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More pain from tax hikes loom as counties want uncollected Sh216b

PS State Department for Devolution. Mr. Julius Korir and Dr. Jane Kiringai Chairperson of Commission on Revenue Authority (CRA) during the launch of the report on comprehensive own source revenue potential and Tax gap study of County Governments. [Wilberforce Okwiri, Standard]

Property owners, motorists, outdoor advertising agencies, mining firms and hospital operators face fresh taxes after a new report showed Sh216 billion go uncollected in counties every year.

Newly elected governors yesterday vowed to implement the report's findings in what could set up Kenyans - who are already facing high inflation pressures - for steeper rents and higher costs of accessing basic services and goods.

The report, published by Commission on Revenue Allocation (CRA) and backed by the World Bank, shows county governments collect only Sh31 billion in taxes annually against their target of Sh52 billion, underlining their inability to tap their own source revenue from residents.

The biggest potential for the untapped revenue, according to the Own Source Revenue and Tax Gap Study of county governments, is outdoor and advertising fees where the 47 counties have an opportunity to collect Sh81 billion.

Fees for hospitals and public health operators could generate Sh33 billion for counties while trade licensing fees could generate up to Sh23 billion, the report says.

Cess and fees from natural resources and minerals transportation could generate up to Sh16 billion while property rates can raise Sh14 billion in additional revenues.

At the same time, parking fees could generate up to Sh9 billion, says the study.

"We are very excited that there is a lot of potential in collecting revenue," said Kakamega Governor Fernandes Barasa during the launch of the report in Nairobi.

He said all the governors would be urged to implement the report's recommendations.

Barasa, who is the chair of the Council of Governors' Finance, Planning and Economic Affairs Committee, said counties would however strike a delicate balancing act between higher collections and improved service delivery.

"On behalf of my 47 colleagues, we are going to follow through on the revenue sources," he said.

"We will exploit the potential to tap unexploited sources."

In the captured potential for additional own source revenue, Nairobi could raise Sh67.66 billion weaning itself off the Sh19.25 billion it gets as its equitable share from the National Treasury.

Kisumu has the potential to raise Sh29.19 billion against its allocation of Sh8.03 billion while Kiambu could generate Sh11.3 billion compared to the Sh11.72 billion it gets.

CRA chair Jane Kiringai said the higher collections could ease pressure off the National Treasury which is faced with revenue pressures amid debt repayment obligations and a tightened public purse.

Devolution principal secretary Julius Korir however called for a balancing act by counties in moving to net the untapped revenue so as not to burden already strained Kenyans.

"One of the things that have the potential to raise more revenue is advertising. That really will have no impact on the cost of living," said Dr Kiringai.

To successfully collect the untapped revenue, counties will be required to automate their revenue collection systems, update their valuation rolls and enhance efficiency in revenue administration.

Counties would also be required to expand their target tax bracket to include the additional revenue streams.

County governments are banking on a planned rollout of a new valuation roll — replacing the 1982 roll charges — which will see higher land rates translating into increased revenue.

The National Treasury said counties were allocated Sh370 billion in the year to June 2021 from revenue collected by the national government.

The Treasury statistics showed that over Sh2.4 trillion has been disbursed to counties since the advent of devolution informing of equitable share from revenue raised nationally, conditional allocations from the national government as well as from proceeds of loans and grants from development partners.

During the period, the 47 county governments collected Sh34.4 billion against the target of Sh53.7 billion.

However, only five counties met their revenue targets in the year to June 2021, leading to an under-collection of Sh19 billion of internally generated funds.

The Constitution requires that 15 percent of the total audited revenue raised nationally will be shared among the 47 counties.

The Constitution empowers a county to impose property rates, entertainment taxes and any other tax that it is authorised to impose by an Act of Parliament.

The Treasury said that viable options for a single integrated revenue management system for counties have been identified.

Inflation — a measure of annual changes in the cost of living—hit 9.2 per cent in September from 8.5 per cent in August, the Kenya National Bureau of Statistics reported last month.

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