The Commission on Revenue Allocation (CRA) says its decision to reward counties based on revenue collection will stimulate innovation and seal loopholes in raising own funds.
Chairperson Jane Kiringai said that part of the cash allocation formula that promises counties two per cent of what they raise as own revenues from the equitable kitty would encourage fiscal responsibility among the 47 devolved units.
She was responding to concerns by the public that the parameter favours resource-rich counties such as Kiambu, Nairobi and Narok.
Under the parameter, every county will get 20 cents for every shilling collected, dealing a blow to devolved units with pilferages and poor structures in their revenue collections.
“We are creating incentives for counties to optimise their capacities to raise revenues, although it is expected that Wajir, for example, cannot raise more than Kiambu,” said Ms Kiringai.
Most counties recorded a decline in their own revenues in the year ended last June compared to 2016/17.
Nairobi, for example, collected Sh10.1 billion to June last year or a seven per cent drop from the Sh10.9 billion for the 2016/17 year.
Mombasa also dipped its revenue collections to Sh3.16 billion to June last year or a 0.3 per cent decline from Sh3.17 billion in the 2016-17.
There have been complaints that the two per cent allocation of their revenue will continue to hurt the resource-rich counties that have since 2013 been hitting high amounts in rates and levies.
Counties that collect less in own revenue will be hurt in their efforts to improve the socio-economic amenities such as schools and roads that remain skewed in favour of others.
Under the third formula that will come to for five years starting July if adopted by the Senate, the CRA has, however, proposed new parameters but retained the two per cent allocation incentive on revenues raised.