Rotich proposes far-reaching changes in running county finances

Governors Friday remained tight-lipped as the business community began an early celebration over far-reaching changes that Treasury Cabinet Secretary Henry Rotich has proposed in the management of county finances.

In the Budget statement read on Thursday, Mr Rotich said counties will have to consult the National Treasury before levying any new taxes, fees and charges in an attempt to curb double taxation.

He has also asked county bosses to clear out-standing debts before committing revenue to other uses.

“This is a good step towards addressing the issues faced by businesses in this country,” said Kenya Association of Manufacturers’ (KAM) chief executive Phyllis Wakiaga.

DOUBLE TAXATION

KAM has been consistent in raising alerts on cases of double taxation, saying the extra fees and charges levied by the devolved units have hurt inter-county trade.

The lobby maintains that most cases of double taxation go hand in hand with arbitrary arrest and harassment of drivers assigned to ferry goods to markets.

“And we have received multiple such complaints from our members,” said Mr Wakiaga.

On Thursday, Mr Rotich took the governors aback with an announcement that the Governments Revenue Raising Regulation Process Bill, 2018, which has been finalised, will require them to seek the approval of the National Treasury before introducing new taxes, fees and charges.

“This is intended to address the concerns of double taxation as goods and services move from one county to the next and is consistent with Article 209 of the Constitution which prohibits revenue raising measures which impede the movement of goods and services within Kenya,” he said.

ENACT LAW

Under the said Article, Parliament is supposed to enact a law to guide how counties can impose additional levies beyond the property rates and entertainment taxes already listed in the Constitution.

The Constitution expressly prohibits the counties from exercising their taxation and other revenue-raising powers “in a way that prejudices national economic policies, economic activities across county boundaries or the national mobility of goods, services, capital or labour.”

Mr Rotich said the Governments Revenue Raising Regulation Process Bill and a policy on county finances have since been submitted to the Cabinet for approval, pending submission to Parliament.

This is the second time in as many years that the Treasury is trying to take direct oversight role on how counties manage their finances.

REJECTED

A similar proposal, County Government (Revenue Raising Regulation Process) Bill, 2017 was rejected last year by governors, who said seeking approval of the Treasury would deny them the financing flexibility and cripple devolution.

Early this year, when the Treasury invited the governors to comment on the bill, CoG chairman Josphat Nanok voiced the same concerns and set up a team to work out an alternative “since the circumstances of all the counties are not uniform”.

The Treasury has brushed off the concerns raised by the governors amid concerns that allowing governors to impose charges as they please will cripple growth of domestic commerce and put the country at logger heads with the landlocked states.

Mr Nanok and the CoG chief executive Jacqueline Mogeni declined to comment on the bill. Similar questions to individual governors went unanswered with their aides saying a team was already in talks with the National Treasury over the mat-ter.

Mr Rotich, however, said governors had agreed to Treasury’s demand requiring the billions of shillings owed to suppliers and contractors to be included in the county budgets as first charge on revenues.

DEBTS

The breakthrough comes amid fears that the mountain of debts accumulated by counties in the last six years risked compromising government revenues as experts draw parallels with defunct local authorities.

The Controller of Budgets report shows the devolved units had accumulated debts totalling Sh100 billion by end of 2014/15.

“To stop the growth of expenditure arrears in counties, we have agreed with the county governments that all pending bills shall be subjected to verification,” Mr Rotich told Parliament on Thursday.

“Once authenticated, the arrears shall be included in the budget as a first charge on the respective County Revenue Funds as required under the Public Finance Management (County Governments) Regulations, 2015.”

He added: “I urge county assemblies and Parliament to assist us by enforcing this agreement.”
Mrs Agnes Odhiambo, the Controller of Budget, has since blamed the pile of pending debts on counties’ low revenue collections, reckless spending and bloated staff.

REVENUE TARGETS

“None of the counties is meeting revenue targets yet they budget as if they collect all that money,” Ms Odhiambo said earlier when she appeared before the Senate’s Finance and County Public Accounts and Investments committees.

A number of suppliers and contractors who do business with counties have complained of constrained cash flow, accusing the devolved units of frustrating their businesses.

The 47 counties started operating following the 2013 elections and have accumulated millions of shillings in debts every other year.

The national government has allocated billions of shillings to the counties, growing steadily from Sh199 billion in 2013/14 to Sh368 billion in 2018/19.