Revenue puzzle for councils in draft law

By JAckson Okoth

Local authorities, which fail to raise adequate revenue to run their operations, may be forced to either merge or shut down their operations, if proposals contained in the draft law, currently under public debate, survives the referendum vote in March next year, and is adopted.

" There is no obligation on the national Government to compensate a devolved government that does not raise revenue commensurate with its fiscal capacity and tax base," says the draft law.

In the new arrangement, under Chapter 15 of the harmonised draft constitution of Kenya, each devolved government is entitled to an equitable share of revenue raised nationally. The devolved unit may also receive grants and other allocations from the national Government, with of without conditions attached.

This draft law empowers local authorities by removing unnecessary meddling from the Ministry of Local Government.

However, it is still unclear how to deal with unviable authorities, or how to handle the merger of councils to avoid wasteful expenditure on duplicate equipment and projects.

The new constitution places the power to regulate taxation and other revenue raising powers of devolved governments on Parliament. The legislature will also have authority over sharing of revenue, and making of grants to devolved governments.

It is the office of Local Government and Deputy Premier which has been discharging this responsibility, the only other office which enjoys executive power.

Local Authority Transfer Funds(LATF) monies, a lifeline for most local authorities, are provided as budget support to be spent in accordance with local budget priorities.

These priorities are identified in consultation with the citizens, and have to be approved by the full council, and the Minister for Local Government.

LATF is currently pegged at 5 per cent of the national income tax collected in a financial year, and accounts for about 25 per cent of total local revenues.

The draft now places more responsibility in running of public finances and revenue management of local authorities on parliament, which has to approve recommendations made by the minister, controller of budget and commission on revenue collection.

Presently, the life cycle of most local governments revolves around the minister who has to approve estimates.

In the new law, Parliament shall prescribe the structure of the plans and budgets of all devolved governments and when they shall be tabled.

Parliament will also determine the contents of budgets by the devolved governments, including source of revenue and how the proposed expenditure will comply with the national plan and financial estimates.

At the moment, the Local Government Act mandates the Minister to define the system of accounting, and the format of the annual accounts to be used by all local authorities.

The draft law is proposing radical changes the three levels of Government at a time when most local authorities remain unviable administrative units or service providers.

Until recently, a major impediment to the capacity of local authorities was the mismatch between their wide mandates and weak revenue-raising capacity. Due to Government control of all important taxes, they were left with only market cess, which is too little because of the subsistence nature of production in rural areas. In the draft new constitution, most of this control and supervision of local government has shifted to parliament.

 

 

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