The budget is a summary statement indicating the estimated amount of revenue that the government requires and hopes to raise. It also indicates the various sources from which the revenue will be raised and the projects on which the government intends to spend the revenue in a particular financial year. The budget in Kenya is presented to parliament the Minister for Finance around mid June. In the budget, the Minister reviews government revenue and expenditure in the previous financial year. The minister presents tax proposals i.e. how he intends to raise the proposed revenue from taxation for parliament to approve.
The budget fulfills three main functions:
To raise revenue to meet government expenditure
The government of a country provides certain services such as administration, defence, law and order environmental services and economic services. Also it must meet charges on the public debt.
Sufficient revenue must be raised to pay for this
It is a means of redistributing wealth
In many countries a situation has arisen where a small proportion of the population own a more than proportionate share of the nations wealth, while the majority of the population own only a small proportion of it. One method of redressing such inequalities of wealth is through a progressive system of taxation on income and capital. A progressive system is one wherethe wealthy people do not only pay more tax than the poor, but also pay a greater proportion of their income or wealth.
To control the level of economic activity
The government uses the budget to implement fiscal policy, i.e. the regulation of the economy through governments spending and taxes.