Budgeting is the setting of expenditure levels for each of an organization’s functions. It is the estimation and allocation of available capital used to achieve the designated targets of a firm.

A budget is a statement which consists of the revenue and expenditure estimates of the government for one particular year. It is an important instrument that every government uses to define the direction of its national policy, the cost implications of government programmes, and the possible sources of revenues during a fiscal year.

The budget strives to ensure economic stabilization, social order and harmony, as well as acting as a measure of government performance and accountability.

Budgets can be said to be;

  • Deficit budget; this occurs where government expenditure estimates exceeds government revenue estimates.
  • Surplus budget; this occurs where government revenue estimates exceeds government expenditure estimates.
  • Balanced budget; this occurs where government expenditure estimates equals government revenue estimates.

Budgets can also be classified as Capital or Revenue budget.

Revenue budget relates to normal income and expenditure items while capital budget relate development projects.

The main sources of revenue for the revenue budget include:-

  • Income and corporation
  • Customs and excise
  • Income from state
  • Fines

The main expenditure heads for the revenue budget include: Administration, Defence, Education, Health,

Tax collection etc.

Sources of income for the capital budget are:

  • Loans and grants obtained by the government from other
  • Planned expenditure made up of government contribution to foreign financed

A budget process refers to the process by which governments create and approve a budget.

Budgeting Cycle

Table of Contents

  1. Budget Formulation; The executive formulates the draft
  2. Budget Approval; the legislature reviews and amends the budget and then enacts it into
  3. Budget Execution; the executive collects revenue and spends money as per the allocations made in the budget
  4. Budget Oversight; the budget accounts are audited and audit findings are reviewed by the legislature, which requires action to be taken by the executive to correct the audit

Budgetary Policies are measures designed to achieve specifically defined budgetary objectives and as such a budget is a major measure by which the government is able to regulate the economy towards the desired direction.

Budgetary Objectives include;

  • Price stability
  • Capital accumulation
  • Equitable distribution of income and wealth
  • Investment acceleration
  • Economic stabilization, social order and harmony among others

Fiscal Policies can be defined as those policies according to which the government uses money and other revenue programs to achieve economic objectives and reduce undesirable effects on the economy, on national income, production and employment.

These policies are also concerned with determining the type, timing and procedure that shall be followed in making government expenditure programs, revenue programs, tax programs, debt management policies etc to bring about economic development.

Fiscal policies are not universal worldwide since countries are not the same i.e. fiscal policies of a developed country are different from that of a developing country and those of a least developed country.

Main Fiscal Objectives of a Developing Country

  • To increase the level of employment
  • Encourage the flow of investment into the desirable areas of the economy
  • To attract foreign and local investments
  • To promote import substitutions
  • To promote accountability in public finance and

A developing country must aim at raising rates of savings and diversion of resources to productive investments. Any good tax policy must therefore mobilize economic surpluses i.e. the excess of current output over essential consumption for the purpose of accelerating savings.

Responsibilities of the National and County Treasury in Relation to Budget Preparation

 The National Treasury comprise of;

  • Cabinet Secretary;
  • Principal Secretary; and
  • Department or departments, office or offices of the National Treasury responsible for economic and financial

Responsibilities of national Treasury with respect to the budget preparation

  1. The National Treasury shall prepare and submit to Cabinet the Budget Policy Statement for approval. A Budget Policy Statement is a document which lays down government’s broad plans for the next budget year. It includes discussions of economic trends and an estimate of overall spending and
  2. It prepares Budget Review and Outlook Paper. This is a paper produced annually by the end of September and assesses how well the government did in meeting its revenue and spending targets in the previous year. It also updates the forecasts for the current year that were obtained in the County Fiscal Strategy Paper
  3. Publication of pre and post- election economic and fiscal reports by National

The County Treasury comprise of;

  • County Executive Committee member for finance;
  • Chief Officer; and
  • Department or departments of the County Treasury responsible for financial and fiscal

Responsibilities of county Treasury with respect to the Budget Preparation

  1. The County Treasury shall prepare and submit to the County Executive Committee the County Fiscal Strategy Paper for approval and submit the approved Fiscal Strategy Paper to the county assembly.
  2. Prepare and submit to the county Executive Committee a County Budget Review and Outlook Paper in respect of the county for each financial year. CBROP shows the details of the actual fiscal performance in the previous year compared to the budget appropriation for that year as well as the updated economic and financial forecasts with sufficient information to show changes from the forecasts in the most recent County Fiscal Strategy Paper

National government Budget Process

The budget process for the national government in any financial year shall comprise the following stages;

  • Integrated development planning process which shall include both long term and medium term planning
  • Planning and determining financial and economic policies and priorities at the national level over the medium term
  • Preparing overall estimates in the form of the Budget Policy Statement of national government revenues and expenditures
  • Adoption of Budget Policy Statement by Parliament as a basis for future deliberations;
  • Preparing budget estimates for the national government
  • Submitting those estimates to the National Assembly for approval
  • Enacting the appropriation Bill and any other Bills required to implement the National government’s budgetary proposals including Division of Revenue Bill and County Allocation of Revenue Bill
  • Implementing the approved budget
  • Evaluating and accounting for, the national government’s budgeted revenues and expenditures and
  • Reviewing and reporting on those budgeted revenues and expenditures every three

NB: The CS shall ensure public participation in the Budget process.

County Government Budget Process

The budget process for county governments in any financial year shall consist of the following stages;

  • Integrated development planning process which shall include both long term and medium term planning;
  • Planning and establishing financial and economic priorities for the county over the medium term;
  • Making an overall estimation of the county government’s revenues and expenditures;
  • Adoption of County Fiscal Strategy Paper;
  • Preparing budget estimates for the county government and submitting estimates to the county assembly;
  • Approving of the estimates by the county assembly;
  • Enacting an appropriation law and any other laws required to implement the county government’s budget;
  • Implementing the county government’s budget; and
  • Accounting for, and evaluating, the county government’s budgeted revenues and expenditures;

NB: The County Executive Committee member for finance shall ensure that there is public participation in the budget process.

Revenue Authority

 History and Structure

The collection of Public Revenue is administered under the Treasury through various revenue departments operating under the Kenya Revenue Authority, KRA.

The Kenya Revenue Authority was established by an Act of Parliament on July 1st 1995 Cap 469 for the purpose of enhancing the mobilization of Government revenue, while providing effective tax administration and sustainability in revenue collection.

The major revenue statutes include;

-Income tax Act cap 470
-Custom and excise Act cap 472
-VAT Act cap 476 (VAT Act 2013 w.e.f. Sept 2013)

In terms of revenue collection and other support functions, the Authority is divided into the following departments:

Custom Services Department

  • Collection of duties and taxes
  • Trade facilitation in conjunction with other organization and bodies
  • Collection of statistics which is used by the government for planning purposes

Road Transport Department (RTD)

It was established with a principle aim of regulating road transport industry in Kenya. Services offered by RDT at a fee include;

  • licensing of motor vehicle
  • licensing of driver
  • Transfer of motor vehicle ownership
  • Regulation of motor vehicle
  • Issues of motor vehicle copy of records
  • Issues of duplicate registration books and license

Domestic Tax Department

It undertakes collection of various taxes including;

  • Income tax which is collected at sources or on installments, co.
  • Corporation tax which is levied on corporate bodies
  • VAT; which its basic function is to collect, administers and ensures enforcement of law and compliance with one provision of VAT
  • Excise duty: duty imposed on locally manufactured goods and some

Large Taxpayers Office

LTO’s primary objective has been to promote efficient tax administration with the goal of achieving compliance at minimum cost to both taxpayers and Kenya Revenue Authority (KRA).

Support Services Department

 NOTE: Each department is headed by a Commissioner.

Functions of the Authority

  • To assess, collect and account for all revenues in accordance with the written laws and thespecified provisions of the written
  • To advice on matters relating to the administration of and collection of revenue under thewritten laws or the specified provisions of the written
  • To perform such other functions in relation to revenue as the Minister may

A Board of Directors, consisting of both public and private sector experts, makes policy decisions to be implemented by KRA Management. The Chairman of the Board is appointed by the President of the Republic of Kenya. CEO is the Commissioner General.

Role of KRA in the economy

  • To administer and to enforce written laws or specified provisions of written laws pertaining toassessment, collection and accounting for all revenues in accordance with these
  • Advise on matters pertaining to the administration or and the collection of revenue underwritten
  • Enhance efficiency and effectiveness of tax administration by eliminating bureaucracy inprocurement, promotion, training and enhance
  • Eliminate tax evasion by simplifying and streamlining procedures and improving taxpayerservice and education thereby increasing the rate of
  • Promote professionalism and eradicate corruption amongst KRA employee by paying adequatesalaries that enables the institution to attract and retain competent professionals of integrity and sound ethical
  • Restore Economic Independence and Sovereign pride of Kenya by eventually eliminating theperennial budget deficits by creating organizational structures that maximize revenue
  • Ensure protection of local industries and facilitate economic growth through effectiveadministration of tax laws relating to
  • Ensure effective allocation of scarce resources in the economy by effectively enforcing taxpolicies thereby sending the desired incentives and shift signals throughout the
  • Facilitate distribution of income in socially acceptable ways by effectively enforcing tax lawsaffecting income in various
  • Facilitate economic stability and moderate cyclic fluctuations in the economy by providingeffective tax administration as an implementation instrument of the fiscal and stabilization policies.
  • Be a ‘watchdog’ for the Government agencies (such as Ministries of Health, Finance, etc) bycontrolling exit and entry points to the country to ensure that prohibited and illegal goods do not pass through Kenyan


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