Counties welcome new law on revenue collection

National Treasury’s plan to develop a national policy and legal framework to guide counties in raising revenue, particularly on own-source resources, has received widespread support from stakeholders.

Council of Governors (CoG) Chairman Peter Munya and The Kenya Association of Manufacturers (KAM) told Smart Company the plan is timely.

Mr Munya, however, insists that the Treasury should support the devolved units’ efforts to harmonise their regulatory practices through creation of regional economic blocs.

“We need the legal framework but even as Treasury tackles this challenge at the national level, it also needs to support our own efforts to tackle the challenge of double taxation through regional economic blocs. There has been a lot of hostility from Treasury on such initiatives and we need support,” said Mr Munya.

A number of regional trade units have been established to lobby for business and attract investment across the 47 counties.

Legal expert Peter Wanyama said the National Treasury should create the legal framework and tread carefully in a bid to safeguard the constitutional mandate of the counties to raise their own funds.

“It is an important step but the devil will be in the details (of the framework) to ensure the guidelines do not infringe on the rights of the devolved units to legislate and plan on how to raise their own funds as provided in the constitution,” said the devolution expert in an interview.

KAM welcomed the proposal and called for the speedy development and implementation of the framework saying a number of counties have introduced multiple regulations, forcing businesses to pay for numerous licences and permits, especially between jurisdictions thus affecting the cost of business.

Centralise sharing mechanism

“We had made this proposal to government before the budget reading citing the need to centralise the sharing mechanism of Single Business Permit fees collected at the counties. The absence of the centralisation of this collection has led to each county demanding traders obtain the permit even when a trader is distributing goods,” KAM CEO Phyllis Wakiaga told Smart Company in an interview.

“No return service is offered by such counties and this has translated to multiple taxation and licensing which has increased the cost of doing business.”
In his budget read on Wednesday, Mr Rotich said since the establishment of County Governments in 2013, the National Treasury had continued to receive complaints from citizens and business enterprises on the “haphazard” manner in which user fees, service charges and property rates are being levied at the county level without participation by key stakeholders or public consultations.

“Such regulatory practices are clearly contributing to an unfriendly business environment, with adverse implications for investment, employment and economic growth.  At the same time, certain county revenue instruments — such as cess may be in violation of the Constitution, while others, such as the Single Business Permit, may have a weak basis under the current legal environment,” said Mr Rotich.  

He said the Treasury, jointly with all the relevant State agencies and the Council of Governors, has commenced a process to develop the National Policy and Legal Framework to guide County Governments’ revenue raising measures.

“This exercise is specifically intended to promote a conducive business environment and ensure compliance with Article 209 (5) of the Constitution, as well as better coordination and a well-defined mechanism for regulating business activity countrywide.

The exercise is also intended to support efforts by County Governments to enhance their own-source revenues, reduce the tax gap and improve the alignment between county budgets and policy priorities,” said Mr Rotich.

He said the government will continue to simplify and modernise business regulatory regimes, rationalise regulatory fees and other charges, and eliminate regulatory and other hurdles that discourage investment.

Before the advent of devolution, any distributor nationally was able to access all its markets in Kenya via a Single Business Permit. The licence was paid for and issued by a local authority and once issued the SBP was recognised and reciprocated by other local counties.
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