The National Treasury expects to increase the collection of surplus funds from cash-rich parastatals by 27.5 percent to Sh42 billion in the current financial year ending June, as it doubles its mop-up exercise.
Fresh disclosures show that the National Treasury netted Sh32.94 billion in surplus funds from regulatory authorities in the financial year ending June 2024.
The William Ruto-led administration has been seeking alternative sources of funds to plug the budget deficit.
In the report, Estimates of Revenue Grants and Loans, the Treasury has projected that it will collect a lower amount of Sh20 billion from regulatory authorities in the next fiscal year (2025/26), bringing its total collection in three years to around Sh95 billion in the mop-up exercise.
Regulators such as the Capital Markets Authority (CMA), the Communications Authority of Kenya (CAK) and the Energy and Petroleum Regulatory Authority (Epra) collect money through licence fees, fines and penalties, levies or charges on regulated firms.
After paying for salaries, programmes, and administration, any money left over is a surplus that should be returned to the National Treasury.
However, regulatory authorities have for long been sitting on these surplus funds. Parastatals often invest their surplus funds in government securities or purchase assets such as land or machinery.
The Public Finance Act requires regulatory authorities to retain 10 percent of operating surpluses, as reported in audited financial statements, while remitting the remaining 90 percent to the government’s main account through the Kenya Revenue Authority.
President Ruto in March last year directed commercial State corporations to wire up to 80 percent of net profits to the Treasury, an order that has been included in the contracts of chief executives, as one of the performance indicators for the current financial year ending June 2025.
“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 CEOs and board chairs at State House in October last year.
The State has also been expecting a windfall from surplus funds after charges for various services such as issuing IDs, passports, work permits, and marriage certificates were reviewed upwards last year, as the government looked for additional cash amid uproar against new taxation measures.
Initially, these changes boosted the government’s non-tax revenue, but this has gradually been declining as Kenyans have reduced uptake of public services due to the high cost.
Surpluses are comparable to profits by the State-owned entities and represent the balance between their revenues and expenses after tax.
Most of the parastatals have been investing these funds in government securities.
By the end of May, parastatals had put Sh366.32 billion in government securities, indicating they are flush with surplus cash.
This was an increase of Sh88.78 billion from Sh277.54 billion that the regulators had put in government securities by the end of June last year.
With the government running short of funds from ordinary taxes, it has aggressively launched a mop-up of the surplus funds from the State-controlled entities.
Treasury Cabinet Secretary John Mbadi recently said he had unearthed a ploy that parastatals use to avoid remitting 90 percent of the surplus cash to the exchequer.
CS Mbadi noted that most of the State corporations have set aside cash for future capital expenditure from surpluses in their accounts, cutting the shares they surrender to the government.
“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,” said Mr Mbadi in a circular to the chiefs of State corporations ahead of the preparation of annual budgets for the financial year starting July 2025.
