County taxes: The one unanswered question in push for more funding

What you need to know:

  • Kericho Senator Charles Keter said counties have deliberately locked the public from knowing how much they generate locally and claimed that even what they do acknowledge in their budgets is usually lower than the actual receipts for the financial year.
  • County Assemblies Forum (CAF) chairman Dr Abdi Nuh said the counties are always being warned about imposing levies in a manner that could restrict the movement of goods and services.
  • According to Controller of the Budget Agnes Odhiambo, the increase in local revenue collection during the third quarter could be attributed to the renewal of the Single Business Permits (SBP) revenue stream and passage of county finance Bills by a number of county assemblies.

A year-and-a-half into devolution, questions are being raised over how county governments are accounting for the billions of shillings they collect through revenue streams assumed from former local authorities even as they clamour for more cash.

As a party, Cord is pushing for 45 per cent of the Exchequer or current budget to be shared among the counties, while the Council of Governors (CoG), which includes Cord members, wants the share-out to be from 45 per cent of the national tax collection from the previous year.

Somehow, the subject of county-generated revenue seems to have fallen through the cracks as the Opposition and the CoG continue with their parallel Okoa Kenya and Pesa Mashinani referendum quests.

“It is partly true to say that little attention has been paid to the revenues the counties generate within their jurisdictions. We need to begin asking how much they are getting and clearly factor it in the budget,” Suba MP John Mbadi said.

Kericho Senator Charles Keter said counties have deliberately locked the public from knowing how much they generate locally and claimed that even what they do acknowledge in their budgets is usually lower than the actual receipts for the financial year. “That way governors have managed to remove their internally generated revenues from the national debate,” he said.

Mr Paul Mwangi, the head of the Okoa Kenya technical committee, said what kind of and how much revenue is generated by the 47 counties is disclosed which could explain why little attention has been paid to the issue.

“What one county is generating internally belongs to the particular county and should not be of interest to the national government or other counties,” Mr Mwangi said. “However, in terms of its management, it is a national issue and the auditor-general and the Senate would question that.”

But proponents of the referendum quest argue that the Constitution restrains counties on how much they can levy.

In addition, they charge that the national government has not adequately empowered them to collect what little the Constitution allows, hence the need for the referendum.

MISGUIDED ARGUMENT

Wajir Governor Ahmed Abdullahi said the argument that little attention is paid to locally generated revenue is misguided since that revenue was already being included in every county budget.

“Even as we ask for more money from the national government we are also working overtime to boost our local revenues but without overburdening the taxpayer and within the confines of the Constitution. So suggestions that there is little attention to internally generated revenue is misplaced,” he said.

County Assemblies Forum (CAF) chairman Dr Abdi Nuh said the counties are always being warned about imposing levies in a manner that could restrict the movement of goods and services.

Chapter 12 on Public Finance also restricts the kind of levies the counties can impose so as not to destabilise the national economy, he said.

“Anyone blaming counties on that has scant understanding of the law. In fact, imposing new levies has at times generated a public outcry,” he said.

On the other hand, Ol Jororok MP John Waiganjo, an opponent of the referendum push, said the counties’ argument is not tenable.

He called the referendum push by both Cord and the CoG a ploy to unsettle the ruling Jubilee coalition in order to grab power through the backdoor.

“It is not the role of the national government to ensure that counties collect local revenue. In fact it is not even a function of Parliament. Both institutions (national government and Parliament) only see to it that what is collected is accounted for,” he said.

However, the Fourth Schedule of the Constitution requires that the national government build the capacity of counties and provide technical assistance.

Under the 2010 constitution local authorities were merged into counties that now have expanded jurisdictions, and one would rightly assume, more revenue from property and entertainment taxes and user charges.

REVENUE COLLECTION REPORT

Also, under the former constitution, local authorities were largely self-reliant, save for the Local Authority Transfer Fund (LATF) transfers. LATF accounted for five per cent of national income tax collection in any year shared among the 175 local authorities to supplement local revenues.  

This jurisdictional expansion saw the devolved units collect a combined sum of Sh19.1 billion or 14.3 per cent of the total revenue available to them between July 2013 and March this year, according to the Controller of Budget’s County Budget Implementation Review Third Quarter Report published in June.

According to the report, Nairobi City County collected Sh7.8 billion followed by Mombasa, Narok, Nakuru and Kiambu that raised Sh1.4 billion, Sh1.3 billion, Sh1.2 billion and Sh869.5 million respectively. Counties that recorded the lowest local revenue collection during the period were Lamu, Tana River and Garissa with Sh18.8 million, Sh24.3 million and Sh27.4 million respectively.

The amount of Sh19.1 billion represents a significant improvement in local revenue collection from Sh4.5 billion to Sh4.7 billion in the first and second quarters respectively.

According to Controller of the Budget Agnes Odhiambo, the increase in local revenue collection during the third quarter could be attributed to the renewal of the Single Business Permits (SBP) revenue stream and passage of county finance Bills by a number of county assemblies.

According to Mr Mbadi, a number of reasons could explain why the public seems to be paying little attention to locally generated revenue. Key among them is that the largest portion of national revenue is collected by the national government, and all Kenyans are supposed to pay taxes.

“It is a fact that little attention has been given to what the counties collect locally, but national revenue concerns every Kenyan and no wonder the focus has been there,” he said.

BELOW TARGET

In addition, counties still lack the capacity to collect revenue. The controller of budget noted that despite the improvement in local revenue collection, the performance by counties was still far below the total annual local revenue target of Sh61 billion.

This could be attributed to the fact that most counties are yet to appoint receivers of revenue in accordance with section 157 (1) of the Public Finance Management Act, 2012.

In essence, the controller of budget was saying the counties have the responsibility to put their systems in order.

But Mr Mbadi said the below-standard performance should also be blamed on the national treasury which has not adequately empowered the counties as the constitution requires.

Prof Winnie Mitullah, who served in the Task Force on Devolved Government of Kenya 2011 (TFGD) that advised the government on personalisation of county functions, also blames the national government for the counties’ lack of capacity.

The TFGD identified three categories of functions: Residual functions not expressly assigned to either the national or county governments; concurrent functions comprising joint tasks or overlaps; and the exclusive functions for each level of government.

Prof Mitullah recalls the TFGD had recommended the national government come up with legislation assigning the residual functions in order to avoid conflict, but the functions still reside with the level of government that existed before the 2010 constitution.

“Up to now, we are not clear on residual functions like dealing with marginalisation. Betting should be a county function, but there’s some push and pull with the national government on that too,” said Prof Mitullah.

She has recently been listed as a member of the Council of Governors technical committee on the referendum quest.

Other residual functions are the new revenue streams opened up by recent discoveries, particularly in the mining sector.

These include oil in Turkana, natural gas in Wajir and coal in the Ukambani and coastal regions.

The modalities of how the national and county government will share the proceeds from these ventures still remain fuzzy, according to Wajir Governor Abdullahi. Also at issue is who –– the national government or the counties –– should assume liabilities of the local authorities.