July 31, 2020 - 5 minutes read

THE THIRD REVENUE SHARING FORMULA AMONG COUNTIES

By The Vellum Team

The new formula has made great strides in ensuring that funding is linked to the counties’ Constitutional mandate and the adoption of sector-specific funding approach subject to public participation.

Despite the challenges that have plagued the devolution process ranging from resource mismanagement to weak governance structures there have been significant efforts made by the County Governments to develop and strengthen these weaknesses with an aim of improving service delivery to the citizenry.

The revision of the revenue sharing formula provides an opportunity to the leadership and indeed the country as a whole to critically think through whether the new formula.

Presently, what is proposed is a weighted distribution formula providing a new range of factors for determining allocation that also rewards counties for effective revenue collection and prudent management of fiscal resources. This means that counties will now receive an extra Kes. 20 for every Kes. 100 collected as revenue.

However, there has been contestation over the proposal with some legislators pointing out that if implemented, the formula would disenfranchise some counties and favour others. Specifically, concerns raised by a majority of Senators are that the third formula would see regions currently receiving higher allocations based on landmass and high poverty indices receive less.  Based on this, the total equitable share per county would be equal to allocation per county for FY 2019/2020 plus the equitable share over and above Kes. 316.5 Billion.

Despite the differing standpoints on the parameters to use to determine resource allocation, both sides of the argument are agreeable to the fact that more fiscal responsibility and accountability is needed.

From a corporate stand point, whereas the allocation crisis may occasion increased pressure for county governments to increase revenue collection especially in the current financial climate with projected reduced funds available as a result of the Covid-19 pandemic. This may give rise to issues related to multiplicity and duplicity of taxes, levies and/ or charges; the lack of harmonization of the same; and enhancement of more stringent accountability measures to avoid, in some instances, arbitrary enforcement of increased rates and levies- all of which would adversely impact business operations and profitability.

Presently, there exists a proposed policy on the enhancement of Own Source Revenue performance by Counties. To support its implementation there is a legislative proposal dubbed the County Governments (Revenue Raising Process) Bill, 2018. The proposed legislation aims to provide for the process to be followed by county governments. This is in the exercise of their power under Articles 209 and 210 of the Constitution to impose, vary or waiver taxes, fees, levies and other charges.

Moving forward, as the Senators continue to debate over the weighted average to attach to the proposed units of measure, a key consideration is whether or not the formula and their proposals would strengthen the purpose of devolution. 

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