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Highlights of the County Allocation of Revenue Act, 2014

HIGHLIGHTS OF THE COUNTY ALLOCATION OF REVENUE ACT, 2014

*Ochiel J Dudley

Citation: County Allocation of Revenue Act, 2014

Act No: 15 of 2014

Assent: 5th September, 2014

Commencement: 5th September, 2014

1. SUBJECT MATTER

  • The Act provides for the equitable allocation of revenue, raised by the national government, among the county governments as well as the responsibilities of national and county governments following such allocation.

2. DEFINITIONS

  • Cabinet Secretary” means the Cabinet Secretary for Finance;
  • Conditional additional allocation” is defined to mean additional resources allocated to county governments from revenue raised by the national government or in the form of loans and grants from development partners;
  • Revenue” means all taxes imposed by the national government under Article 209 of the Constitution and any other revenue (including investment income) that may be authorized by an Act of Parliament but excludes charges imposed by national and county governments for services they provide and monies which State Organs receive are authorized to retain to defraying its expenses
  • State Organ” means a commission, office, agency or other body established under the Constitution;

3. OBJECT AND PURPOSE

  • The Act provides for the equitable sharing of revenue raised by the national government among county governments, pursuant to Article 218(1)(b) Articles 2,
    of the Constitution, along the lines of the resolution approved by Parliament under Article 217 (Section 3(a)).
  • The Act also provides for conditional additional allocations for the financial year 2014/15 pursuant to Articles 187(2) and 202(2) (Section 3(b))
  • Further, the Act facilitates the transfer of allocations, from the Consolidated Fund, to the respective County Revenue Funds.

4. EQUITABLE ALLOCATION OF COUNTY GOVERNMENTS’ SHARE OF REVENUE

  • Each county government’s equitable share of revenue is set out in Column C of the First Schedule (Section 4(1))
  • Each county government’s allocation to be transferred to the respective County in accordance with a payment schedule approved by the Senate and gazetted by the Cabinet Secretary in terms of Section 17 of the Public Finance Management Act (Section 4(2))

5. CONDITIONAL ADDITIONAL ALLOCATIONS

  • Conditional additional allocations comprising of allocations to ensure continuity of services financed by loans and grants from development partners Section 5(a); and allocation financed by a grant from a development partners to supplement county health facilities ( Section 5(b))
  • County government allocations under Section 5(a) (to ensure continuity of services financed by loans and grants from development factors) to be included in the budget estimates of the national governments and submitted to Parliament for approval (Section 5(2)).
  • County government allocations under Section 5(b) (allocation financed by a grant from a development partners to supplement county health facilities) to be transferred to the respective County Revenue Fund only if the Cabinet Secretary and the responsible development partner agree in writing that the funds should be transferred to the county government and the transfer must be included in the budget estimates of the county government and submitted to the county assembly for approval (Section 5(3))
  • Functions gazetted for transfer after Parliament has approved the national government budget for 2014/15 (current financial year) to take effect in the next financial year 2015/16 (Section 5(4))

6. CONDITIONAL ALLOCATION TO LEVEL 5 HOSPITALS

  • The conditional allocation to each Level 5 hospital are in Column B of the Third Schedule (Section 6).

NB: These funds are meant for the development of regional referral hospitals

7. TRANSFERS MADE IN ERROR OR THROUGH FRAUD

  • Where it is determined that transfer of funds to a county government was made erroneously or fraudulently, such transfer shall be regarded as not legally due to that county government (Section 7(1)).
  • Erroneous or fraudulent transfers to be recovered immediately from, or set off against future transfers to, the county government (Section 7(2)).

8.REPORT ON ACTUAL TRANSFERS

  • National Treasury to publish monthly reports on actual transfers of all allocations made to county governments (Section 8)

9. BOOKS OF ACCOUNTS TO REFLECT NATIONAL GOVERNMENT TRANSFERS

  • Each county treasury to reflect all transfers by the national government in the county treasury’s books of accounts (Section 9(1))
  • Each County’s estimates of revenue to reflect total allocations from the national government separately (Section 9(2))
  • County treasuries must in their quarterly or annual reports required under the Finance Management Act, 2012, report on actual transfers received by the county government from the national government. Reports must reflect actual transfers up to the end of that quarter or year and must be in the format prescribed by the Public Sector Accounting Board or the National Treasury (Section 9(3))

10.FINANCIAL MISCONDUCT.

  • Any serious or persistent non-compliance with the provisions of the Act constitutes a financial misconduct under the Public Finance Management Act.

11. REGULATIONS

  • Cabinet Secretary may make regulations to govern any matter in respect of which Regulations require to be made under the Act and any subsidiary or incidental administrative or procedural matter necessary for the proper implementation or administration of the Act.

12. CONSEQUENTIAL AMENDMENTS

12.1  The Act amends section 107 of the Public Finance Management Act by inserting the following new subsection immediately after subsection 2 of section 107:

“(2A)Pursuant to Articles 201 and 216 of the Constitution and notwithstanding subsection (2) the Commission on Revenue Allocation shall recommend to the Senate the budgetary ceilings on the recurrent expenditure

NB: Before the amendment, section 107 read as follows:

“107. County Treasury to enforce fiscal responsibility principles

(1) A County Treasury shall manage its public finances in accordance with the principles of fiscal responsibility set out in subsection  (2), and shall not exceed the limits stated in the regulations.

(2) In managing the county government’s public finances, the County Treasury shall enforce the following fiscal responsibility principles—

(a) the county government’s recurrent expenditure shall not exceed the county government’s total revenue;

(b) over the medium term a minimum of thirty percent of the county government’s budget shall be allocated to the development expenditure;

(c) the country government’s expenditure on wages and benefits for its public officers shall not exceed a percentage of the county government’s total revenue as prescribed by the County Executive member for finance in regulations and approved by the County Assembly;

(d) over the medium term, the government’s borrowings shall be used only for the purpose of financing development expenditure and not for recurrent expenditure;

(e) the county debt shall be maintained at a sustainable level as approved by county assembly;

(f) the fiscal risks shall be managed prudently; and

(g) a reasonable degree of predictability with respect to the level of tax rates and tax bases shall be maintained, taking into account any tax reforms that may be made in the future.” (Emphasis supplied)

  • The effect of the amendment is to reinforce a further budgetary cap on recurrent expenditure and in reverse increase the expenditure on development expenses. Before the amendment, county governments could allocate “over the medium term a minimum of thirty percent of the county government’s budget to the development expenditure” (See: section 107(2)(b))

12.2 Section 13 of the Act amends Paragraph 12 of the Second Schedule to the Public Finance Management Act by deleting the expression “2014/15” appearing after the words “and in the” and substituting therefore the expression “2015/16”

NB: Before the amendment, Paragraph 12 of the Second Schedule read as follows:

“12. Timeline for implementation of program budget The implementation of programme budgets shall commence in 2013/14 financial year for the national government and in the 2014/15 financial year for the county governments constituted under Chapter eleven of the Constitution.” (Emphasissupplied)

The effect of the amendment is to postpone the commencement of implementation of programme budgets for county governments from the 2014/15 to 2015/16 financial year.

*The writer is an advocate of the High Court of Kenya

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