The vertical sharing of national revenue in Kenya refers to the allocation of revenue raised nationally between the national government and county governments. This process is provided for under Article 202 of the Constitution of Kenya.
1. Overview of Vertical Revenue Sharing
- The national and county governments share revenue equitably from the total revenue raised at the national level.
- Counties also receive additional allocations from the national government’s share, which can be either:
- Conditional grants – Funds with specific spending conditions.
- Unconditional allocations – Funds that counties can use at their discretion.
2. Principles Governing Revenue Sharing
(a) Principles of Public Finance (Article 201)
The Constitution mandates a fair, transparent, and equitable distribution of national revenue. This includes:
- Promoting an equitable society through public finance.
- Ensuring that county governments receive adequate funds to execute their functions.
- Fostering economic development across all regions.
- Encouraging prudent use of public resources at both levels of government.
(b) The Equitable Share
- The equitable share is the unconditional allocation of revenue to the national and county governments.
- This share is determined without restrictions on how each level of government can use its funds.
- It is computed based on ordinary revenue raised nationally (primarily from taxes).
3. Conditional Grants to County Governments
- Conditional grants are allocated from the national government’s share.
- These grants have specific conditions for their use.
- Examples include:
- Equalization Fund – Aimed at bringing services in marginalized areas to national standards.
- Health grants – For county hospitals and health programs.
- Infrastructure grants – For road construction and public utilities.
- Counties may also receive grants and loans from development partners such as the World Bank.
4. Criteria for Vertical Revenue Sharing (Article 203)
The criteria for revenue sharing consider:
- The need to ensure county governments can perform their functions.
- The cost of delivering services at each level of government.
- National revenue growth and inflation adjustments.
- The fiscal capacity and efficiency of each level of government.
5. Minimum Threshold for County Equitable Share
- Article 203(2) & (3) of the Constitution sets the minimum equitable share for counties.
- County governments must receive at least 15% of national revenue.
- This 15% is based on the most recent audited national revenue accounts approved by the National Assembly.
- However, county allocations have historically exceeded this minimum threshold.
6. Costing of Functions in Vertical Revenue Sharing
The Fourth Schedule of the Constitution defines functions for:
- National Government (e.g., security, foreign affairs).
- County Governments (e.g., health, agriculture, trade).
- Costing of functions determines how much each level of government should receive.
- This is assessed based on past expenditure before devolution and adjusted for inflation and public debt.
7. Approval Process for Vertical Revenue Sharing
The Division of Revenue Act (DoRA) provides the legal framework for revenue sharing. The process involves:
- Commission on Revenue Allocation (CRA) makes recommendations on the revenue split.
- The National Treasury prepares the Division of Revenue Bill.
- Parliament (Senate & National Assembly) debates and approves the Bill.
- The President signs it into law.
Once passed, equitable shares and grants are disbursed accordingly.
8. Conclusion
The vertical process of sharing national revenue in Kenya ensures county governments receive sufficient funds to perform their functions. This enhances service delivery, fosters equitable development, and strengthens devolution.
