EXPLAINER: Facts about The Division of Revenue Act 2024

President William Ruto on signing into law the Division of Revenue Bill, 2024 on Monday paved the way for the sharing of revenue raised nationally.

The Division of the Revenue 2024 Act will see counties get an enhanced equitable share of Sh400.1 billion while the national government will receive Sh2.5 trillion.

The principal object of the Act is to provide for the equitable division of revenue raised nationally among the national and county levels of government as required by Article 218 of the Constitution to facilitate the proper functioning of governments and to ensure continuity of service delivery to the citizens.

The Act provides that if the actual revenue raised nationally in the variation in a financial year falls short of the expected revenue set out in the Schedule, the shortfall shall be borne by the national government.

It further provides that if the actual revenue raised nationally in the financial year exceeds the projected revenues set out in the Schedule, the excess revenue shall accrue to the national government, and may be used to reduce borrowing or pay debts.

The allocation for counties in the Division of Revenue Act 2024 marks a Sh14.6 billion rise, representing a 23.48 per cent increase from the constitutional minimum threshold of 15 per cent.

During the 2023-24 Financial Year, counties got Sh385.4 billion, equivalent to 23.03 per cent of the last audited accounts.

The National Government solely bears shortfalls in revenue in any given financial year.

However, county governments continue to receive their full allocation despite the budget cuts affecting the National Government entities.

Article 218(2) of the Constitution requires that the Bill be submitted to Parliament every explaining the proposed revenue allocation set out in the Bill, the extent to which the Bill has taken into account the provisions of Article 203(1) of the Constitution; and a summary of any significant deviation from recommendations of the Commission on Revenue Allocation (CRA), with an explanation for each such deviation.

The Division of Revenue Act, 2023 included Sh10.9 billion being proceeds from the Road Maintenance Fuel Levy (RMFL) and Sh425 million for Transfer of Library Services.

The allocation of Sh425 million was attendant resources for the personnel emoluments relating to the library services transferred from the Kenya National Library Services in FY 2022/23 to the county governments.

The RMFL, which was initially a conditional allocation to county governments for maintenance of county roads, was folded up to be part of county governments equitable share in FY 2021/22.

However, the national and county governments coordinating the Summit meeting held on February 10-12, 2023 resolved that RMFL allocation to counties shall be considered in FY2024/25 through a restructured process.

The proposed county governments’ equitable revenue share allocation of Sh400.1 billion was informed by various factors.

This included the trends in the performance of revenue (this was taken into consideration in determining the Sh14.6 billion increase in equitable share of revenue in FY2024/25).

Other factors were increased expenditures for the National Government for purposes of debt servicing coupled with a weakening shilling against the dollar and the government commitment to implement a fiscal consolidation plan targeting to reduce the fiscal deficit to 3.9 per cent of GDP in FY 2024/25.

This is designed to slow down the accumulation of public debt.

The Sh400.1 billion allocation was also informed by financing constraints due to limited access to finance in the domestic and international financial markets and low ordinary revenue collections attributed to the ongoing geopolitical shocks.

The shocks include the Russia-Ukraine war and the US Federal Reserve’s interest rate hike which has negatively affected the dollar exchange rate against the Kenya shilling and the international debt market.