These sources of county government revenue in Kenya are property rates and entertainment taxes. The county governments can also impose charges for any services

1. Interactive Session –
Entity Funding
Kenya School Government – Kabete
6th December 2018
CPA Robinson Kweyu

2. THE SOURCES OF COUNTY GOVERNMENT
REVENUE IN KENYA
 LOCAL REVENUE
 EQUITABLE SHARE
 CONDITIONAL GRANTS
 LOANS
 DONOR FUNDING

3. LOCAL REVENUE
 Article 209 (3) of the Constitution empowers the county governments to
impose two types of taxes and charges. These sources of county government
revenue in Kenya are property rates and entertainment taxes. The county
governments can also impose charges for any services they provide in
accordance with the stipulated laws.
 Some types of these local revenue sources include rates, single business
permits, parking fees, building permits, and fees from billboards and
advertisements.
 All these sources of county government revenue in Kenya constitute the local
revenue. The county governments impose the rates and taxes through
the Finance Act.

4. EQUITABLE SHARE
 The equitable share is the money parliament shares vertically between the
national and the county governments. The money comes from the ordinary
revenue the national government raises nationally. The Senate then allocates
the equitable share for the counties from the vertical share horizontally
among the 47 counties.
 The equitable share is the biggest of the sources of county government
revenue in Kenya.
 The equitable share for the counties should not be less than fifteen per cent
of all the revenue raised by the national government. The most recent
audited revenues by parliament should form the base for this threshold of 15
per cent.

5. EQUITABLE SHARE
 The Senate uses a revenue sharing formula developed by the Commission on
Revenue Allocation (CRA) to divide the equitable share among the counties.
 The equitable share allocated to the counties is unconditional. That is, the
county governments can spend the money without any restrictions from the
national government.
 FUNDS GIVEN THROUGH THE “EQUITABLE SHARE” CAN BE USED IN ANY
LEGAL WAY THAT THE COUNTIES WOULD LIKE; THERE ARE NO
STRINGS ATTACHED (DR JASON LAKIN, INTERNATIONAL BUDGET
PARTNERSHIP).

6. Revenue Allocation Formula
 CAi = 0.45PNi + 0.26ESi + 0.18PIi + 0.08LAi + 0.02FEi + 0.01DFi
Where:
 CA=Revenue allocated to county
 i= County: 1,,2………47.
 PNi=Revenue allocated to a county on the basis of Population Factor.
 ESi= Revenue allocated to a county on the basis of Equal Share factor. This
is shared equally among the 47 counties.
 PIi= Revenue allocated to a county on the basis of Poverty Factor.
 LAi= Revenue allocated to a county on the basis of Land Area Factor.
 FEi= Revenue allocated to a given county on the basis of Fiscal Effort.
 DFi= Revenue allocated to a given county on the basis of Development
Factor.

7. Revenue Allocation Formula

8. Revenue Allocation Formula - Population
 The weight of this parameter is 45% and is a proxy used to identify the expenditure
needs of a county

9. Revenue Allocation Formula - Poverty
 The weight of this parameter is 45% and is a proxy used to identify the expenditure
needs of a county

10. CONDITIONAL GRANTS
 The county governments can receive additional allocations from the national
government’s equitable share of revenue (from the vertical sharing). These
additional allocations are known as conditional allocations or conditional
grants.
 They are conditional when the national government imposes restrictions on
how county governments will spend them. They are unconditional when the
national government does not impose any restrictions concerning their
expenditure.
 Most of these additional allocations are conditional allocations or grants. The
county governments should spend them on specific items in the budget. They
cannot divert them for other purposes. For example, if a county receives a
conditional grant for level five hospitals, it should not divert the money for
other purposes other than these hospitals.

11. CONDITIONAL GRANTS
 The conditional grants include the Equalization Fund (Article 204 of the Constitution) that benefits certain
areas that CRA recognizes and categorizes as marginalized.
 Other examples are money for:
 Level Five hospitals,
 Compensation for user fees forgone (reimbursements for services
county hospitals render) and
 Fuel Levy Fund (for maintaining county roads).
 Universal health care
 DANIDA
 Free maternal healthcare (a Jubilee Government flagship project. The
grant is no longer given to county governments from the financial year
2017/18 after Treasury moved it to NHIF).
 Leasing of medical equipment (set up to facilitate the purchase of
modern specialized healthcare equipment in at least two health
facilities in each county).

12. CONDITIONAL GRANTS
 For example, a conditional grant may require that a county also put in
“matching” funds. For instance, a county may receive a grant for 75 per cent
of the cost of some service, such as a hospital, and be expected to put in 25
per cent on its own. If it refuses, it may not receive the grant.
 It is also important to note that not all counties receive some conditional
grants. For example, only the counties with level five hospitals receive the
regional grant for level five hospitals. In addition, only those areas recognized
as marginalized using CRA’s criteria receive the Equalization Fund.

13. LOANS
o Loans as sources of county government revenue in Kenya may come from
external sources or private lenders. The external sources include foreign
lenders such as multinational corporations (IMF, World Bank, etc.). The
private lenders include commercial banks and other financial institutions.
o The County Governments can borrow or access loans, which they repay with
interest.
o However, the counties must meet two conditions in order to access the loans.
First, they can only access a loan if the national government guarantees the
loan. That is, the national government should be willing to repay the loan
if the county government is unable to repay. Second, the county assembly
must approve any loans that the county government intends to borrow.
o The Kenyan Constitution mandates Parliament to come up with legislation to
prescribe how the national government should guarantee loans.
o The county governments should not borrow beyond the limits set by the
County Assembly.

14. DONOR FUNDING
 Donor funding as one of the sources of county government revenue in Kenya
involves aid from international donors. The international donors provide the
aid in form of loans and grants. As with the national government, the
international donors can also request counties to put in ‘matching funds’ to
receive a grant.
Such international donors include:
 United States Agency for International Development (USAID);
 Denmark’s development cooperation (DANIDA); and
 United Kingdom’s Department for International Development (DFID).
 The donors can send the money directly to the counties as conditional grants
or through the national government ministries, departments and agencies
(MDAs).
 Apart from ‘matching’ the funds, the donors may also require the counties to
increase accountability mechanisms or improve the capacity of county staff in
monitoring and expenditure of donor aid.