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Public finance refers to revenue and expenditure of the national and county government.

Principles that govern the use of public finance in Kenya.

The principle of openness and accountability. There shall be public participation in
 financial matters.

The public finance system should promote an equitable society, and in particular the
 burden of taxation should be shared fairly.

Revenue raised nationally should be shared equitably among national and county

Expenditure of public finance should promote the equitable development of the
 country, including making special provision for marginalized groups and areas.

The burdens and benefits of the use of resources and public borrowing should be
 shared equitably between present and future generations.

Public money should be used in a prudent and responsible way.

There should be responsible financial management accompanied by clear fiscal
 reporting to ensure effective use of public funds.


The national budget is a comprehensive statement that gives an estimate of public
revenue, expenditure and financial plans for a given financial year for a government.

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.

The process of Budget preparation and implementation in a county government.

Further reading about this is encouraged.

Sources of public revenue for national government in Kenya.

Domestic Revenue Sources.

These are the taxes levied on citizens, private and public organizations, foreign investors and business people.

There are two main groups of taxes;

Direct taxes.

Indirect taxes.

Direct taxes. (Income tax)

These are taxes derived from people’s salaries in form of income tax.

Indirect taxes.

These are taxes levied on goods and services but with parliamentary approval. They include;

Value-added tax; an indirect sales tax paid on specific goods such as sugar, bread,
 petroleum products, clothes, electronic equipment and motor vehicles.

Customs duties:- there are duties on imported goods such as motor vehicles,
 machinery, fertilizer, sugar, wheat, electronics, luxury goods, etc.

Excise tax; this is charged on locally
produced goods that are sold within the country.

Export Duty; the duty charged on locally produced goods such as textiles, coffee, tea,
 soda ash and pyrethrum which are exported.

Trading Licenses;

Sales Stamp Duty on entertainment services, betting, casino and premium bonds.

Traffic Revenue tax; levied on various categories of traffic services. E.g., the Road
 Maintenance Levy, the driver’s licence, Airport tax by air passengers.

Investment Revenue; earned from parastatal and other profit making bodies that
 remit profits through the treasury.

i)  Loan interest receipts. Collection of taxes from parastatals like AFC, KTDA, KPC, NCPB

and KCB.

j)  Land Rates.

House rates.

l)  Fees; paid in terms of timber levies, CO2 levies and mining fees.

Court Fines

Borrowing (under laid down law or procedure).

Tourism fess

External Revenue Sources

There are two main sources of external assistance;

Bilateral Aid; where two friendly nations assist each other. E.g. Kenya and Japan







Multilateral Aid; many
countries form trading blocs or global institutions like World
 Bank, IMF, European Union and commonwealth for this purpose.

Sources of finance for county governments.

The main source of funding for many counties is their equitable share from 15% of
 the national budget.

Conditional and unconditional grants.
Unconditional Grants are funds allocated by
 the national government without conditions regarding their use. Conditional grants
 are the funds allocated by the national government for funding of specific projects
 and programmes. They include;

The Equalization Fund for provision of basic services like water, health
 services, electricity and roads in marginalized areas.

The Contingencies Fund
to carter for urgent and unforeseen circumstances

Counties’ own revenues. Counties have the power to collect property rates, impose
 taxes on entertainment, and impose fees and charges for services they render to
 people and any other tax that Parliament permits them to impose.

Borrowing, where the national government guarantees the loan or with the approval
 of the county assembly.

Grants and donations

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

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.

i)  The need for economic optimization of each county and to provide incentives for
 each county to optimize its capacity to raise revenue.

j)  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


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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

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.


The revenue collected by the government is deposited into the following funds;

Equalization Fund; This is a Fund specially established by the National

government, to provide basic services including water, roads, health facilities and
electricity to marginalized areas to the extent necessary to bring the quality of
those services in those areas to the
level generally enjoyed by the rest of the

Consolidated Fund; this is the fund into which all the money raised or received by
 the national government is paid. Money set aside by parliament for specific
 purpose and money set aside by state organs to take care of their expenses is
 however not deposited in this fund.

Contingencies Fund; this is a fund from which advances will be made if the
 secretary for finance is convinced that there is an urgent matter that needs
 funding and for which there is no other provisions.

Revenue Funds; this is a fund for each county into which all the money raised or
 received by the county government is paid.

Expenditure of Public Revenue.

There are two ways in which the national government spends its revenue.

Capital expenditure. – The money set aside in the national budget for
 development projects.

Recurrent expenditure. – The money used by the government to sustain and
 maintain the existing facilities.

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

The money is also used to maintain Kenyan embassies abroad.


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County government expenditure.

County governments spend their monies in the following ways;

Provision of basic social services like water, health facilities, electricity and

The money from its recurrent expenditure is used to pay wages and salaries to its

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

The counties use their money to service the borrowed funds plus the interest

They also use money to provide early childhood education through development of
 nursery schools. They also develop village polytechnics and home craft training

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

a)  Any national governments expenditure by state departments or state organs must
 be approved by parliament which acts as the public watchdog.

b)  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

c)  The controller of budget submits to each house of parliament report on the
 implantation of the budget of the national government.

d)  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.

e)  There is constant auditing of accounts and financial records of all government and

other public bodies.

f)  Every public body has a n accounting officer who is accountable to the national
 assembly for the financial management of the public body.

g)  The auditor general audits all accounts of all government and state organs.

h)  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)
i) 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



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j)  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

l)  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

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

Auditor General.

Read on this

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.


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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

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.


















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EcoleBooks | History and Government Form 4 Notes : PUBLIC REVENUE AND EXPENDITURE IN KENYA.


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