Recommendation Concerning The Third Basis for Revenue Sharing Among County Governments

Abstract

The third basis for equitable sharing of revenue among county governments has been prepared in accordance with the provision of Article 216 (1) (b) of the Constitution of Kenya, which mandates the Commission on Revenue Allocation to make recommendations concerning the basis for the equitable sharing of revenue raised nationally among the county governments. Further, Article 217 (2) (b) stipulates that in determining the basis of revenue sharing, the Senate shall request and consider recommendations from the Commission. In accordance with Article 217(1), this basis will be used to share revenue among county governments for the next five financial years, from 2019/20 to 2023/24. This recommendation was formulated through a consultative process involving local and international experts, and the public. The recommendation is also informed by lessons from a comparative analysis of financing transfer systems in jurisdictions with a fiscal architecture similar to Kenya’s, and a comprehensive review of the second basis which was considered transitional. This recommendation is anchored in a revenue sharing framework which seeks to closely align funding to functions assigned to county governments to enhance service delivery. The framework also takes into account the need to address developmental gaps and economic disparities among counties. In addition, the framework seeks to create incentives for county governments to adhere to principles of fiscal responsibility and to optimize their capacity to raise own revenue. On implementation of the third basis, the Commission recommends a phasing-in of the formula to avoid disruption in service delivery and development programs. The proposed approach is to set aside 15 percent of the equitable share increment to cushion counties which would see a reduction in the quantum of their equitable share in excess of 5 percent.