The Treasury has barred cash-rich State corporations from spending surplus money on the acquisition of assets such as land, machinery and buildings without prior approval in a fresh bid to mobilise revenue amid rising resistance against new taxes.
Treasury Cabinet Secretary John Mbadi has warned of a trend by some regulatory authorities to set aside cash for future capital expenditure from surpluses in their accounts, cutting the share they surrender to the government.
Chief executives of semi-autonomous government agencies such as the Central Bank of Kenya, Capital Markets Authority, Kenya Ports Authority, Competition Authority of Kenya, Communications Authority of Kenya and National Transport and Safety Authority are required to wire 90 percent of excess money to the exchequer.
The agencies generate billions of shillings annually from charges on offering government services such as licences and fines for lawbreakers.
The Public Finance Act requires they retain 10 percent of operating surpluses, as reported in audited financial statements, while remitting the rest to the government’s main account through the Kenya Revenue Authority.
“However, it has been noted with concern that some regulatory authorities are adjusting operating surplus by providing for capital expenditure to determine the 90 percent to be remitted to the national exchequer,” Mr Mbadi says in a circular to the chiefs of State corporations ahead of the preparation of annual budgets for the financial year starting July 2025.
“No State corporation should provide for capital expenditure from operating surplus without a written National Treasury approval.”
The surpluses are comparable to profits by the State-owned entities and represent the balance between their revenues and expenditure after tax.
The mop-up of excess cash in the parastatals is expected to partly ease perennial liquidity woes amid shortfalls in tax receipts, which usually prompt the Treasury to increasingly borrow cash through the sale of Treasury bills and bonds.Â
President William Ruto has been adamant that State-owned entities must surrender idle cash in their accounts to the exchequer to ease cash flow woes amid gaping shortfalls in tax collections.Â
The President followed this up with a directive in March that commercial State corporations such as Kenya Power remit up to 80 percent of net profits to the Treasury, an order that has now been included as one of the performance indicators for chief executives in this financial year ending June 2025.
The directive also included the requirement to cut expenditure on operations, administration and remuneration of staff by 30 percent.
“The money that some parastatals make does not belong to their boards or management. It belongs to the people of Kenya as returns on investment,” Dr Ruto told parastatal chiefs at State House on March 26.
The increased focus on cash generated by commercial State corporations and semi-autonomous government agencies (Sagas) partly helped the Treasury to nearly triple non-tax revenue to Sh65.32 billion in the quarter ended September from Sh23.08 billion in the prior year.
“State corporations are required to entrench prudent financial management practices in their planning and enhance cost control measures with the aim of delivering services in the most cost-effective manner,” Mr Mbadi warns in the circular.Â
“Chief executives officers/accounting officers of State corporations are reminded that incurring expenditures without approval by line ministry and the National Treasury & Economic Planning is irregular, and they will be held personally liable for such expenditures in accordance with provisions of the Public Finance Management Act, 2012.”
Appropriations-in-aid
Earlier in the year, the Budget and Appropriations Committee raised eyebrows over a growing trend where agencies underestimate the revenue they are likely to collect when the government budget is being prepared, only to raise the target in the course of the year.
Ministerial appropriations-in-aid (A-i-A) are revenues collected by various government ministries, departments, and agencies (MDAs) when discharging services and spent at source after appropriation by lawmakers.
Some of A-i-A receipts are the road maintenance levy charged at Sh25 per litre of petrol and diesel, railway development levy at 1.5 percent of the value of imports, housing levy at 1.5 percent of gross personal earnings matched by employers, petroleum development levy and university fees.
“The committee noted with concern that appropriations-in-aid comprises a substantial component of financing for the national government amounting to approximately Sh400 billion in the proposed budget for FY 2024/25,” the committee, led by Kiharu legislator Ndindi Nyoro, wrote in a report in July.Â
“However, agencies with a mandate to collect the A-i-A have continued to underestimate their A-i-A targets during budget approval only to seek an upward review during supplementary estimates. This continues to reduce accountability and prudence in the use of AIA which is a form of revenue collected from taxpayers.”
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