By Frankline Sunday

Kenya stands to lose investments worth billions of shillings in if the current tax regime is not harmonised to ensure free intra-regional trade in the 47 counties.

The country’s private sector has raised concern that devolved units of government have inadequate capacity to develop trade-friendly policies.

This, it argues, sets stage for a weak and bureaucratic economic policy regime in counties. It is feared the result will be an increase in the cost of doing business in the country.

Of great concern is taxation. Industry players have come out strongly to caution counties against using their autonomy to develop counter-productive taxes and levies. 

“There still remains a lot of clarification to be done on just what the Governors and Senators are supposed to do within their mandate in terms of promoting trade and commerce,” said Carole Kariuki, chairperson, Kenya Private Sector Alliance.

Lack of co-ordination

 Kariuki observed that lack of defined roles between the two levels of government exposes businesses to a double taxation regime. This, she says, could be disastrous to the business environment.

“We would not want to have duplication where both County government and national Government levy taxes on the same business,” she said. “What we need to have is a clearcut definition of local tax and one of national tax and the difference between the two.”

This could lead to transfer of the crippling bureaucracy from the central to the local government and in the process lead to increased levels of corruption and rent-seeking.

“One of the things that we have talked about advocated is the one-stop shop because having many agencies with different roles and levies leads to duplication. It is also cumbersome for businesses to move from one office to another,” states Kariuki.

Investment climate

Kenya has often scored poorly as a favourable investment destination.  High-energy costs, lengthy registration processes, corruption among other factors have denied the country millions of dollars’ worth of investment and thousands of jobs.

The recent World Bank Doing Business Report found out that legislative requirements, weak enforcement of contracts and slow registration of property are major obstacles to businesses in urban centres, more so, Nairobi.

The border town of Malaba emerged tops in the 2012 ranking as the best place to do business in Kenya owing to speedy issuance of construction permits and better enforcement of contracts.

With county governments now in place, concern is rife among the private sector that they might develop protectionist legislative measures. This, they argue, could in the process starve their respective regions of investment.

Part I of Chapter Twelve of the Constitution lays out the principles and framework of public finance that are to guide all aspects of public finance in Kenya, including, taxes levied by the national government cannot be levied by county or regional governments.

Article 209 on the other hand provides that a county government may impose property rates, entertainment taxes and any other tax that it is authorised to impose by an Act of parliament.

Thus the revenue generated from the entertainment activity and property within the jurisdiction of the county shall go to the county coffers.

However, the law also provides that an Act of Parliament may authorise the national government to impose any other tax or duty, except for property rates and entertainment taxes.

Aside from taxes on business, the law permits both the national and county governments to impose levies for the services they provide.

Criminality

According to Kenya Association of Manufactures (KAM), county governments should not be allowed to impose tax measures that impact negatively on inter-trade between other counties because doing so would be legally and economically criminal.

“County governments cannot impose taxes on businesses that impact negatively on inter-trade or prohibit trade between two counties because this is against the Constitution,” said Ms Betty Maina, KAM chief executive officer.

Maina said some instances of unfavourable economic policies have already come to light with some governors becoming the major culprits.

“Ensuring that a law made in county A does not impede business in county B is our main concern and we have had a case where a governor felt that movement of raw materials from his county to the next should be regulated.”

Private sector is rooting for a system where county administration develops a business agenda that details how the administration will engage with the private sector and with businesses in order to promote investment.

This might, however, be a tall order and easier said than done owing to the varied nature of Kenya’s counties. Each of the 47 counties differs from the next in terms of the presence of natural resources and wealth distribution per capita.

Skill base

This makes it difficult to produce a blanket legislation to guide the allocation and utilisation of resources in all the counties. In addition, counties also differ in terms of human capital and availability of a diverse skill base.

Due to prevalent rural-urban migration over the years, most counties in rural areas have lost their able and skilled manpower to major towns and cities around the country.

This presents a challenge in terms of managing resources generated and economic opportunities presented to most counties far from urban centers.

Analysts say Kenya lacks the necessary capacity and infrastructure to permit full autonomy of counties and facilitate the ideal levels of wealth creation expected.