Commentary on Division of Revenue

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“One man, one shilling, one vote” what you need to know on the current debate on revenue sharing formula

August, 2020

Is the Division of Revenue amongst counties for fiscal years 2020/21-2021/24 impasse warranted?

For the seventh time, the senate has conspicuously failed to agree on the Division of Revenue formula amongst the 47 counties thus raising concern on whether; the divergence is instigated by Kenyan citizenry or political interests.

Constitutional Responsibility:

The Constitution of Kenya predominantly mandates the Commission on Revenue Allocation (CRA) under Article 216 (1) (b), to make recommendations concerning the basis for equitable sharing of revenue raised nationally in conformity with the criterion set out in Article 203 between the national and county governments; and among the county governments, recommendations of which ideally should be put into consideration by the senate in determining equitable sharing amongst all parties. Whereas the Senate represents the counties and serves to protect the interests of the counties and their governments; determining the allocation of national revenue among counties, this role has been put to test when it comes to matters division of revenue with lines of interests being drawn across the board amongst individual and groups of senators

Objective of Devolution

Devolution is one of the main Constitutional gains and its implementation has seen a major shift on how resources raised at the national level are distributed between the national and county governments and further between counties. In essence, the objectives and principles of devolution that include among others (i) to ensure equitable sharing of national and local resources throughout Kenya (ii) to protect and promote the interests and rights of minorities and marginalized communities (iii) to promote social and economic development and the provision of proximate, easily accessible services throughout Kenya are succinct, expressive and provide a framework on how resources should be shared between different levels of governments to the extent that undoubtedly allows smooth operation by responsible authorities in meeting set goals of devolution as envisioned under the constitution. Notwithstanding well-formulated guidelines and procedures on revenue sharing, there have been deferments by the senate agreeing on the formula for revenue sharing amongst counties.

Case Scenarios

In April 2019, the Commission of Revenue allocation tabled to the senate recommendations regarding the third basis for revenue sharing amongst counties for forward fiscal years of 2020/21-2023/24. The Senate is yet to pass the County Allocation of Revenue bill as the protracted process has seen shifts in perspectives from senators including amendments to some parameters and assigned weight submitted by CRA. Currently, two other formulas namely the “Sen. Irungu Kang’ata” and “Sen. Johnston Sakaja” are forming the subject for debate and opposing to some degree CRA recommendations on horizontal Division of Revenue.

What are the formulas all about?

Firstly, is the Commission of Revenue Allocation Formula whose objective is to enhance service delivery, to promote balanced development, incentivize counties capacities to raise revenue and to incentivize prudent use of public resources. It adopts the following parameters — 17% to health, 10% to  Agriculture, 18% to other county services, 5% to urban services,  20% to basic share, 8% to county land area, 4% to roads,  14 % to poverty,  2% to fiscal effort and lastly  2% to fiscal prudence.

Secondly, The Sen. Johnston Sakaja motion on the other hand, seeks to maintain the CRA parameters and proposes alterations to fiscal effort and fiscal prudence weights by reducing 1% from each and adding the surplus 2% to roads parameter to bring it to 6% from the initial 4% proposed by the CRA. In addition, the amendment objects to any reduction from the counties’ shareable revenue in fiscal year 2019/20 which according to their argument shall act as the irreducible minimum to counties moving forward.

Thirdly, is the Sen. Irungu Kang’ata revenue sharing formula motion also popularly known as “one man, one shilling, one vote”, means that a county ought to receive revenue based on its populace. As is, the CRA formula has been shot down with senate debates focusing on the Sen. Irungu Kang’ata and Sen. Johnston Sakajaproposals. The big question is whether either of the proposed formulas meet the following criteria:

  • Do all the three proposed formulas conform to Article 203 of the Constitution on equitable sharing of resources?
  • To what extent does the vertical revenue sharing formula affect the horizontal one?
  • Do CRA recommendations mandate on revenue sharing add value to the process bearing in mind the commission’s principal obligation under Article 216 of the constitution is to make recommendations concerning the basis for the equitable sharing of revenue raised by the national government
  • At what point do we draw the line between political and technical aspects in the Division of Revenue debate?
  • During the implementation of the 2nd generation formula, were counties losing resources based on the parameters? If yes, why is it a contentious issue now?
  • Does the outcome/statistics from the 2019 national housing population census impact on Division on Revenue process?
  • Is the stalemate on the horizontal division of revenue doing justice to the citizens of the 47 counties in as far as service delivery is concerned? If yes, is there a role/s and/or opportunity for the public in addressing especially the horizontal Division of Revenue impasse?

Recommendation

Strictly adhering to the letter and spirit of the constitution under Article 103 will facilitate the seamless process of Division of Revenue both vertically and horizontally through ensuring below aspects are firmly put into consideration in determining the basis for revenue allocation amongst counties[1]:

  1. The need to ensure that county governments are able to perform the functions allocated to them
  2. The fiscal capacity and efficiency of county governments
  3. Development and other needs of the counties
  4. Economic disparities within and among counties and the need to remedy them
  5. The need for affirmative action in respect of disadvantaged areas and groups
  6. The need for economic optimization of each count to provide incentives for each county to optimize its capacity to raise revenue
  7. The desirability of stable and predictable allocations of revenue

[1] Article 103 of the constitution of Kenya 2010

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