Revenue
A meeting between the Cabinet Secretary for National Treasury and Planning, John Mbadi, and county governors has failed to reach an agreement on the revenue-sharing formula for the 2024/25 financial year.
The Council of Governors (COG) rejected the National Treasury’s proposed allocation of Sh380 billion, insisting on the previously agreed amount of Sh400 billion, noting that any financial cuts will adversely affect the counties in service delivery, especially the implementation of the new Health system.
In response, CS Mbadi announced that the matter has been referred to a mediation committee composed of key government agencies to resolve the stalemate, which could paralyse county services that are already facing delays in the disbursement of funds. Mbadi explained that the national government can only allocate Sh380 billion to counties, citing the reduced revenue projections following the withdrawal of the 2024 Finance Bill.
This withdrawal, Mbadi said resulted in the loss of Sh 344 billion in anticipated revenue, bringing down the projected total collections from Sh2.913 trillion to Sh2.6 trillion for the current financial year. Out of the revised Sh2.6 trillion revenue, Mbadi noted that Sh1.1 trillion is earmarked for loan repayments, Sh 1.2 trillion for the Consolidated Fund, and over Sh 900 billion for the national government’s wage bill.
This, Mbadi said leaves only Sh500 billion for other expenditures, including county funding, a move he said has necessitated the current allocation projections. “Given the current fiscal constraints, the National Treasury can only offer Sh 385 billion to counties,” Mbadi said. “However, the governors are firm on their demand for Sh400 billion, which was initially agreed upon and I believe we will solve the impasse soon,” he added.
To address the delay in disbursement, the CS said that the Treasury has already released Sh31.8 billion for July, with plans to release more funds this month for August. Mbadi also committed to resuming timely disbursements by December 2024, a move aimed at preventing counties from resorting to expensive borrowing from local commercial institutions to maintain operations.
Speaking at the COG Health Committee meeting in Naivasha, Mbadi outlined several tax measures proposed by the Treasury to Parliament to raise additional revenue and address the current revenue deficits facing the country. The CS, for instance, said the rental income tax sector, which currently generates Sh17 billion to the government has the potential to raise over Sh100 billion annually.
The Treasury, he said is also targeting personal income tax, with an expected increase of Sh500 million in addition to plans to reduce Value Added Tax (VAT) from 16% to 14% to boost consumer spending. Mbadi emphasised the need to reform the Kenya Revenue Authority (KRA) by incorporating new technologies to eliminate revenue leakages committing to promote prudent use of resources across all levels of government.
This, he said will allow the government to allocate more needed resources to boost the implementation of the new health system that has been plagued by inadequate funding noting that the government was right to kickstart it’s rollout. The CS, at the same time, projected a reduction in the fiscal deficit, from 5.6% of GDP last year to 4.4% this year and further down to 4% next year.
The Council of Governors, however, expressed concerns over the impact of the reduced allocation with Ahmed Abdullahi, Vice Chair of the COG, warning that the Sh20 billion cuts would significantly hamper service delivery in the counties, particularly in healthcare.
Baringo Governor Benjamin Cheboi echoed these sentiments, noting that counties have already factored the Sh400 billion allocations into their budgets. “Adjusting to the Sh 20 billion cuts will force counties to make tough decisions, including potential layoffs,” he said.
The mediation committee is expected to convene in the coming days to seek a resolution to the funding impasse. According to the Ministry of Health, the government relaxed cost of Public Health Care fund stand at Sh35b every year, but so far, only Sh 4.1b of funds is available leaving a deficit of Sh30.9b.
In addition, the Emergency and Chronic Care Fund optimised for Sh 3.8b annually, but only Sh 2b has been allocated in the current financial year.
