How to raise revenue without upsetting voters
A parking attendant charging a motorist. FILE PHOTO |
What you need to know:
- So far, the counties have made a number of mistakes in their attempts to tax.
Governors want more money. One of their main targets for this has been the central government, which they want to devolve more money. Innovative governors have also been looking at ways that they can generate revenue. But so far, few have done so in a way that has won the backing of voters. So how can county governments raise revenue without losing support?
The last column I did revealed that only a small number of counties — Narok, Machakos, Mombasa, Nairobi, and Nakuru — have reported significant amounts of locally generated revenue.
One of the main reasons for this is that a number of counties do not enjoy the kind of economic activity that is easy to profitably tax. Another reason is that counties have not yet won the trust and respect of their voters — in some cases because they have not even tried.
So far, the counties have made a number of mistakes in their attempts to tax. Too many county governments have raised taxes before persuading people the taxes are needed. Almost every day there is talk of another county thinking up ways to impose a new tax, or increasing an established one, from chicken rearing to planting trees and back again.
Kenyan voters are understandably suspicious at the new range of levies. After all, local governments in Kenya have a history of corruption, inefficiency, and incompetence.
We have therefore seen protests from the public and business community against “double taxation” in cases where county-level taxes appear to duplicate national-level ones, such as the plans by the Mombasa County Assembly to introduce a new charge on port cargo.
Counties often complain that the public does not appreciate how many services they are responsible for providing, with the implication being that if there were higher awareness people would be more willing to pay tax. This is a fair point, and one that has been demonstrates by research on the Lagos State Government, which has managed to simultaneously increase revenues and popular support over the last decade.
However, one of the reasons for the low level of public awareness is that county governments have not told them. To date, remarkably little public relations work has been carried out by the counties to explain to voters what their jobs are, and to make the case for higher revenue collection.
For example, very few counties have targeted “easy wins” that could be achieved relatively quickly to demonstrate what county governments can do for their communities. Similarly, almost no counties have developed a clear and effective brand so that wananchi can see which services are being provided at the county level. It is therefore hardly unsurprising that Kenyans are reluctant to part with their hard earned cash.
HARAMBEE!
Although counties have made a slow start, all is not lost. We are only one year in to the devolution experiment and there is ample time to turn things around — but this change has to begin now.
The good news is that Kenya has a long history of local cooperation to provide development. Indeed, President Jomo Kenyatta’s time in office was epitomised by his call to harambee — for Kenyans to pull together in order to build bridges, wells and schools. Under Kenyatta’s government, a system emerged in which the state pledged to provide a nurse if a local community worked together to build a health clinic.
In many ways, harambee was problematic because it exacerbated inequalities between areas with more skills and resources — which were therefore able to fund and organise more projects — and those without. But harambee was also remarkable, because it harnessed local talents and spirits to meet development challenges.
Indeed, so many schools and clinics were built that the government was unable to keep up. Although the institution was manipulated and to some extent delegitimised under President Daniel Moi, the spirit of harambee lives on: It is partly for this reason that devolution is so popular.
What Kenyan counties need to do is to harness the original sentiment that underpinned harambee: To bring people from the community together to identify local priorities, and to work together to decide how they should be financed. Doing this will require counties to engage in far more public participation and communication — a topic for a future column.
PROPERTY TAXES
Property taxes are one of the main sources of revenue available to the government. But it is easy to see why not everyone understands this point.
The fourth schedule of the Constitution provides for the ‘general principles of land planning’ to be organised at the national level. Indeed, section 66 explains this power unequivocally: ‘The State may regulate the use of any land, or any interest in or right over any land’.
A little acknowledged caveat, however, is that the Constitution’s fourth schedule also allows counties to engage in ‘land survey and mapping’, and section 209 (3) (a) explicitly gives devolved governments the power to impose property taxes.
What the Constitution put in place was therefore a subtle difference between political land management (part of the national debate), and economic questions of the setting and collecting of property taxes (a legal right of county governments).
Why have counties not made better use of this provision to raise revenue? First, it is important to recognise that we lack good data on this question — the Office of the Controller of Budget’s report for the first full year of devolved governments’ (2013/14) provided no information on how much property tax was collected by counties.
This means we are not in a position to identify bad cases that can be used to understand where things are going wrong, or good cases that can be used to see how they can be put right.
One thing we do know from the Office of the Controller of Budget’s report of February 2015 is that Baringo, Kisumu, and Nandi are three counties that have collected very little from rent and property rates.
Perhaps the most important reason for this is the lack of recent property valuations, so that land is recorded as being worth a tiny proportion of its true value. Indeed, successful property tax collection is all about clear and transparent valuations — this is the only way that counties will get the revenue they are due without losing public support.
For example, property tax in Nairobi is paid only according to the land held, and the last valuation of the land was conducted in 1980. As a result, the Nairobi County Government has had to levy a 34 per cent tax rate as a way of generating revenue from land that is in some cases valued at less than 10 per cent of its worth.
In turn, this appears to be illegitimate to voters — but the county would be able to charge a much lower tax if it was able to conduct an effective revaluation. As it stands, the county will have to raise the tax rate every year to compensate for the fact that ever increasing property values are not reflected in official calculations.
The problem of ever-lowering property tax revenue was noted as early as 2001 in a report prepared by Roy Kelly at Duke University. Taking into account inflationary changes, Kenya has seen property rate revenues decline since 1991. Between the ten financial years spanning 1990/1 to 2000/1, local authorities’ property taxes went from 0.37 per cent of GDP to 0.25 per cent. Kelly’s report concludes that property rates in Kenya are ‘(1) declining in real terms over time, (2) declining in relative contribution to total local authority recurrent revenues and (3) declining as a per cent of GDP.’
This raises the question of why land revaluation is so hard. One reason is that it turns out to be a rather complex legal process that needs to be simplified.
Another is that influential land holders have raised political and legal barriers because they know they are paying less tax than they should be, and want to sustain this situation for as long as possible. Such behaviour is not only self-serving and unfair, but goes against the spirit of the Constitution and must be challenged.
THE WAY FORWARD
Despite some teething problems, the vast majority of Kenyans remain supportive of devolution. We also know from opinion polls that Kenyans want more funds to be devolved. What Kenyans are suspicious about is the idea of counties levying higher taxes if they cannot prove that they are providing more and better services. Counties need to respond to this by increasing the quality and quantity of public participation and communication.
At the same time, we must ensure that some of the country’s economic elite does not use public scepticism about county-level taxation as cover to avoid paying taxes. Counties have the constitutional right to collect property taxes, and to do this effectively they need to be able to re-value land. If vested economic and political interests prevent this from happening, it may undermine the long-term viability of devolution itself.
Cheeseman teaches African Politics at Oxford University
Dominic Burbidge is a Post-doctoral Researcher at Princeton University
