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Revenue impasse needs an economic solution

By XN Iraki | August 4th 2020 at 12:00:00 GMT +0300

Our senators can’t agree on how to share the national revenue.

But how can this be? There are a number of possible reasons.

One, it is possible that the ghosts of mathematics still haunt us. The senators do not want to understand the formula, made and validated by a constitutional body - the Commission on Revenue Allocation (CRA). What if mathematics was not compulsory in school?

Two and more poignant but said in whispers is that no senator wants to commit political suicide by having the allocation to their county reduced.

The senators are like hunters and gatherers; they must bring something home from Nairobi. And it gets murkier. The new formula leaves out the population as a parameter in revenue allocation. Population was in the first- and second-generation formulae.

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But more curiously, the high-population counties get more money. The new formula introduces health services, agriculture and other county services with a total weight of 48 per cent. Other new additions to the new formula include roads, urban services and fiscal prudence. That probably shifts the money to small but highly populated counties.

Equal sharing drops from 20 per cent in the first formula to 18 per cent in the second formula and 14 per cent in the latest formula.

Land area, which could have significantly affected some large counties, drops to five per cent from eight per cent in the previous two.

Fiscal responsibility, prudence or effort should have more weighting to force counties to work, the same way poll tax forced adults to work during the colonial era. Not that I admire colonialism.

Why so much heat on allocating money that is only 30 per cent of the national profits (read a tax rate of about 30 per cent).

Why are politicians not bothered about 70 per cent?  Should our senators not be more interested in ensuring their voters retain 70 per cent as entrepreneurs or businessmen?

Does the obsession with this formula betray our narrow mindedness? Should we not be more focused on how the revenue is generated and support the generators to share more?

After all, Kenya is not like Nigeria or other oil producers that get a lot of revenue for “free“ from God-given oil.

Further, political heat arises from the fact that this money is seen as free and given unconditionally and has become an addiction every year.

History is the other source of the heat. The session papers in the past have focused more on the regions likely to give the highest economic returns. 

Other regions feel they have historically been neglected and need more money.

The Equalisation Fund does not seem enough. This historical grudge and the fact that devolution came to bring everyone on board, reduce the feeling of marginalisation and ensure equality might be the master key in resolving this problem.

What leaves my head spinning is that CRA was formed to stop what the senators are doing, fighting over revenues. We use formulae to increase objectivity. Our senators are using them as wells of subjectivity. What’s the solution?

You can be sure the politicians will sit and sort out the formula with some trade-offs. What comes out clearly is the vulnerability of the counties because none raises enough revenues. You can be sure that they will still haggle next year. Maybe we should get a revenue generation formula and use it to derive a revenue-sharing formula.

After all, you can’t get something out of nothing. Why can’t some of this money be given to regions to enjoy economies of scale? Remember economic blocs? One suggestion is to come up with a new weight - the numbers of county residents who actually work. Real workers pay their tax and KRA has tax returns.

More Kenyans will get into the tax bracket, raising more taxes, hence more to share. And hopefully, we shall stop squabbling.

This country, in the long run, will be developed by all of us by being economically active. But we can only be active if we get the right incentives.

How do we incentivise every Kenyan to play their role in economic growth and get more of 70 per cent and pay 30 per cent? How do we help the fisherman catch more fish and get paid for it?

What of potato growers, maize farmers, camel and beekeepers? What of mama mboga? I doubt if anyone believes being helped is heroic.

The private sector does so well because of a good incentive system. Corruption does well for the same reason.

The solution to the revenue sharing stalemate is a political solution in the short run. But in the long run, it will need an economic solution.

- The writer is an associate professor at the University of Nairobi

XN Iraki Revenue Sharing Corruption
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