The taxman could soon start collecting taxes for counties as Treasury seeks to grow counties’ own source revenue from the current Sh32 billion to Sh120 billion.
Nairobi, Mombasa, Kiambu, Narok, Nakuru, Kisumu, Machakos and Nyeri are some of the counties the Treasury has proposed to hand over their revenue generation function to the Kenya Revenue Authority (KRA) to improve tax administration.
Counties such as Kakamega, Kisii, Bungoma and Meru may contract private firms to offer professionalised revenue administrative services with KRA expected to take over in the medium term.
These are part of the recommendations by Treasury contained in the National Policy to Support Enforcement of County own Source Revenue.
While reading the 2019/2020 budget speech, Treasury Cabinet Secretary Henry Rotich said the Government would be implementing the policy in this financial year in a bid to wean counties off their dependence on county allocations.
“In order to encourage the counties to optimise own source revenue collection, the National Treasury in collaboration with the Council of Governors will implement the National Policy to Support Enhancement of County Governments’ Own-Source Revenue,” said Rotich.
“As per the Presidential Directive issued in February 2019, the National Treasury has established a multi-agency team to develop and implement an Integrated Revenue Management System for County Governments. This initiative is aimed at eliminating the leakages and large costs currently incurred by Counties in their revenue collection processes.”
Cabinet has also approved the County Governments’ Revenue Raising Process Bill 2018 that has been submitted to the National Assembly and which underlies the policy.
Rotich urged Members of Parliament to fast-track the Bill that will regulate the introduction of levies by counties, ensure they do not conflict with national economic policies or cross-county economic activities.
In the 2017/2018 financial year, county governments targeted Sh49.2 billion in own-source revenue but only managed to raise Sh32.5 billion, similar to collections realised in the 2016/2017 financial year, indicating a stagnation in revenue collection.
“In general, counties’ own revenue performance has deteriorated in the last three years both as a proportion of targeted collections and in absolute terms,” explains the Treasury.
At the same time, counties locally generated revenue is financing an increasingly smaller proportion of expenditure.
Treasury data indicates counties’ locally generated revenue funded 15.5 percent of expenditure in the 2013/2014 financial year, with the figure shrinking to 13.1 percent in 2014/2015 and 11.9 percent in 2015/2016. In 2017/2018 counties managed to fund just 10 percent of their budgets from own source revenue.
Part of the reason is most counties are yet to enact or operationalise required legislation to underpin revenue-raising measures, instead relying on fees and charges established by the defunct local authorities that were regulated through by-laws that are now obsolete.
A World Bank report in 2016 found that most counties in Kenya were losing out on billions in property taxes by charging land rates based on outdated valuation registers.
At the same time, this undermines counties’ authority to collect rates and creates a disconnect between the county and national governments compromising enforcement and catalysing corruption.
“In other counties, the revenue function falls not under the Treasury, but in other departments such as the office of the County Secretary contrary to provisions of the PFM Act (2012),” explains the Treasury.
Treasury says this this has led to loss of control by County Treasuries of the revenue collection function leading to revenue leakages, including collections being spent at source contrary to the PFM Act (2012).
Over the past month several governors including Kirinyaga and Kiambu governors Anne Waiguru and Ferdinard Waititu have blamed IFMIS for producing conflicting expenditure reports that indicated counties had funded national functions.
Treasury, however, says county governments’ own revenue data as reported in their financial statements are not reconciled with balances shown in IFMIS.
“The reason for this is that a number of counties do not post all their own revenue receipts on IFMIS,” explains Treasury in part. “In addition, whereas the National Treasury has issued a Financial Statements template to be used by all county governments in reporting their own revenue, many counties have not adhered to this template.”
The policy recommends a new national legislation on levies such as land rates to replace the outdated Rating Act and the Valuation for Rating Act.
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