bill against Article zo3(r) of the Constitution Rout G: Balance to be sllilre<l by tlrc tuo levels oJ gouerrtnert No 21 of the explanatorl' notes of the Bill rresents iterns of national s bcing synon)nnous to ovel'nntent priorities. prcsents othel statutory s nanrely NG-CDF and ,e Action Fund as s to be urade befor.c t the shaleahle t'evenue . plovides that aftcr ng all thc rnandatory rrcs uDder Afticle ,fr the Constitution, the rft for sharing between the ls of g,ovelnrnent is Ksh Ilion (row G) and the left fol the national :nt is Ksh. (64,522) (row ragraph in this Section ention of the Third Bar;is tl -Thc plovision to allocate 4T county governnreltts an additional Ksh. r7.(: billion for FY zoz5/26 does not anlount to equity in the sharing of nationally laised revenues. -Section + (rXa) of the NG-CDF Act, 2or5 established the NG-CDF Fund consisting of an arnount not lcss than z.S% of the national 2lovernnrent's equitable share of revenue. -Legal Noticc No.5z of the Public l inance Managenrent Act,2o12 (National Govcl'nl'nent Affirnrativc Action Fund), Regulation zo16 established the natioual govcrnment affit'urative action as an allocation flonr the national governrnent's equitable share ol Levenuc. -It is not entirely factual to state that the national govel'nlnent is always left with a negativc balance. The Constitution established only two levels of government. -The Cornrrission has devcloped an( subrnitterl its recornrnendation oD the Irourtl Issuc -The Bil intclest national Thc Bil allocatit Affirma deducti, arriving. -The i consid( expend: 2o3(r) balancr two ler 353.4 balanct govel'n1 H -The I nral<es I'rovision of the riill 1.\ o 'l-ablc z: Evaltratiou of thc Bill against Article zo3(r) of the Constitution llow A: Ncrlionol irterest 3 'l'able z: Evaluation of the Bill against Articlc zo3(r) of the Constitution Roto D: Other strrtutory olloc<rtions 4 4 5. Proposal Jrrstification Kslr.: financcd o billion have not been fi-rll progranrmcs and projects estirnated at -The nationai . interests can be iurplenrented by either' level of governrlent based on the law of subsidiarity. The NG-CDF and Affirnrative action Funds are not pal't of itenls in Article zo3 to be considered before alriving at the shareablc l'evenue. The allocation into the two Funds are made fi'orn the national government's equitable share of revenue. -The national interest and obligation are implernented under the national level of govel'nment. 2o2o was to bc uscd for --fhe Third Basis as apploved by Parliament in Septeurber'

No. Provision of thc BiIl Issrrc I)r'oposal Jttstification Fornrula as applicable froul financial year 2o2o f2t lo zoz5/26 financial years: eozo/zr to zoz4/25. -Pa iament need to providc guidance on the Basis u,hich will be used fot' slraring Icvcnue among tlle county goveLnrnents froni the fi nancial yeat 2o2S / 26. Basis for shaling revenue alnong county governmcnts to Parliament for cousideration. 6 No 29 of the cxplanatory notes of the Bill The explanatory notes in 2e(i) provides that in alriving at the respective revenue shares, thc National Treasury considered that the Equalisation Fund arrears of Ksh.z.7 billion will be financed fi'om the national governrnent's I equitable shar.e. -The financing of Equalisation Fund arlcats amounting to Ksh. 2.7 billion is not enough justification against further incrcasing the county government's equitable share. -Article 204(1) ofthe Constitution plovidcs the Equa'lisation Fund as a special purposc Fund into which one half per cent of all levenue collected by the national governrncnt each year shall be paid. 'I'irblc t: Surnrrr of li ct Allocations llcf 'I'ablc I P:r C<lrn Govclnrnents CFS:(Foreig,n and Donrestic Debt, Pension and Salaries for state offi,:er.s) -2()2 li l)s Allocatior-r o24125 2()25/26 1 National Govelnrnent 58.3 59.1 Of Which: a) Executive b) Pallianrent C Judicia s6.7 1.O o.6 CFS 31.3 31.6 57.5 1.O o.6 10.4

\4,:: (l :\-'i 1',:::';!1rr':ii :) 0 A|ri ,0i! 0 2 [lnY 2025 To The Clcrk' Tlrc Scrtrtc, P.O. Box 41842-00100' N:rirobi. Dcrr Sir', (l' 't't ni .st.;N It !i(;tit vr .t 1t ;1'1i y111', A',t'ti it, 0 )sK, 5t_t RE: SUBMISSION OF MEMORANDUM O BILL, 2025 (NATIoNAL ASSEMBLY BILL N &.--,L' t tit_, I I ', I ' t , ( ; , , I i I i li 0[ ao L.\ N E rvt ON OF REVENUE F 2025 u't i\0 h \ The colsr civil Socicry Nctwork [or l'ltttttltr Rights is a [>t o;rtl co:tlitlorr of clvll 'socicty orglnizatiorrs, rcligious instittltions;rnc.l rll lrrstittrtiotts worl<ittg to cttltlttcc lttttttltr r'lgltts;ttt<l good governrncc at tltc Corst. Tlrc Nctwork hls p;rrricularly raken rrotc of tlrc fact tlr;rc tltc Division of Rcvcttttc Blll 2025' proposcs to allocatc Kslrs. 405, I billion to Cottntics. Tltc corltttrlssiort oll rcvcllLlc rlloc;ttiorr on the orher h;rnd, h;rving considcrccJ all f;tctors, t'ccott ttllcttdcd allocltiotl of l(slts' 417'4 billionr. Following tlrc c;rll by thc Scnatc for tttctttbct's of thc ptrblic to sttbtrllt ttt ctt t ot'rntl;t on rhc Division o[ Rcvcnuc Bill, 2025 (Natiorral Asscnrbly Bill No. lo of 20?5) [ry tlrc 29'r' April 2025, plc:rsc find below our propos:rls: Constitrrtional Basis for tlro Division of Rovctrtro Arrlclc 203 (2) of thc ConstitUtion of Kcny;r 20 l0 surtcs tlrat tlrc cqtriurtrlc slrrt'c to cotrttty tovcrnn.rcn[s is to bc dcccrntincrl annurlly frorrr tlrc rcvct)t,tc t'aiscd tt;ttiorlrlly:rrrtl tlrrt it slurll nor be less thln fifrccn pcrccn! (15%) of lll t'cvctttto collcctccl by tlrc tt:ttiortrl govcrnntcnc. Arriclc 203(3) ln plrticuhr strtcs tltrC tltc cqtrit;rtrlc sllltc is crlcttlatc<l ott tltc basis of tlrc mosr rcccnt auditcrj;rccorlnts of rcvcltttc rccclvc<|, rs llppl'ovctl by tltc N;rtiorr;rl Assembly. on accounr of inforrnatlon ln tlrc ptrblic, tlrc N;ttlorlrl Tt'easttry. pt'oiccts tll;rt irr tlro FY 2025t2026, t6c ordinrry rcvcnuc collcctccl N;rtlorr:rlly to Kslrs' 2h4 trilliorr' Tlrc N;rtiorrrl \i' \'r\ I clauso 27 of tho Explanatory Menrorandum to Division ol Rcvontto uill, 2025 I ii ll 20"'anrltz,J],1 . ,I ri

a Assenrbly has allocared Kshs. 405.1 billion to counties. This is l4'26 Percent of the amount expected to be collected nationally. This contravenes article 203(2) of the constitucion' Ftrrther, we are concerned that while the latest audited accounts of revenue by the Office of the Auditor General is for the 2023124 Financial Year, the audited revenue of accounts 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 for the 2023/24r Financial Year according to the Kenya Revenue Authority 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 rhe subiect financial year. This consideration is inrporunt because of che following reasons: a. The revenue share to the counties have been gradually reducing compared to the amounc allocated to National Governments since 2017/2017 FY' b. The controller of budget and the public accouncs committee have cited counties to be operating wirh less development vote, this is the opponune moment for the Senate to correct this anomalY' c. The National government already devolved further duties to 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 reiection of recommendations of commission on Revenue Allocation (cRA) which is the public body that is constitutionally mandared under Arricle 2l6(l) (a) of the Constitution to make recommendations on the basis for equiuble sharing of revenue berween the two levels of tovernment. The CRA 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 creasu rY. The Place of equalisation Fund: Under the explanatory notes to the memorandum of objeca, it is spelc out thar rhe amounr due for equilisacion funds shall be provided throuSh Nacional Governmen!. Pursuant to arricle 204 of the Constitution of Kenya, Equalisation Fund is established to proP uP marginalized areas by faciliuting Provision of seryices including warer, roads, healrh faciliries and electriciry. Article 204 (3) (b) allows the National Governmenr to provide condicional Erants in facilitating the role of Equilisrt!on Fund. Pursuanr to schedule 4 of the Constitution, the roles enlisted under the service oI the ftind are resPonsibilicies of the counties, Thus, all amounts allocated through the Nrtionrrl Government should be allocated as Srants to the counties and performed by the countie:' Delay in Transfer of Functions to County Governments 2 https//www.oagkenya.go.ke/wp'<ontcnt/uplords/2024/06/4U OITOR'GENERALS'SUMMARY-REPORT-ON' NATiONAL-GOVERN 14ENT'2022'2023'with'cover.pdI 3 ARP - 8072024 - KRA Page on revenue performance 202312024 ' . E;r-ir;ili R;yenue Allocrdon (2025). Recommend3rion on the briii for cquitrblc shrring of rcvcnue bcrwctn nrtional and counl/ 8ovcrnmcn!r for the finrncirl yerr 2025'2026' a

(/ li 1I UL 2025 (NATIONAL ASSEMBLY METTORANDUH ON HE DI PRESENTED TO THE sEN lATE I BY THE KENYA DEv'or-uriqr'r gr!rr- SOCIETY ORGANIZAT IONS'WORKING ..,.. GROUP VISION qF NEVENUE BI 'niul'ioll6'or zozs .:v 'tif: Date of S ub nrission: 29'i A ril 7025 To The Clerk The Senate, P.O. Box 4 I 842-00 100, Nairobl. Dear Sir RE: SUBMISSIoN oF MEMORANDUM O THE O (NAT|oNAL ASSEHBLY BILL NO. l0 OF 2025) 3 0 APR 20t5 7' li ENUE BILL, 2025 Kenp Devolurton Civil Sociery Oryanlzationr (CSOs) Wgrking GreuP (KDCWG; ir a nationll Umbfrlh forum of the KenTan civil soclety nerworks across the 47 countles wlth a focur on strcngthcnln6 devolution. The forvm provides ihe civil society and Kenyan citizens with a common pladorm for collective parciciprtion in the implemenatlon of deyolution and for learning and sharing of experience. The obiecrivc of the KDCWG ls ro contribute to the effectiveness of devolution in Kenya for the realization of thc constitutional promise on devolved govcrnance' The KDCWG has panicularly uken note of ll]e fact that the Division of Revenuc Bill 2025, proposes to allocatc Kshs. 40s.1 billion to counties. Thc commission on Revenuc Allocation on the other hand, having considered all frctors, rccommcnded allocation of Kshs. 417.4 billionl. Following thc call by the senare for members of the public to submir memoranda on the Division ol Revenue Bill, 2025 (National Assembly Bill No. l0of 2025) by the 296 April 2025, plerse find below our proposals: Constitutional Basis for the Divi:ion of Revenue ! clause 27 of the Explanatory Memotandu Anicle 203 (2) of the consritudon of Kenya 2010 5ta(c5 thlt thc cquiable shrre to county governmenls is to be determined annually from the rcvenue niscd nationrll/ rnd th3t it shall not be less than fifteen percent(15%)ofallrevenuecollectedbythenationaltovernmcnt.Article203(3)inpanicularsutes ihat the equiublc share is calculated on thc basit of rhe most recent auditcd accounts of revenuc received, as approved by the National Assembly' on accounr of informarion in the public, the National TreasurT proiecu that in the FY 2025/2026. the ordinary revenue collected Nationally to be Kshs. 2.84 trillion' The Division of Revenue Bill has allocated m to Division of Revenue Bill, 2025 Dr9 yK- A ti t\ w /ln n J1 0, A \ TI-IE SENATE RECEIl/ED 3 0 APR ?U75 1funt os lo-) s 01 I .a:" j.::, ::-,. :i -Or --:- d/)' )+ P DEPUTY CLERI( K

t Kshs.405.l billion ro counries. This is 14,26 percent of rhe amount expectcd to bc collected nationall/. Thi: contravcncs article 203(2) of thc con3tltution' Further, we are concerned that while the lrtest auditcd accounts of rcvcnue by the office of the Auditor Generil is for the 2023/24 Financlal Year, the audited revcnuc ol accounts that was used as the basis for the Division of Revenue bill 2025 ls for the 2020/21 Financial Year. The total ordinar/ revenue lor the 20231242 Financial Year according to the Kenya Revenue Authority is Ksh5 2.407 trilliont. ln the case we uled as the latest audited accounts as the baiis for Division of Revenue, at the current proporrion of 25.79%, counties should receive ar least Kshs. 620.705 billion in the subiect financial year. This considcration is imPortant because of thc following reasons: a. The revenue Share to the counties have been gradually reducing compared to the amount allocated to National Governments since 2017/20 l7 FY. b. The Office of the Controller of Budget and thc Public Accouns Committee have citcd counties to hf onemting with less devclopment vote, this is the oPportune moment for the SenJte to correct this anomaly. c. The Narionat governmenr already devolved furthcr dutics to counties in the FY 207317074 llke Iibrary services. Thus, the roles under counties have increased and deserve more allocations. We further, are concerned by National Assembly's reiection of recommendations of Commission on Revenue Allocation (CRA) which is the public body that is constitutionally mandated under Anicle 215(l) (a) ofthe constitution to make recommendations on the basi! for equitable sharing of revenue betwcen the two levels of govemmenc The cRA proposed Kshs.4l7.4 billiona as the equltable share to the County governmcnts for curren! financiat year. This rejection iS not premised on any reason laid down by the National Assembly and the National Treasury. The Place of equalization Fund: Under lhe exPlanatory notes to the memorandum of obiects, it is spelt out that the amount due for €qualization funds shall be provided through National GovernmenL pursuant to article 204 of the constitution of Kenya, Equalization Fund ls established to prop up marginalized areas by hcilitating provision of services including water' roads, health facilities and electricity. Anicle 204 (3) (b) allows the National Government to ProYide conditional grants in facilitating the role of Equalizetion Fund. Pursuant to schedule 4 of the Constitution, the roles enlisted under the service of the fund are responsibilides of the countics. Thus, all amounts allocatcd through the Nationat Government should be allocated as trints to the counties and pcr{ormed by the counties' Detay ln Transfer of Functions to County Governments The Founh Schedule of the Constitution of Kcn;a assigns roles to thc nrtional and county Sovernments' Since 201 3 to date howevcr, the national Sovernment has continucd to pcrform divcrse functions of thc counry governments and also reOined thc related resourCes. Thc functions include the functions of 2 httprJ/va/,1r.oagkcny:.go.kc/wp<onrcnt/uplordr/2021/06/AUDITOR.GENERALS.SUMMARY-REPORT-ON-NATI 6ovERNM ENT-2022-2023-with-<over.pd( 3 ARp - aozzo2a - KRA Paqe on revenuo peiormance 202312024. t 6 [i-]iIi"..". lrr"..f,i"-AOf5). Rccommcndrrton on th. btti! for cqulublc thlrint of rc,cnuc bctw.cn nrrlonrl rnd co!nt),, govcrnm.nts lor thc finencial ycrr 20252026. ONAt. 2

Rcgionll Dcvclopnlcnt Autlloriticsl, urbln rords, Procurcmcnt of medical helltlr workcrs atrd procurcnlcnt and salc of fertilizers' As a rcsult' count; functioncd optintrlly and hrve strugglcd to deliver qurlity scrvices being demand we arc concerncd thrt despite thc Prcsldent's aJscrtion6 that all financial rcso allocated to Counties in the FY 7O2S11O75' thc same docs not rcflcct on tl Rcvcnuc Bill. The actual position is that thc National Governmcnt spends on the basis of ta ''''eo in the FY 7025|2026, according to thc Proicctions while the counties shall bc opemting on thc basis of the collections done in FY 2O7Ol2O2l, when we werc tied to covid 19, and 4 years aparc ln actual senre, the amount allocated to the counties falls shon ofthe minimum l5 percent constitutional threshold when considered alongsidc the Proiectioni of 702512026. We therefore recommend thst thc senate make reference to the rcPoft5 from IGRTC, presented to it on 23.d August 2023 and adjust thc currcnt allocatcd figure by allocating funher Kshs. 272.2 billion which is the cost of sevenl clemenls of devolved functions being held by the by thc National GovernmenL In !he casc the Senrte plays it role of protecring thc interests of countie:, countics should get the Kshs. 405.1 billion and funher Kshs. 272.2 billion which adds ro at leas! Kshs. 677.3 billion. Delays in Disbursement of Equitable Share to County Governments Service delivery and perlormance of the county governmen6 have regularly been affected by Persistent delays in tranrfer of the equioble sharc of the revenuc collected nationally to the devolved units. Sectlon 1716) of the Public Finance Management Acl (2012) phces on the Nationrl Trersury the rcsponsibiliry to release !o county Sovernmcnts at the besinnin8 of every month and not later thrn the fifteenth day from the commencement of the month, to facilitate expenditure for the following month. For instance, according to rhe Council of Governors, county SoYernmen!s hlve received their disbursements only up to Februery 2025, ycr we are aPProachins end of FY 20241202s. We are concerned by the perslstent delayJ of disbursementl over the years' which conrravenes Anicle 219 of thc con:tltution, whlch providcs th3t , councy shlre of revenue rrised nationally shall bc transferred to thc county without unduc dchy rnd withoul deduction. lc is appalling that the Senrtc hrs no! trken action to regolve this chrllenge eyen thouSh the sectors hrve been nising this concern on every opportune moment. New Funds lntroduced with the rotes under counties: the Division of Revcnue Bill :hould consider the Houring Lcvy and the social Health lnsurance Fund. The two slreams have introduced hu3e revcnue to the National Government yct lhe functions housing and herlth are councy func(ions' Thc ruthoriti.t ln(lud! K.rio V.llcy Ocv.loPm'nl Authorlry, Tlnr rnd Athl Rlv.rt Dcv.loPmcnl Audori!, Dcvclopmcnr Authoriry, Ewrlo Nyiro Sourh Ocvclopmc nr rnd Corrt Dcvclopmcn( Aulhorirl TTO TRANSFER REMAINI NG COU NTY ROLES. PRESIDENT RU Lrkc &lin TO - The 6 NATIoN OVE RNI..1EN lficial Wcbsite of the ide of the bli ,KC 3

\ a Finally. undcr section 3 of the Division of Rcvenue Bill, the object of the bill is premiscd on article 202 (l), and not the 203(2), which is a principlc that should guide the bill. Our Key Asks: l) The Senate should propose allocation of at least Kshs. 677 billion considering all the functions earmarked to bc devolved to countics by lntergovernmental Rclations Committee, and ln the very least Kshs. 426 billion on account of l5 percent of the amount proiected for ordinary revenue by National Treasury. 2) The Senate should institute tegal mcchanisms to ensure that all the devolved functions arc fullT costed and transferred to the county governments in the currcnt financial yelr together with thc budgcury allocations for cach of the functions. 3) The Senate should put in place effective mechanisms to compel the National Treasury to ensure that the equiuble share of the county governments as stipulared in Anicle 203(3) of tle Constitution is transferred ro county govemmenB stricrl/ in line with the Provisions of section l7(6) of the Public Finance Management Acc 4) The Senate should institute legal and political mechanisms to ensure that the Nrtional Assembly approves the audited revenue of accounts cxpeditiously and as a matter of prioriry within the financial year they are ubled in Parliamenc The legal mechanisms the Senrte should pur in phcc should among others providc thrt in the event that the National Assembly fails to approve any audited repon after submission ro rhe house for six months, then the rcPort shall autom.ltically be considered approved by rhe National A,:sembly and apply as the brsis for the division of revenue. 5) The Senate should ensure the prssing of the Bill on Equalizrtion fund and consider the phce of the counties in ensuring equiqr by using thc fund. This mcmorandum is a compilation of inputs from mcmbcrs of thc KDCWG Gcner:rl Asscmbly, which draws membership Irom cso networks across thc 47 countics in Kenya; and hrs been approved by members of the KDCWG Steering Committce, listed in thc annexure' under the Explanatory Mcmorandunr to tlre Dlvlslon of Rcvcnttc. it is indic;rtcd (hat Public debt is r factor considcrcd in rlloc:rrlng tltc finlnccs to counties. Thc notcs furthcr stitc that the Nationrl Trc:rsury:rnd the Nltlona! Assembly considered N;ttionll lntcrcst, Tlre Scnrtc should consider addrcs:ing rhc Nvo concerns. Secmingly, thc balloonlng public debt will affect the counties negatively yct thc countics are never consulted ln thelr acqulsltion. ln thc samc vcin. the Nationrl interest ought to bc understood in the context that, lt c;rn bc addressed both at nationrl :nd counry level. Tlrus. allocations intcnded for addresslng National interests should be broken down and addrcsscd cYen at coun!ics. Evans Kibet Boss Convenor, Kenya Devolution CSOs Worl<ing Group

( Y ) Approved bY thc S teerin g Conrmittee nrcmbers on behalf of the KDC\A/G For further information, please contac! Evans Kibet Boss, The Convener, Ken;.a Devolution CSOs Working Group (KDCWG) Tel. +254 71r221294 Email: csodevolutionworkinSgrouP@email com or evanskibetboss@gmail com Or KOCWG Secrerarirt' info@act.or.ke 5 Region Name No North Rift Rcgiona I Economic Bloc Evans Kibet Boss 0l North Rift Region Economic Bloc Benedine Kipruto 02 oc Central Region Economic B M ichacl Mburu 0l loc entral Region Economic h erry Muthau ra 04 tier Council Counties Nort ern Fron di Billow 05 un tie s n cil ern Frontier o Nuria Gollo 05 Lakc Region Economic Bloc Chris Owalla 07 onomic Eloc Lakc Region Fridah Jausiku 08 I n Pwr Kau a ri aa n U ;I m U ,| ) llalu s ha Abedi 09 n Pwa I 7) i l un Ka UI m U '/a ) Jacinta l''1beYu t0 Economic Bloc South Eastern Ken;'a tumr J ecob il South tem KenYa Economic Blo c Faith Kiema t7 ic Bloc Narok Kajiado Econom ames Kain kei tl rok Kajiado Economic Bloc Juliana Rono t4 ount/ Nairobi CirY Diana Gichengo t5 Nairobi CirY Count/ Cornelius Oduor 6 PWD RePresenta 0ve Halima Sharif t7 ( a

Annex 4- Public Advert , I

REPUBLIC OF KENYA THTRTEENTH PARLIAMENT I FOURTH SESSION THE SENATE The Division of Rev The Public Audit [Ame enue Bill, zDlsfNationatAssembly Bills No.I0 of 2O25) ndmentJ Ball,l$z4fNationalAssembly Bills No. 4of 2024) The Division of Revenue Bill, 2025 [National Assembly Bills No.l0 of 2025) and the Public Audit [Amendment] 81l',2024 llational Assembly Bills No.4 of ZOZ+lwere read a First Time in the Senate on Wednesday, 16th April,2025 and Thursday' 20,h March, ZOZS respectively. Thrr.ufi.r, the Bills stood committed to the Standing Committee on finance and Budget for r 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 viewi and recommendations of the public when the Committee makes

• its report on the Bills to the Senate.

The Division of Revenue Bill, 2025 (National Assembly Bills llo.l0 of 20251provides for equitable division of revenue raised nationally between the national ind county governmLnts in Financial Yea r2025/2026.Ihe proposed shareable revenue is Ksh.2,835,040,979,609 to be allocated as follows- il 1'he National Government to be allocated Ksh. 2,419,382,005'336; bi the Countv Governments to be allocated Ksh. 405,069,420,'l97; and .j the Equaliiation fund to be allocated Ksh.'10,589,554,076' The publlc Audit (AmendmentJ BIll, 2024 fNational AsseqQly Bllls tlo.4.of 2024J seeks to amend the Public Audit Act Cap. 41ZB,to clarify on the administrative powers of the Audito-riGeneral a4&provide for the powers of the Auditor-General with respect to initiating and undertaking forensic audits. The Bill furtheeseeks to provide for the establishment of a Public Audit Fund, to clarify the steps involvedin the process of auditing a pub|ftrentity and to provide for actions to be taken by accounting officers on the recommendations made by the Auditor-Generat-after debate and consideration of audit reports by Parliament or a CountY AssemblY' ln accordance with the provisions of Article flStlltbl of the Constitution and standing order 145[5] of the Senate Standing 0rders, the Standing Committee on Finance and Budget now invites interested members of the public to submit any representations thatlhey may have on the Bills by way of written memoranda. The memoranda may be submitted to the Clerk of the Senate, P.0. Box 41842-00lOO, Nairobi, hand-delivered to the Office of the clerk of the Senate, uain parliament Buildings, Nairobi or emailed to clerk.senate@parliament.go.ke and copied to f inancebudgetcorr.rur.i.6parliament.go.ke to beieceived on or before Tuesday,2gth April' 2025 at 5'0O 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.parl iament.go'ke,/the-senate/house-business/bills' I J. M. NYEGENYE' CBS, CLERK OF THE SENATE. INVITATION FOR SUBMISSION OF MEMORANDA