(Nairobi) – Parliament has rejected a proposal to reduce county government allocations by up to 15% as part of a plan to address a national revenue shortfall in the 2024/25 financial year.
On Tuesday, lawmakers voted in favor of a recommendation by the National Assembly Budget and Appropriations Committee to remove a clause in the Division of Revenue (Amendment) Bill, 2024, which would have forced counties to forgo part of their equitable share. This clause, if passed, would have seen counties bear a portion of the national government’s revenue shortfall, estimated at billions of shillings.
The Treasury set a revenue target of KSh 2.6 trillion ($17.5 billion) for the year ending June 2025. However, it acknowledged that the target might not be met, partly due to the rejection of the Finance Bill, 2024 in June. The law stipulates that counties must receive no less than 15% of the revenue collected by the national government, but the proposal sought to reduce the additional funds they have been receiving above this minimum.
In its report, the Budget Committee stated that Section 3 of the Bill, which would have introduced the revenue-sharing arrangement, was to be deleted in its entirety. As a result, the existing provisions of the Division of Revenue Act 2024 will remain in effect, meaning any revenue shortfall will be fully borne by the national government.
The proposed cut to county allocations would have had a significant impact on the devolved units, which depend heavily on the national government transfers to finance their operations. This reliance on central government funding has been attributed to weak local revenue collection and issues such as corruption within county governments.
In recent years, the Kenya Revenue Authority (KRA) has faced criticism for failing to meet its revenue targets. For instance, during the 2023/24 financial year, KRA missed its target by KSh 267 billion ($1.8 billion), collecting KSh 2.22 trillion ($14.7 billion) instead. The government had hoped to ease the impact of a potential shortfall in the current financial year by requiring counties to sacrifice part of their allocated funds.
The Division of Revenue (Amendment) Bill, 2024 included a provision stating that if actual revenue raised in the 2024/25 financial year falls short of the target, the shortfall would be shared equally between the national government and the county governments. However, the proposal was contested and ultimately rejected by Parliament.
This move follows the rejection of the Finance Bill, 2024, which led to a KSh 325.88 billion ($2.2 billion) reduction in the national government’s budget. As a result, the Treasury aimed to pass on part of the financial burden to counties. However, the National Assembly’s decision to remove the provision means that the national government will now absorb the full impact of the expected revenue shortfall.
KRA had initially been given a revenue target of KSh 2.94 trillion ($19.7 billion), but the rejection of the Finance Bill prompted the Treasury to lower this target to KSh 2.6 trillion ($17.5 billion). The ambitious revenue targets set by the National Treasury have drawn criticism in the past, as the government has had to revise its budget several times within a financial year due to shortfalls.