Treasury missed 'errors' in revenue sharing Bill

By Martin Mutua

Treasury is under fire for failing to spot "faulty" clauses in a crucial Bill that it now says could be a source of future conflict between national and county governments.

Finance Minister Uhuru Kenyatta is yet to sign a Cabinet memorandum on the critical Commission for Revenue Allocation (CRA) Bill, which was lined up for discussion by Cabinet this morning alongside four others, before being forwarded to Parliament for debate.

In a letter obtained by The Standard on Wednesday, Treasury PS Joseph Kinyua informs Head of Civil Service and Secretary to the Cabinet Francis Muthaura that he has advised Uhuru not to sign the memorandum on the Commission for Revenue Allocation (CRA) Bill.

Kinyua informs Head of Civil Service and Secretary to the Cabinet Francis Muthaura that he has advised Uhuru not to sign the memorandum until a definition of "revenues raised nationally" has been resolved.

Deputy Prime Minister and Finance Minister Uhuru Kenyatta (right), and Finance PS Joseph Kinyua. The PS has advised Uhuru not to sign a Cabinet memorandum on the Commission for Revenue Allocation Bill. [PHOTO: FILE/STANDARD]

It had been cleared by the Cabinet Committee on Implementation of the Constitution where Kinyua and other Treasury officials were present, although Uhuru, who is also a Deputy Prime Minister, was absent. A draft was availed to the Commission for the Implementation of the Constitution (CIC). In the letter, Kinyua confirms the definition of "revenues raised nationally" was discussed extensively in two Cabinet committee meetings.

"After further reflection on the proposed definition of revenues, we are very concerned that it is not consistent with the Constitution and with the devolved system of Government," the letter reads in part.

The proposed definition for revenue as it appears in the CRA Bill, which is now the subject of contention says: "All tolls, taxes, impost, rates, duties, fines, penalties, forfeitures, rents, dues and all other receipts of the national government from whatever source arising over which the national Assembly or the Senate has power of appropriation."

Kinyua further argues that under the Constitution different levels of government have been assigned functions under Article 168 and the Fourth Schedule. He says if the national Government were to construct a trunk road for which it charges tolls to defray the cost, under the proposed definition, these tolls would have to be shared with county governments.

Finance projects

"Yet Article 209 (4) of the Constitution provides that both national and county governments can impose charges to provide such services, implying such charges are not subject to sharing," he added. Kinyua also argues that the proposed definition also fails to distinguish between loan proceeds and revenues adding that in most cases project loans and project grants are provided to finance a specific project.

"If 15 per cent of the loan or grant is transferred to counties, then the project can never be completed. Furthermore, if there is a likelihood that a loan or grant from a development partner will not be used fully for the purposes it is intended for, the development partner may not provide it," he adds.

The PS further tells Muthaura that similarly in regard to domestic loans, if the national government raises funds in the domestic market to build infrastructure, using vehicles like infrastructure bonds, for instance, under the functions it has been assigned, sharing the loan proceeds would mean it is unable to deliver on its constitutional mandate.

"For these reasons, we are unable to advise the Deputy Prime Minister and Minister for Finance to sign the Cabinet memorandum until the matter of defining "Revenues Raised Nationally" has been resolved," adds Kinyua in the letter.

The CRA is supposed to oversee equitable distribution of revenue between and among the national and upcoming county governments. Following the development, only the Political Parties Bill, Ombudsman Bill, Human Rights Bill and Gender and Equality Bill are likely to be discussed by Cabinet today.

The Bill was meant to provide a legal framework for the CRA whose membership has already been approved by Parliament. Former CBK Governor Micah Cheserem chairs the commission. Other members are Fatuma Abdulkadir, Meshack J Onyango, Prof Wafula S Masai and Rose B Osoro, Prof Joseph Kimura, Amina Ahmed and Prof Raphael Munavu.

Principal secretary

The secretary will be the principal secretary in the Finance ministry (currently called Permanent Secretary). Sources said the CRA Bill originated from the Treasury with the definitions that Kinyua is now objecting to, and they never raised objections at the two sittings.

"It is the same attempts at derailing the implementation of this constitution because the Bill is theirs and the definitions was removed from the Exchequer and Audit Act which has been used over the years," added a source who attended the meetings, but preferred anonymity.

The letter is also copied to Uhuru, Attorney General Amos Wako, Justice Minister Mutula Kilonzo, PS in Prime Minister’s office Mohammed Isahakia, Solicitor General Wanjuki Muchemi and Justice PS Amina Mohammed.

Kinyua further says the definition may have been appropriate for a non-devolved system of government but is inconsistent with the Constitution.But sources said the definition could have been amended even in Parliament once Cabinet approves it.

This means the Bill will have to await the next Cabinet sitting, and could delay the formation of the CRA, that is also expected to give guidance on financing of county governments.

Prime Minister Raila Odinga usually chairs the Cabinet committee on implementation of the Constitution, but since he was on a state visit to Germany last week, he delegated the responsibility to Deputy Prime Minister Musalia Mudavadi.

According to Article 216 of the Constitution, CRA shall also determine, publish and regularly review a policy in which it sets out the criteria by which to identify marginalised areas as outlined in Article 204 that governs the Equalization Fund.

It will submit its recommendations to the Senate, National Assembly, the National Executive, County Assembles and County Executives.