GOVERNMENT REVENUE AND EXPENDITURE

In Kenya, development depends on the availability of funds. The government must have an annual financial plan to identify its sources of revenue and areas of expenditure.

Every year, the Minister for Finance has to read the Budget.

What is a budget?

• A budget is a financial statement that gives estimates of government revenue and expenditure. Or:
• It is a comprehensive financial statement that gives an estimate of government revenue and expenditure for a given financial year.

 Explain why the government of Kenya prepares the budget annually.

• To Identify sources of government revenue.
• To identify development projects and expenditure for a particular year.
• To explain to the public the taxes imposed.
• To balance its revenue and expenditure and prioritize its needs.
• To obtain useful information that enables it to monitor expenditure.
• To assess its performance in the previous year.
• To communicate its plans and policies to its foreign and local development partners for the purpose of investment.
• To secure loans and grants from donors.
• To plan for emergencies (crises) within the year E.G earthquakes, disease outbreaks and floods.
• To promote accountability and transparency in government departments as each ministry is allocated funds in order of need and must account for them.
• To have a point of reference in the preparation of the next budget.

Into what two main categories are sources of government revenue in Kenya divided? (Describe two main classifications of sources of government in Kenya.)

• Internal sources E.G taxation.
• External sources I.E loans and grants, mainly from donor countries.

Into what two categories is taxation divided?

 Taxation, which is the main internal source of government revenue, is divided into two categories. These are:

• Direct taxes E.G pay-As-you-Earn (Payee). It is commonly known as income Tax. Indirect tax.

Identify the forms of taxes that fall under the Indirect Tax category.

• Customs Duty, which is imposed on imported goods, E.G vehicles.
• Excise Duty I.E tax on locally made goods like coffee and soda ash.
• Value Added Tax (VAT) I.E sales Tax, which is imposed on goods like bread, fuel and sugar.
• Traffic Revenue Tax I.E Road-maintenance levy, road licenses, airport tax, etc.
• Trading licenses, which are paid by business people.
• Investment revenue I.E profit gained from parastatals and other firms.
• Interest from loans paid to the government.
• Land rates from land-owners.
• House rents for government buildings.
• Court fines.
• Fees charged on a variety of services such as levies on timber, mining, tourist and scrap metal fees.
• Sales of treasury bills and post office bonds.
• Grants and loans from donors such as world Bank and the International Monitory Fund (IMF).

Identify five types of taxes paid by Kenyans to the government.

• Income tax;
• Customs Duty;
• Excise duty;
• Value Added tax (VAT);
• Airport tax;
• Sales stamp duty.

What problems does the Kenya government encounter in raising revenue for national development?

(Explain the setbacks facing the Kenya government in raising revenue for national development.)

• Evasion of taxation by individuals and organizations.
• People’s negative attitude towards tax payment due to lack of information on the importance of tax payment apart from rampant corruption and poverty.
• Wealth declaration initiatives do not provide the right information as to how much wealth an individual has that is eligible for taxation due to dishonesty.
• Rich Kenyans keep their money in foreign banks, making Kenya to lack interest generated from such monies.
• Inadequate information on local investment through Treasury Bills, post office bonds and shares at the Nairobi Stock exchange.
• High interest rates on loans.
• The donor conditions are too harsh and undermine national sovereignty. This is because the recipient nation is compelled to import goods from the country that gives her loans.
• Government offices in charge of tax collection at times cheat about the income to be taxed. Some officers embezzle the revenue collected, making it not to reach the treasury.

Describe two main types of government expenditure.

• Capital expenditure I.E money for development activities such as development of roads, schools, industries, airports and agriculture.
• Recurrent expenditure I .E money used for maintenance of government services.

Describe any three forms of recurrent expenditure. (Into what forms is recurrent expenditure classified/divided?)

• Payment of salaries.
• Repair and maintenance of government property
• Loan repayment.
• Maintenance of embassies.
• Membership obligations to regional and international bodies such as the African union (AU) and the United Nations Organization (UNO)
• Grants to local authorities.
• Bursaries to schools.

Explain how the Kenya government controls Public finance.

Government revenue has to be controlled to ensure efficient and effective use of public funds. As the supreme body of the Land, the Kenya Parliament controls government money by enacting various laws aimed at ensuring government accountability as follows:

• All intended government expenditure is approved by parliament.
• All reports on expenditure from the ministries are scrutinized by the Public Accounts committee and the Public Investments committee.
• The Controller and Auditor-General audits ministries and government departments and report the findings to parliament. The Auditor-General of the state co-operations audits the expenditure of all state co-operations.
• The Permanent secretaries in the ministries account for all the money allocated to their ministries.
• The Kenya anticorruption commission investigates corruption cases and recommends prosecution of suspects.
• Government contracts are advertised and awarded according to the procurement procedures.
• Supplementary expenditure in government ministries are approved by parliament.
• Revenue evasions are curbed by use of X-ray scanners to verify cargo arriving at the Mombasa port.
• The Public Officers Ethics act, which was formulated by the government in 2001, compels Kenyans to shun corruption, which encourages those handling public money to spend it for the intended purpose. Embezzlement of public funds attracts heavy penalties.