CHAPTER 31: PUBLIC REVENUE AND EXPENDITURE IN KENYA

PUBLIC REVENUE AND EXPENDITURE IN KENYA

LIST OF CONTENTS

Public finance

National budget

Sources of government revenue in Kenya

​Ways how the government spends revenue

Public Accounts Committee (PAC)

County government expenditure

The controller of Budget

Functions of Central Bank

Public Investment Committee (PIC) - Functions

Public finance

Is the revenue and expenditure of the national and county government. 

​Principles of public finance 

• Openness, accountability and public participation in financial issues.
• The burden of taxation shall be fairly shared.
• National revenue shall be equitably shared between national and county governments.
• Expenditure shall promote equitable development.
•  Present and future generations to equitably share the burdens and benefit of resources utilization and public borrowing.
• Responsible and prudent use of public money.
• Responsible financial management.
• Clear financial reporting.

National budget

• Is a comprehensive statement that gives an estimate of public revenue, expenditure and financial plans for a given financial year for government.
• Both the national and the county governments have to prepare a budget each financial year specifying their revenue sources and expenditures.  
• The national and the county government budgets contains the following;
• Estimates of revenues and expenditure
• Details on how deficit gaps are to be financed
• Proposals that affect the borrowing and public liability during the next financial year
• National registration shall declare rules for the following
• Structure of development plans and budget of counties
• when the plans and budget of counties shall be tabled in the county assemblies
• consultation between county and national governments in the preparation of budgets
• The cabinet secretary for finance is expected to submit to the national assembly the estimates of government revenue and expenditure for the next financial year, two months before the end of the each financial year.
• The budget is read in June because Kenya fiscal year begins on 1st July and ends on 30th June of the following year.
• The budget day is set by the minister for finance after consulting with all the necessary government organs and the president 

​Components of the national and county governments’ budgets in Kenya. 

• Estimates of revenue and expenditure, differentiating between recurrent and development expenditure. 
• Proposals for financing any anticipated deficit for the period to which they apply. 
• Proposals regarding borrowing and other forms of public liability that will increase public debt during the following year. 

​​The process of Budget preparation and implementation in Kenya. 

Three months before the end of each financial year, the head of each department or State organ submits estimates of revenues and expenditures for the following year to the secretary for finance. 

Two months before the end of each financial year, the Cabinet Secretary for finance submits to the National Assembly estimates of the revenue and expenditure of the national government for the following financial year. 

He also submits a detailed national fiscal, monetary and development plan for a period of three years prepared by him in collaboration with the Secretary responsible for planning and national development. 
The estimates include estimates for expenditure from the Equalization Fund. 

The National Assembly then considers the estimates submitted together with the estimates submitted by the Parliamentary Service Commission and the Chief Registrar of the Judiciary. 
Before the National Assembly considers the estimates of revenue and expenditure, a committee of the Assembly will discuss and review the estimates and make recommendations to the Assembly. 
Committee makes its recommendations to the National Assembly. 

When the estimates have been approved by the National Assembly, there will be an Appropriation Bill, introduced into the National Assembly to authorize the withdrawal from the Consolidated Fund of the money needed for the expenditure. 
​
The Appropriation Bill will not include expenditures that are charged on the Consolidated Fund. 

​Reasons for the preparing of a national budget in Kenya     

• It is easy for the government prioritize its needs ,giving prominence to the most urgent ones
• Enables the government to identify sources of government revenue to meet financial obligations
• The government identifies the development projects to finance in the coming financial year
• The government is able to carefully balance its revenue and expenditure needs
• Through the budgets the mps get a chance to monitor how public resources are utilized
• It enables the government to explain to the public tax structure
• It ensures balanced and equitable development regardless of the citizens political ,social and economic inclinations
• They provide useful information for organizations and individuals who may want to keep track of governments expenditure
• Through it the government communicates its plans and polices to its local and foreign development partners

Sources of government revenue in Kenya

• Domestic revenue sources
• External sources 

​Domestic revenue sources 

• Includes taxes which are levied on the citizenry, private and public business people 

Group of taxes 

• Direct taxes
• Indirect  taxes 

​Direct taxes 

• Are mainly derived from the from peoples salaries
• Every citizen earning income is obligated by law to pay income tax
• The tax on income is known as PAYE 

​Indirect taxes

• Excise duty
• Custom duty
• Value added tax
• Traffic revenue tax
• Fees
• Court fines
• Tourism fees
• Land rates
• Domestic borrowing
• Trading licenses
• Interest receipt
• Profit made by parastatals
• Foreign loans and grants
• Loan
• Forfeitures
• Charges for services tendered by the national government  
• Domestic wars through government bonds, treachery, bills, post office bonds and borrowing from parastatals 

External sources: 

​1. BILATERAL AID 

This is where two friendly nations assist each other e.g. Kenya and Japan

​2. Multilateral aid 

This involves many countries that have formed trading blocs or a global institution to help poor nations includes; the IMF world bank, European Union, common wealth etc  

​County governments 

• Allocation from the national government
• Loans or grants from the national government
• Local taxes such as property rates and entertainment taxes
• Charges and fees such as cess on agriculture produce entry fees to country parks and parking fees
• Foreign loans and grants
• Rent from premises
• Any other grants and donations
• Revenue collected will be deposited into the following funds 

​Equalization fund 

The money collected by the national government to be used to provide based services to marginalized areas in order to bring the quality of these services to the level enjoyed by the test of the country 

​Consolidated fund 

All money raised or received by or on behalf of the national government 

​Revenue funds, for each county government 

All money raised or received by or on behalf of the county government 

Contingencies fund 

To cater for urgent end foreseen emergencies and expenditure

​Challenges facing government effort in raising revenue 

• Many individuals, companies and organization evade paying taxes
• In wealth declaration people and companies give wrong information reducing the amount due for taxation
• Government officers who gather tax information collude with unscrupulous citizens to cheat about their income
• Many rich individuals have the tendency of keeping their money in foreign accounts instead of cheating inventing in Kenya
• People generating lack of information on how they can invest with the government through treasury bills, post office bonds and shares 

​External challenges 

• Donor conditions must be fulfilled before funds are released
• Loans are issued at high interests rates which makes servicing them a burden to the economy
• The tendency to rely on foreign aid to meet the country’s budgetary deficit increases 
• Donor nations compel recipients to import goods from them 

​Ways how the government spends revenue

• Capital expenditure
• Re current expenditure 

​Capital Expenditure 

• This is the money set aside in the national budget for development projects
• The government allocates money for infrastructural development such as roads, bridges, government buildings, railways, seaports and harbors
• It also identifies essentials facilities to be established such as schools colleges universities, dams, irrigation schemes etc
• The government provides social services like health and education so that citizen gets value for taxes paid 

​County governments 

• Financing county government projects such as roads, healthy facilities and markets
• Repayment of debts
• Payments of wages and salaries for county employees
• Provision of social amenities e.g. water, housing, electricity, markets, abattoirs
• Repair and maintenance of roads, markets, county buildings, vehicles etc
• Environmental conservation such as through garbage disposal
• Financing pre-primary education in the county
• Financing villages polytechnics and home craft training centre’s
• Disaster recovery in case of emergencies 

​Recurrent expenditure  

• This refers to the money used by the government to sustain and maintain the existing facilities and services
• Wages and salaries
• General repair and maintenance
• Debt servicing
• Contribution to international organization such as COMESA, AU, UN and Commonwealth
• Grants and bursaries to local authorities, parastatals, commercial banks as well as bursaries to schools and colleges
• Embassies – money allocate on recurrent basis to maintain Kenyan embassies abroad
• Purchase of stationeries for national government offices
• Payment of fuel bills
• Purchase of drugs for national government hospitals 

Management of public finance  - National government

• Parliament is expected to pass legislation to ensure control of expenditure and transparency
• All expenditure will have to be approved by parliament first
• The controller of budget will oversee the implementation of the budget and approves withdrawal from various funds
• The controller shall submit for each house of parliament a report on the implementation of the budget of the national and county governments
• The cabinet secretary for finance, with the approval of parliament may stop the transfer of funds to a state organ or any other public entity if the transfer doesn’t meet the certain requirements.
• All state offices shall keep proper records in accordance with the requirements of an act of parliament
• Every public office must designate an accounting officer who will be accountable to the national assembly
• All procurements should be done in a fair, equitable, transparent, competitive and cost effective manner
• Policies relating to procurement of and asset disposal shall be based on a legal frame work
• The Auditor General shall audit all the accounts of all government and state organs and any other institutions funded by the national government and report on the findings
• Parliament shall take any necessary action arising from the report of the Auditor General 

​Management of public finance  - County government 

• All public offices in the county must designate an accounting officer who is accountable to the county assembly.
• The county budget must be approved by the county assembly.
• The controller of the budget oversees the implementation of county budget.
• The controller also authorizes withdrawal by the county from any relevant funds.
• The Auditor General shall audit and report on the accounts of the county government as well as their funds and other authorities.
• The county assembly shall discuss the Auditor – General’s report and take appropriate action
• The parliament is the public watchdog responsible for the control of public revenue

Public Accounts Committee (PAC)

Comprises of members of parliament drawn from major political parties 

​Functions of ​​Public Accounts Committee (PAC)

• Receiving reports from the controller and Auditor General
• Scrutinizing of the report and presenting their content to parliament
• Summoning government officials to explain the expenditure
• Closely monitoring the ruling parties and its official in public service delivery
• Ensuring money is used for what it was budgeted

Public Investment Committee (PIC) - Functions

• Ensure that public finance is spent for the intended projects or purposes.
• Ensures that the investment targeted are worthy and geared towards improving the welfare of the citizens
• Monitors project implementation and reports its findings to the august house
• Raises an irregularity either in tendering or pricing with the hope of rectifying the situation.

​Factors that determine equitable sharing of public finance. ​

• The national interest. 
• Any provision that must be made in respect of the public debt and other national obligations. 
• The needs of the national government, determined by objective criteria. 
• The need to ensure that county governments are able to perform the functions allocated to them. 
• The fiscal capacity and efficiency of county governments. 
• Developmental and other needs of counties. 
• Economic disparities within and among counties and the need to remedy them. 
• The need for affirmative action in respect of disadvantaged areas and groups. 
• The need for economic optimization of each county and to provide incentives for each county to optimize its capacity to raise revenue. 
• The desirability of stable and predictable allocations of revenue. 
• The need for flexibility in responding to emergencies and other temporary needs. 

​Regulations that govern imposition of taxes and charges in Kenya.

• Only the national government may impose Income tax, Value-added tax, Customs duties and other duties on import and export goods; and excise tax. 
• An Act of Parliament may authorize the national government to impose any other tax or duty. 
• A county may impose property rates, entertainment taxes, and any other tax that it is authorized to impose by an Act of Parliament. 
• The national and county governments may impose charges for services. 
• The taxation and other revenue-raising powers of a county should not be exercised in a way that prejudices national economic policies, economic activities across county boundaries or the national mobility of goods, services, capital or labour. 
• No tax or licensing fee may be imposed, waived or varied except as provided by legislation. 
• If permitted, a public record of each waiver shall be maintained together with the reason for the waiver; and each waiver, and the reason for it, should be reported to the Auditor-General. 
• No law may exclude or authorize the exclusion of a State officer from payment of tax. 

​How the national government spends its money under recurrent expenditure.

• The government remunerates its employees through regular payment of salaries and wages. 
• The expenditure is also used to maintain public property throughout the country by allocating necessary funds to roads, airports, colleges, school text book provision and bridge maintenance. 
• The money is also used to service debts from international donor agencies and local financial institutions. 
  
• The money is also used to contribute to regional and international organizations like COMESA, AU, UN and Commonwealth. 
• It is used to provide grants to counties and parastatals, and bursaries to schools and colleges. 
• The money is also used to maintain Kenyan embassies abroad. 

County government expenditure

County governments spend their monies in the following ways; 

• Provision of basic social services like water, health facilities, electricity and cemeteries. 
• The money from its recurrent expenditure is used to pay wages and salaries to its employees. 
• The counties spend their money to some extend to control air and noise pollution, and also on refuse removal and solid waste disposal. 
• Money is used to finance development of roads, parking facilities, ferries and street lighting, develop entertainment, sporting, trading and cultural facilities. 
• In repair maintenance and improvement of public facilities like roads, health facilities, markets, libraries, housing etc. 
• Some money is set aside as emergency utility for fire fighting services and disaster management. 
• The counties use their money to service the borrowed funds plus the interest accrued. 
• They also use money to provide early childhood education through development of nursery schools. They also develop village polytechnics and home craft training centres. 

​Ways through which proper management of public finances by national government is ensured in Kenya. ​

• Any national governments expenditure by state departments or state organs must be approved by parliament which acts as the public watchdog. 
• The controller of budget oversees the implementation of the national budget by authorizing legal  withdrawals from public funds such as the equalization fund, consolidated fund and contingencies fund 
• The controller of budget submits to each house of parliament report on the implantation of the budget of the national government. 
• Where a state organ or any other public body fails to adhere to the laid down procedures of expenditure, the cabinet secretary for finance, with the approval of parliament, may stop the transfer of funds to the body. 
• There is constant auditing of accounts and financial records of all government and other public bodies.
• Every public body has a n accounting officer who is accountable to the national assembly for the financial management of the public body. 
• The auditor general audits all accounts of all government and state organs. 
• The government has put up policies related to procurement which is supposed to be fair, transparent, competitive and cost effective. to regulate public procurement, various bodies have been set up. e.g  the public procurement oversight authority (PPOA),  the public procurement administrative review board (PPARB) 
• The government has also imposed sanctions against contractors who fail to fulfil their contractual agreements either by failing to complete jobs or by doing shoddy work. 
• Sanctions are to be imposed against those persons who fail to pay their taxes, or engage in corrupt practices.
• All government contracts are publicly advertised for awarding of tenders and awards. 
• The government established the Kenya Anti-Corruption Commission (KACC) in 2004 which has the function of investigating corrupt cases in a non-partisan manner

​​Management and expenditure of public finances in county governments. 

• In every county, there is established a revenue fund where all funds, (including the county’s own revenues, transfers from national revenues, grants and borrowed funds) are consolidated. 
• Money from this fund is only withdrawn following specific procedures authorized by parliament or by county laws. 
• County governments must operate financial management systems that comply with all requirements of national legislation. 
• The county assembly must vote on the budget and approve expenditure by various departments of the county. 
• The county treasury must seek quarterly approvals from the controller of budget for withdrawal from the revenue fund based on the needs of the county. 
• The accounting officer of a county organ or public body is accountable to the county assembly for the financial management of the public body. 
• Each county has a county accountant general who maintains financial records of all the funds withdrawn from the revenue fund, and expenditure incurred. 
• Apart from the internal audits in every county, the auditor general audits the accounts of the county governments and submits reports to the relevant county assembly. 

The controller of Budget

Role of the controller of budget.

• He or she oversees the implementation of the budgets of the national and county governments. 
• He or she authorizes withdrawals from the public funds such as the Equalization, Consolidated and Revenue Funds. 
• He or she submits to each house of parliament, every four months, a report on the implementation of the budgets of both national and county government 

​The Commission on Revenue Allocation. 

​The Commission consists of; 

• A chairperson. 
• One nominee of each regional assembly. 
• Two persons to represent county governments. 
• Two persons nominated by the National Assembly. 
• The Principal Secretary in the Ministry responsible for finance. 
• The Controller of Budget. 

​Functions of the commission of Revenue Allocation.

• He is responsible for determining the basis for the equitable sharing of revenue from national resources between the national government and the various levels of devolved government. 
• It makes recommendations on matters concerning the financing, and financial management by county governments 
• It determines and regularly reviews a policy that set out the criteria by which to identify the marginalized areas. 
• It defines and enhances the revenue sources of the national and county governments. 
• It submits its recommendations to the senate, national assembly, the national executive, county assemblies and county executives. 
• It mediates in and determines disputes relating to financial arrangements between the national government and devolved governments. 

Functions of Central Bank

• Promote and maintain the stability of the value of the currency of the Republic. 
• Issue notes and coins. 
• Act as banker and financial adviser of the Government. 
• Conduct the monetary policy of the Government in a manner consistent with the relevant provisions of the law in the interest of the balanced and sustainable economic growth of the Republic. 
• Encourage and promote economic development and the efficient utilization of the resources of the Republic, through effective and efficient operation of a banking and credit system. 

​Why the Economic and Social Council established in Kenya. 

• To advise the national government and Parliament on matters of economic and social concern to the people of the Republic. 
• To advise the national government on the formulation, implementation, monitoring and evaluation of strategic economic and social policies. 
• To consider and report to Parliament on the economic and social implications of all Bills and budgetary proposals introduced in Parliament. 
• To monitor progress in the improvement of the living standards of the people of Kenya, particularly those of the poor and the disadvantaged.