It is exactly ten years since counties were established to, among other things, ensure equitable sharing of national and local resources throughout Kenya. In discharging this mandate, counties exercise agency in that they receive monies collected as revenue by the national government and use it to carry out certain functions designated to them by the Constitution.
Counties execute this agency function in trust for the people. Article 202 requires that all revenue raised nationally shall be shared equitably among the national and county governments. This is known as the equitable share of national revenue. Since 2013, the 47 counties have received at least 2 trillion shillings as equitable share of revenue (ESR).
This colossal amount of money ought to be visible in towns and villages across the country in the form of roads, hospitals, markets, street lights, abattoirs, parking lots, stadia, cultural centers, water and sanitation services, and overall improvement in service delivery to citizens. As we audit the successes and failures of the first decade of devolution, we should be feeling the impact of ESR.
Unfortunately, the unending dispute between the national government and the counties over how much the latter should receive as equitable allocations has over-shadowed the debate on progress made with devolution. It also tends to obscure another important issue, namely, local revenue as a solution to the recurrent cash crisis facing counties.
Apart from ESR, counties are allowed to raise revenue from local sources. Article 174 envisages this when it refers to ‘local resources’ signifying the need for counties to prioritize revenue from local sources, also known as Own-Revenue-Sources (ORS).
The persistent disputes between the two levels of government over how much money will go to the counties from the national purse is testimony to the need for the local authorities to explore innovative ways of tapping into ORS. Available data shows that close to 90 per cent of the budgets of most counties is funded using ESR, making counties dangerously dependent on this mode of financing their recurrent and development expenditure.
Yet, according to the Commission for Revenue Allocation (CRA), counties have potential to raise more than seven times what they currently collect as ORS. CRA further argues counties can fund up to 40 per cent of their budgets from ORS, significantly reducing their fiscal dependence on the State, while giving them more financial autonomy to pursue their development agenda.
The most common ORS are business permits, land and property rates, car parking fees, market fees, trade and liquor licenses and cess. Others are health service charges, advertisement and billboard fees, and building permits. Some years back, the World Bank commissioned a study on behalf of the National Treasury to map the counties’ local revenue base and potential.
The study identified various high-potential but largely unexploited local revenue streams such as property rates and entertainment tax. Given recent economic trends showing real estate expansion and growth in consumer spending on entertainment, counties should align their revenue models with such dynamics to increase local resource mobilization while avoiding burdening households and businesses with multiple levies and taxes.
Simplifying business permits would also make it easier for more traders to comply thus netting more income for the county. In this era of climate change, counties could also make greater use of environmental levies not only to protect ecosystems but also generate additional revenue. Investing in infrastructure like public parks, stadia and other social amenities is a catchment for enhanced local revenue in the form of user fees.
The devolved units should also leverage emerging economic sectors to grow ORS. For example, the counties in the coastal region should explore the Blue Economy, to create livelihood and business opportunities for their residents and attract local and foreign investors, in fisheries, tourism, aquaculture, transport, energy and maritime training. These are more sustainable revenue streams and can grow with time compared to allocations from Treasury which are governed by a formula.
In short, counties need to be more innovative in addressing fiscal gaps without having to resort to pushing for increased funding from the Exchequer. However, they must also put safeguards to protect own-source revenue. Lack of effective control and audit, spending locally generated funds at source, manual revenue collection, and ineffective planning and management have been cited as the main factors undermining counties’ ability to achieve greater financial autonomy through ORS.
In 2018, the Cabinet approved the National Policy to Support Enhancement of County Governments’ Own Source Revenue, creating the institutional framework for local revenue raising. One of the proposals in the policy was that counties enact laws to govern their revenue streams. Anchoring ORS in law facilitates effective enforcement further enhancing collection.
Mr Murumba is CEO, Impulso Kenya Limited. Email: firstname.lastname@example.org