The revenue sharing formula is unnecessarily complicated
The Sunday Nation
Nairobi,
23 November 2014
Last week I explained how the counties share money on the basis of population, equal share, poverty, and land area. These factors account for 96 per cent of the revenue. The remaining 4 per cent will be shared based on the fiscal responsibility, development, and personnel emoluments of the counties.
The personnel emoluments parameter is the easiest of the three to work out. In the proposed formula, all the emoluments of all counties are first added up. The money available (in our example, 2 per cent of Sh300bn = Sh6bn) is then shared out on a pro-rata basis depending on an individual county’s personnel emoluments. In short, the higher a county’s payroll, the more money it will get under this parameter.
The money to be shared under fiscal responsibility (in our example, 1 per cent of Sh300bn = Sh3bn) is divided into two equal parts; that is Sh1.5bn each.
The first part is shared equally amongst all the counties. That is, each gets Sh31,914,894. The second Sh1.5bn is shared according to a county’s ability to raise it’s own revenue.
The actual calculation is rather complicated. It starts with the ratio of each county’s own revenue [r] to its expenditure [e]; that is r/e. Next, all the internal revenues of all counties are added up [R] and so are all the expenditures [E]. These are then divided; that is R/E
For each county, the r/e ratio is divided by the total R/E to get a new factor that the CRA has designated the letter “f”. The factor “f” for each county is multiplied by that county’s population (2009 census) to get another quantity called “Nf”.
All the Nf values for all the counties are then added together and we are now ready to start distributing the money. The Nf value of each county is divided by the total Nf and this ratio is multiplied by the Sh1.5bn available for distribution.
If you got lost somewhere along the way, I don’t blame you. It is complicated and I do not understand the rationale behind so many ratios. Especially since the amount being shared under this parameter is a drop in the ocean – a mere half of a percent!
In my view, the CRA needs to re-think this factor and come up with a simpler way of applying it. The same sort of rigour is applied in the Development factor; in fact, it is so complex that even the CRA made some typographic errors in the document that went to the senate – one of the quantities in the formula is not defined and one of the defined quantities is not in the formula!
Next week, I will suggest some ideas of simplifying the calculations.
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