HISTORY AND GOVERNMENT

FORM CHAPTER PAPER SUBJECT CODE EXAM TOPIC

4 8 I HISTORY 311/1 KCSE PUBLIC REVENUE AND
EXPENDITURE IN
KENYA
HISTORY:
PUBLIC REVENUE AND EXPENDITURE IN KENYA
Topic objectives.
(i) Identify and discuss sources of government revenue
(ii) Explain the expenditure of government revenue-capital and
recurrent expenditure.
Public revenue.
Money that the government raises from various sources.
Public expenditure.
Money that government spends on its operations /development projects.
Public finance.
Revenue and expenditure if the national and county governments.
Principles of public finance
KCSE2023PP1Q24a: Outline five principles of public finances in Kenya
(i) Openness, accountability and public participation in financial
matters
(ii) Promotion of equitable development of the country
(iii) Special provision to cater for the marginalized groups / areas in
order to promote equitable development.
(iv) Ensuring the burdens of taxation and benefits of the use of
resources is equitably shared between present and future
generations.
(v) Prudent and responsible use, management and accounting for
public finances/monies.
(vi) Responsible financial management accompanied by clear fiscal
reporting.

The National Budget

 (i) Is the estimate of the government revenue and expenditure for
the ensuing fiscal year?
(ii) A comprehensive statement that gives an estimate of public
revenue, expenditure and financial plans for a given financial
year for the government.
(iii) Estimates of money received and the projects to spend it on

Factors that are addressed in the national budget

Composition/components of the government national budget
KCSE 2002PP1Q14: What is contained in the government budget?
(i) Amount of revenue that government expects/plans to raise
(ii) Various sources from which government expect to raise the
revenue
(iii) Areas of expenditure/projects the government expect to spend
the revenue on
Stages in the preparation of a government/National Budget
KCSE 2010PP1Q24A: Identify five stages in the preparation of a
government budget. (5 marks)
(i) Each ministry prepares its estimates
(ii) Ministry estimates are forwarded to the ministry of finance
(iii) Ministry of finance compiles the estimates into a single proposed
budget.
(iv) The proposed budget is discussed by the cabinet.
(v) Government announces the budget day
(vi) CS finance presents/reads the budget before Parliament
(vii) Parliament discuss/debate/approve the budget.

Importance of a National/Government Budget

KCSE 2008PP1Q17: Give one reason why the government of Kenya
prepares a national budget. (1 mark)
1998/2010PP1Q24B: Explain six reasons why the government of Kenya
prepares a national budget. (12 marks)
KCSE 2020PP1Q24B: Discuss six reasons why the national government of
Kenya prepares a budget. (12 marks)
(i) Enable government to identify/know sources of revenue to finance
its activities/programmes/meet its financial obligations
(ii) Enable government to identify ways to spend its revenues and
resources prudently without wastage.
(iii) Enable government to identify and prioritize its development needs
and projects to be financed in the coming year.
(iv) Provides government with valuable information to people interested
in investing in the country eg the NGOS
(v) It creates confidence among foreign countries eg to donors and
world financial institutions like the world bank and the IMF
through plans and policies in the budget.
(vi) *It ensures there is a balance in the country revenue and
expenditure hence help to bridge and avoid budget deficits. (main)
(vii) It enables accountability and transparency on the government side
in the eyes of the public through parliamentary watchdog
committees
(viii) Enables government to assess its performance in the previous years
based on set development programmes and improve where
necessary.
(ix) Enables the government to explain to the public the tax structure
and the set tax levels.
(x) Enables the government to set aside some funds to be used incase
of emergency in a financial year.
(xi) It ensures equitable share of resources and a balanced development.
Public funds established by the constitution of Kenya
KCSE 2022PP1Q17: Name three types of funds into which the national
government deposits its revenue. (3 marks)
(i) Consolidated Fund-a fund where money raised are received and
deposited by the national government.
 (ii) Revenue Fund-a fund where money raised or received by the
county government is paid.
(iii) Equalization Fund-a fund used by the national government to
provide basic services like water/health, roads and electricity to
marginalized areas in order to uplift their basic services to the
level of others.
(iv) Contingencies Fund-a fund used to take care of emergencies
e.g., on outbreak of a disease, famine, flood, earthquake,
landslides.
KCSE2023PP1Q14: State the purpose of the equalization fund in Kenya.
(i) To provide basic services to marginalized areas/regions/uplift
basic services in marginalized areas to the level of others.
Sources of revenue for the national government
(i) Charges for services offered by the national government e.g.,
health, electricity and water.
(ii) Court fines charged in court on offenders.
(iii) Issuance of license e.g., trade and driving license to individual
and companies
(iv) Imposition of direct taxes eg income tax on indirect taxes eg
value added tax.
(v) Profits from Parastatals and government shares invested in
government companies.
(vi) Rent received on government buildings hired by citizens and
companies.
(vii) Domestic borrowing by selling government bonds/treasury bills.
(viii) External borrowing from financial institutions eg World Bank.
(ix) Grants/donations/aids received from friendly countries and
private organizations and individuals.
Examples of direct taxes in Kenya
KCSE 1996PP2Q: Identify two examples of direct taxes through which
the Government of Kenya raises its revenue. (2 marks)
(i) Income tax/pay as you earn
(ii) Corporation tax paid by companies.
 (iii) Wealth tax
(iv) Gift tax
Examples of indirect taxes levied by the national government of Kenya
in Kenya
KCSE 2006PP1Q17: Give one example of indirect tax in Kenya
(i) Import duty tax
(ii) Export duty tax Customs Duty
(iii) Excise duty tax/
(iv) Value added tax/
(v) Cess tax/fines/fees
KCSE 2022P1Q24B: Discuss six indirect taxes levied by the national
government of Kenya. (12 marks)
(i) Excise duty which is charged on goods that are locally
produced/sold within the county
(ii) Value added tax (VAT) which is paid to specific goods such as
petroleum products, sugar and electronic equipment’s
(iii) Investment revenue generated by government bodies like
Parastatals like KPLC, Postal corporation, Kenya railway
(iv) Trading license paid by traders wishing to operate businesses
and those operating businesses
(v) Land rates paid by citizens/companies as stamp
duty/rent/standing premium on plots/land adjudication/court case
fees
(vi) Loan interests’ receipts from government bodies/agencies that
pay interest on money advanced to them by the exchequer.
(vii) Court fines which are charged on persons found guilty by courts
of law.
(viii) Tourism fees which are paid by local and foreign tourists as
entrance fees into games reserves/national parks/other tourist
attraction sites.
(ix) Domestic borrowing where the government raises revenue
through sale of treasury bills and bonds.
(x) House rates/rents paid for the use/hire of government buildings
and facilities.
 (xi) Customs duty levied on goods imported into the country.
(xii) Traffic revenue tax levied on traffic related services like driving
license/airport tax/road maintenance levy.
External sources of government revenue in Kenya
KCSE 2011PP1Q17: Give two external sources of government revenue in
Kenya. (2 marks)
(i) Loans
(ii) Grants
(iii) Donations
Categories of foreign aid in Kenya
(i) Bilateral aid granted to Kenya by a friendly nation.
(ii) Multilateral aid granted to Kenya by organizations like UN.

Disadvantages of Kenya’s reliance on foreign aid as a source of

government revenue.
KCSE 2012PP1Q17: Give two disadvantages of Kenya’s reliance on
foreign aid as a source of government revenue. (2 marks)
KCSE 2016PP1Q14: Give two negative effects of Kenya’s reliance on
foreign aid as a source of government revenue. (2 marks)
(i) It’s given with conditions.
(ii) It attracts high interest rates.
(iii) It creates donor dependency syndrome/debt crisis.
(iv) It limits the choice of trading partners.
(v) It delays implementation of projects.
Sources of revenue for county governments
KCSE 2013PP1Q24B: Explain six ways in which county governments
raises their revenue. (12 marks)
(vi) Imposing property rates within their territories to enable them
raise revenue for their operations.
 (vii) Charges for services rendered to residents of the counties to
generate income.
(viii) Allocation of equitably shared annual revenue from the national
government in order to supplement their income.
(ix) Borrowing loans from the national government or international
organizations to finance development projects-the world bank
(x) Levying taxes on the services /goods generated in their counties
to finance their activities.
(xi) License fees granted to businesses/services operating in the
counties.
(xii) Charging fees for the use of county properties
(xiii) Renting property/houses to people to raise funds for
development
(xiv) Grants from local and external sources from the national and
foreign governments.
Expenditure of public revenue by both the national and county
governments.
The two levels of government spend their revenue in two main ways:
(i) Capital expenditure.
(ii) Recurrent expenditure.
KCSE 2015PP1Q17/2017PP1Q17/2020PP1Q14: Name one type of public
revenue by the national government in Kenya. (1 mark)
(i) Capital/development expenditure.
(ii) Recurrent expenditure.
What is capital expenditure?
(i) Money set aside in the national budget for development projects.
(ii) Money used to finance new public projects in a financial year
(iii) Expenditure incurred on new development projects like
construction of new roads/dams/universities/buying vehicles
What is recurrent expenditure?
(i) Money spent on a regular basis in a financial year.
(ii) Money used by the government to sustain and maintain existing
facilities
Way in which the national government uses its capital expenditure
(i) Construction of national infrastructure eg roads/bridges, railways,
harbours and airports in different parts of the country.
(ii) Financing national development projects like electricity and
irrigation
(iii) Construction of higher educational institutions like schools and
universities and give grants/bursaries to promote education in the
country.
(iv) It uses funds to construct national referral health facilities like
hospitals and provide health services like medicine.

Ways in which the National Government uses its recurrent expenditure

KCSE 2021PP1Q: State two ways in which the national government of
Kenya spends its recurrent expenditure. (2 marks)
(i) Paying wages and salaries of state officers/public officers/civil
servants like teachers and the military personnel who provide
services to the people.
(ii) Uses revenue to undertake general repair/maintenance of public
facilities/national infrastructure-roads/.
(iii) Servicing of government debts borrowed domestically or
externally for development from the IMF or the World Bank.
(iv) Remitting funds/contributions to international organizations or
bodies where Kenya is a member eg COMESA, UN, EAC, AU,
UNO.
(v) Paying for social services like maternal health, free primary
education, free secondary education, cash transfer to the elderly.
(vi) Maintenance of foreign embassies abroad to help them pay rent
and electricity bills.
(vii) Purchase of drugs and stationery.
(viii) Finance/establish/maintain national security organs like the
NIS/KDF and NPS by buying arms and training soldiers.
(ix) Giving grants to county governments and Parastatals in order to
enhance service delivery.
 (x) It uses revenue to import petroleum products which are required
n the industrial/transport sectors.
(xi) It caters for emergency needs that may arise like national disaster
such as floods and diseases outbreak from Consolidated Fund
(xii) It uses 15% of its revenue to cater for county governments in line
with the constitution
Ways in which the county government uses its recurrent expenditure
funds in Kenya
KCSE 2019PP1Q24B: Explain five ways in which recurrent expenditure
funds are used by the county governments in Kenya. (10 marks)
(i) Provide bursaries/sponsor needy students for further studies.
(ii) Servicing county government’s loans incurred to finance its
activities/programmes/operations.
(iii) Maintenance and repair of county facilities, public amenities,
motor vehicles and buildings in order to keep them in good
working conditions.
(iv) Payment of salaries and wages to county employees and
workers who provide services within the counties.
(v) Purchase of drugs and stationaries, fuel and lubricants.
(vi) Collection of refuse and solid waste disposal.
(vii) Paying subscription fees to inter county associations and
programmes in order to sustain their operations.
(viii) Buying medical supplies/medicines required in the county
health facilities, stationery and fuel.
(ix) Financing county sporting and cultural activities which take
(x) Repair/maintain county transport /infrastructure like roads to
ease movement of people/goods/ease commercial activities.
Management of public finance
These are measures established by the constitution to ensure that public
funds are not misused by both national and county governments.
Ways in which the national governments manage public finance
(i) Parliament must approve national government expenditure to
ensure transparency and accountability.
(KCSE 2004PP1: Name the institution that controls government revenue
and expenditure in Kenya: =Parliament (1mark)
(ii) Controller of budget oversees implementation of national
government budgets by authorizing withdrawals from the public
funds e.g., the Consolidated Fund.
(iii) The CS for finance can temporarily stop transfer of funds to a state
organ in case of suspected mismanagement or wastage.
(iv) Every public office has an accounting officer accountable to the
national assembly and who ensure proper financial management.
(v) The Auditor General audits all public expenditures and accounts of
public ministries/departments/state organs to ensure transparency
and accountability.
(vi) Imposing sanctions against contractors who fail to complete their
jobs/do shoddy work/fail to pay taxes/engages in corruption or
violates fair employment laws
(vii) Introduction of open tendering system of government contracts
and tenders to prevent irregular deals/corruption/collusion)
(viii) The Ethics and Anti-Corruption Commission investigate and
probe corruption cases and prosecution public officers who
mismanage/embezzle/misuse funds
(ix) Empowering certain officers to spend money in implementation of
certain projects with transparency and accountability
(x) The use of x ray scanners to verify cargo on arrival at Mombasa
port has helped to curb revenue evasion.
Ways in which the County Governments manage its public funds
(i) Ethics and Anti-Corruption Commission investigates and
prosecute offices who misuse/embezzle/mismanage funds.
(ii) The Governor is accountable to the county assembly for
financial management within the county
(iii) Auditor General must audit county revenue and expenditure
and submit a report
(iv) Controller of Budget must supervise implementation of county
budgets and submit a report to parliament
(v) Introduction of open tendering system of government contracts
and tenders to prevent irregular deals, corruption and collusion
 (vi) Cabinet Secretary for Finance can temporarily stop transfer of
funds to a county government in the event of suspected
mismanagement or wastage.
(vii) Monies borrowed by the county governments must be approved
and guaranteed by the county assembly
(viii) County assemblies must pass legislation to ensure expenditure
controls / transparency and effective implementation of county
government budgets.
(ix) Every county government must prepare an annual budget
showing allocated amount of money and expenditure.
(x) Every county has a county accountant at the treasury who
maintain financial records of all funds withdrawn from the
revenue funds and the expenditure incurred.
The Controller of Budget in Kenya
The Office of the Controller of Budget is an independent office whose
holder is appointed by the president and approved by the national assembly
for a non-renewable one term of 8 years.

Functions of the Controller of Budget in Kenya

KCSE 2019PP1Q24A: State five functions of the Controller of Budget of
the Government of Kenya. (5 marks)
(i) MAIN ROLE: Oversee implementation of national and county
government budgets.
(ii) Advise the government on budgeting.
(iii) Check the use of government funds.
(iv) Ensures and checks that the withdrawals are lawful.
(v) Submit to Parliament a report on the implementation of budget
by both national and county government budgets.
(vi) Authorize withdrawals of public funds from relevant accounts
(vii) Arbitrate/mediate between the national and county government
in respect to budgets.

The Auditor General

The Office of the Auditor of General is an independent office whose holder
is appointed by the President and approved by the National Assembly for a
non-renewable one term of 8 years.
Roles of the Auditor General in Kenya
(i) Audit and reports on the public debts.
(ii) Audit and reports on the account of political parties funded from
public funds.
(iii) Audits and reports on the account of all public courts
(iv) Audit and reports of the accounts of the National Assembly, the
senate and County Assemblies
(v) Audits/ reports on accounts of National / County Governments
(vi) Audit / reports on accounts of all independent commissions and
offices established by the constitution
The Commission on Revenue Allocation
KCSE 2014PP1Q11: Give the main function of the Commission on
Revenue Allocation in Kenya. (1 mark)
KCSE 2019PP1Q11: State three roles of the Commission on Revenue
Allocation in Kenya. (3 marks)
(i) THE MAIN: Recommend on equitable sharing of revenue and
resources raised by the national government between national and
county governments.
(ii) Recommend on financial matters and financial management by the
national and county governments.
(iii) Define and enhance sources of the national and county government
revenues.
(iv) Encourage fiscal/financial responsibilities/accountability for funds.
(v) Determine/publish and regularly review their policy/criteria by
which to identify marginalized areas set to benefit from
equalization funds.
(vi) Submit to the National Assembly, the Senate and the National
Executive its recommendations for approval.
(vii) Sharing revenue between national and County Governments.
Financial officers who manage public finances both at the county and
National Assembly.
(i) The Controller of Budget
(ii) The Auditor General
Independent financial offices established by Constitution of Kenya
(i) The Controller of Budget
(ii) The office of the Auditor General
Revision Areas
1. Name four public funds established by the constitution of Kenya
2. Name two financial officers who manage public funds both at the
national and county governments
3. Explain six ways in which public revenue is raised by the:
a) The national government
b) County government
4. Explain six ways in which capital expenditure funds are used by the:
a) The national government
b) County government
5. Explain six ways in which revenue expenditure funds are used by:
a) The national government
b) County government
6. Give two external sources of government revenue in Kenya
7. Give two disadvantages of Kenyan’s reliance on foreign aid as a
source of government revenue.
8. Explain five principles of public finance
9. State the composition of the Government Budget in Kenya
10. Identify five stages in the preparation of national government budget
in Kenya
11. Define the following terms:
(a) Public finance
(b) Public revenue
(c) National budget
(d) Capital expenditure
(e) Recurrent expenditure
(f) Appropriation bill
12. Explain six reasons why the government of Kenya prepares
national budget
13. Give the main role of the ethics and anti-corruption commission
in Kenya
14. State the main role of the following:
a) The Controller of Budget
b) The Auditor General
c) The Commission on Revenue Allocation