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The challenge of sharing national revenue

Wednesday November 14 2012


The devolved system of government that Kenyans adopted is the cornerstone of our new Constitution.

Coming with a lot of promise, the system, in equal measure, poses significant legislative, administrative and financial challenges if the transitional arrangements are not well managed.

The 47 county governments, created by the Constitution will need to be adequately funded when they come into operation on March 5, 2013.

The principal function of the Commission on Revenue Allocation is to make recommendations for equitable sharing of revenue raised nationally between the national and county government and among the county governments.

Other functions of the Commission include: defining and enhancing revenue sources of national and county governments, financing and financial management of county governments, encouraging fiscal management and publishing policy on criteria for identifying marginalised areas, among others.

The basis for revenue sharing between the two levels of government, usually referred to as the vertical share (national and county) is costing of functions of the two levels of governments.

The Commission having carried out careful studies recommended that the horizontal (among the 47 counties) revenue sharing shall for the first generation formula be based on five parameters: population, basic equal share, poverty index, county land area, and fiscal responsibility.

After consultations with the public, and other stakeholders, the weights attached to each of the parameters in the recommendation to Parliament are: population – 45%, basic equal share – 25%, poverty index – 20%, land area – 8%, and fiscal responsibility – 2%.

The rationale for choosing these parameters include: international experiences in different countries, measurability, causal connections, less susceptible to influencing, and giving effect to constitutional and legislative stipulations. The recommendations have been forwarded to the National Assembly for deliberations and decision.

With the new Constitution, public expectations are quite high and more specifically with regard to the equitable revenue sharing among the counties.

Managing these expectations is a major challenge for the Commission. In developing the first generation formula, the Commission bridged these expectations by engaging the public and other stakeholders in all the 47 counties. In the end, the parameters and weights used in horizontal revenue allocation formula is a product of that public consultation.

Evidence from most countries that have adopted fiscal decentralisation reveals the tendency by the centre to ‘hold back’.
As with other countries, some Kenyan ministries may be tempted to hold back some of the functions devolved to the county governments. This poses potential danger to slow down the process of devolution.

Capacities of counties to manage revenue allocated and generate revenue from own sources are a major concern to the Commission. Different counties have varying revenue potentials as well as human resource capacities to harness and manage county resources.

Although capacity building for counties is a function of the national government, in the earlier years of devolution, this function need to be addressed comprehensively for smooth take-off of all counties.

The Constitution has created a rule of maximum threshold of two-thirds of either gender to elective and appointive offices. While this rule is attainable in the case of appointive offices, it is not as easy in an elective process.

In the event that the gender rule is not achieved at all elective levels i.e. county assemblies, national assembly, and senate, nominations will be done to fill the gender-gap. This has enormous negative financial implications, and should be of great concern to all Kenyans.

The best solution to this problem is to ensure that adequate civic education is conducted with a view to ensuring that we elect adequate number of women to meet the minimum 1/3 gender rule.

Finally, the success of the devolved system of government, and in particular prudent fiscal management of finances will depend on the quality of leaders at all levels of government.

This no doubt will require well informed citizens who will exercise their democratic rights for the good of current and future generations. This requires a comprehensive programme for country-wide civic and voter education.

It is therefore of utmost importance that we Kenyans elect men and women of the highest personal integrity in the forthcoming General Election who will ensure that public funds are managed in the most transparent manner for the benefit of all our compatriots.

Mr Cheserem is chairman of the Commission on Revenue Allocation