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Highlights of the County Allocation of Revenue Act, 2013

Ochiel J DudleyLegal Researcher, Laws of Kenya Department The County Allocation of Revenue Act, 2013

Act No: 34 of 2013

Assent: 9th August, 2013

Commencement: 26th August, 2013

1. SUBJECT MATTER

The Act provides for the conditional allocation and equitable sharing of revenue to county governments.

2. KEY DEFINITIONS (Section 2)

Cabinet Secretary” means the Cabinet Secretary for Finance;

Revenue” is defined to mean all taxes imposed by the national government and investment income authorized by Parliament 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;

Transition Authority” means the Authority established under section 4 of the Transition to Devolved Government Act, 2012; and

Wasteful expenditure” means any expenditure that was incurred which could have been avoided had due care and diligence been exercised

3. OBJECT AND PURPOSE

The Act sets out conditional allocation and equitable sharing of revenue to county governments, pursuant to Article 202(2) and 218(1)(b) of the Constitution, along the lines of the resolution under Article 217 (Section 3(1)).

Further, the Act governs the transfer allocations, from the Consolidated Fund, to the respective County Revenue Funds.

4. SHAREABLE REVENUE (Section 4)

The shareable revenue, available to the Counties, is 190 Billion (Section 4(1)).

This amount is then allocated equitably among the 47 counties (Section 4(2))

While every county gets fixed amounts of Shs 1B (basic equal share) as well as Sh 81M (fiscal responsibility), further allocations depend on the individual county’s population, poverty index and land area.

Equitable Division of Revenue by Population, Land area and Poverty Index-

(a) Population

Highest Allocation                                       Lowest Allocation

Nairobi – 7B                                                  Lamu – 224M

(b) Land Area

Highest Allocation                                       Lowest Allocation

Marsabit and Turkana – 1.4B                   (Tie among 18 counties)

(c) Poverty Index

(d)  Highest Allocation                                 Lowest Allocation

Turkana 3.3B                                                Lamu 36 M

5. TOTAL ALLOCATIONS (Section 5)

The Equitable Allocation is then added to Conditional Allocations to determine the total allocations to Counties for the financial year 2013/14 (Section 5)

6. CONDITIONAL ALLOCATIONS (Section 6)

These funds are meant for the development of regional referral hospitals and ensure continuity of essential services in each county (Section 6).

Highest Conditional Allocation                             Lowest Conditional Allocation

Homa Bay – 1.6B                                                     Lamu – 100 M

7. GAZETTED FUNCTIONS TO FORM BASIS OF ESTIMATES OF EXPENDITURE AND REVENUE (Section 7)

The functions gazetted by the Transition Authority for transfer to the county governments form the basis for preparing estimates of revenue and expenditure for the financial year 2013/2014 (Section 7(1)..

Allocations cater for performance of devolved functions to be implemented by the national or county government (Section 7(2).

Total allocations comprise total estimated cost of functions to be transferred to counties (Section 7(3).

Where Transitional Authority has not gazetted functions for transfer to the counties, costs of the functions to be included in budget estimates of the national government and approved by Parliament (Section 7(4).

Cabinet Secretary to transfer allocations to the respective County Revenue Fund once the Transition Authority gazettes the transfer of the functions to be financed (Section 7(5).

Where the allocation of monies to a county causes county to get less funds than cost of the functions devolved to the county, national government shall allocate part of its share of revenue to fill the gap of resources needed (Section 7(6).

8. 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 8(1)).

Erroneous or fraudulent transfers to be recovered immediately from, or setoff against future transfers to, the county government (Section 8(2)).

9. DUTIES OF NATIONAL AND COUNTY TREASURIES

Respective duties of the national treasury and the county treasuries are those in the Public Finance Management Act, 2012 (Section 9).

10. REPORT ON ACTUAL TRANSFERS

National treasury to publish quarterly reports on actual transfers made to counties (Section 10)

11. BOOKS OF ACCOUNTS

Each county treasury to reflect all transfers by the national government in the county treasury’s books of accounts (Section 11(1))

Each County’s Finance Bills to reflect total allocations from the national government to that county  (Section 11(2))

County treasury report on actual transfers received by the county government from the national government to form part of the consolidated quarterly or annual reports required under the Finance Management Act, 2012

12. DISPUTE RESOLUTION

All state to make every effort to settle the disputes including by exhausting all alternative dispute resolution mechanisms provided for in the Intergovernmental Relations Act before approaching a court to resolve such dispute (Section 12(1))

lf Court finds that a state organ had moved to Court before exhausting all the mechanisms provided for alternative dispute resolution in the Intergovernmental Relations Act and the Court refers the dispute back to the state organ  the expenditure incurred by that state organ in approaching the court shall be regarded as wasteful expenditure (Section 12(2)).

The costs in respect of such wasteful expenditure to be recovered without delay from the person who caused the state organ not to comply with Section 12(1).

Author’s Commentary on Section 12(1)

For a recent judicial pronouncement on the principle of exhaustion of local remedies in intergovernmental disputes, see the dicta of Majanja J in Law Society of Kenya v Transition Authority [2013] eKLR.

13. FINANCIAL MISCONDUCT

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

14. CONSEQUENTIAL AMENDMENTS

Public Finance Management Act is amended deleting section 17(6) which previously provided that-

“…The National Treasury shall, at the beginning of every quarter and in any event not later than the fifteenth day from the commencement of the quarter disburse monies to county governments.”

The new sub-section provides that-

“(6)The National Treasury shall, at the beginning of every month, and in any event not later than the fifteenth day from the commencement of the month, disburse monies to the county governments for the expenditure of the following month.”

  • The effect of the amendment is that, instead of quarterly, disbursements will be made monthly for the expenses of the following month.
  • The monies will be disbursed latest by the 15th of every month

15. REGULATIONS

Cabinet Secretary may make regulations to govern

- any matter in respect of which Regulations require to be made under the Act or

- any subsidiary or incidental administrative or procedural matter necessary for the proper implementation or administration of the Act.

Cabinet Secretary to Cabinet Secretary to take into account the recommendations of the Intergovernmental Budget and Economic Council (IBEC)

IBEC is established under section 187 of the Public Finance Management Act, 2012.

16. EXPLANATORY MEMORANDUM NOT TO BIND PARLIAMENT

Memorandum accompanying the Bill giving rise to this Act does not bind Parliament in subsequent proceedings relating to the budget estimates and the annual Appropriation Bill for a particular financial year.

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