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Borrow best practices from other countries

By Caleb Amisi | September 4th 2020 at 00:00:00 GMT +0300

Devolution has brought a ray of hope for the past seven financial years among Kenyans notwithstanding its shortcomings. As envisaged in Article 174 (g), the drafters of the 2010 Constitution envisioned “equitable sharing of national and local resources throughout Kenya.”

Principally, both vertical and horizontal revenue sharing has been contentious with county governments demanding an increase from the Consolidated Fund, at the same, horizontal sharing among counties has been a subject of debate in the two previous formulas proposed by the Commission on Revenue Allocation. The evolution of the formulas has seen population taking the lion share of the revenue pie.

Population

Fundamentally, to bridge inequalities, population ought to be the basis of resource allocation. Government services are delivered to known numbers of people informed by the most recent census report. Arising from the foregoing, sparsely populated counties with a vast landmass stand to lose in the overall allocations, among them Coastal and North Eastern counties.

For this reason, we need a national balance of all the competing interests between resource-rich and poor counties as well as national economic and social concerns. Besides, each region contributes differently to the national resources basket. For instance, Turkana County has less population, however, the historical marginalisation and her oil resources remain untapped gold to the nation. Murang’a County continues to supply the Nairobi Metropolitan area with water among many other counties with key resources.

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Best practices

In many jurisdictions worldwide with federal or devolved systems of governance, central governments tend to resist sharing of revenue. If not resistible, sharing becomes a problem. In our case, there are constitutional dictates on the minimum threshold pegged on the national ordinary revenue as audited by Parliament.

In developed nations, decentralisation of resources is desired mainly to induce political accountability on local jurisdictions and bring services to the people as proximate as possible. This includes taxing powers to enhance expenditure responsibilities.

Canada

Provincial governments in this resource-rich North America country have exclusive constitutional authority on natural resources, and natural resources are taxable by provinces. Early 1967, natural resource tax revenues were subject to 100 per cent equalisation.

Over time, complaints arose on over-equalisation. In 1973, the government of Newfoundland, which had developed a large hydropower jointly with Quebec and a private developer, discovered that all its resources would be equalised away from it. They threatened to expropriate the private partner, consequently, a conflict arose.

Recently, in our case, there was a tussle between the national government, Turkana County Government and the Turkana community on the sharing of revenue from the drilling of the Ngamia I and II oil fields. Eventually, the central government took the lion share for eventual distribution across the country.

 United States

Under their constitution, states are sovereign and own the resources except for the federally owned land. Resource revenue bases are assigned to states but with a sharing of the income tax base.

Alaska, where resource revenue bases translate to four-fifth of its own internal revenue stream, forms a classical example for this method. On oil, the state of Alaska levies a property tax at two per cent of the appraised value and severance tax at about 15 per cent subject to a minimum tax per barrel.

United Arab Emirates

Being an important oil producer with the fifth-largest proven oil reserves in the Middle East and a member of the Organisation of Petroleum Exporting Countries since 1967, UAE has seven sheikdoms. Under the country’s constitution, each Emirate maintains principal control of its own oil revenues and other natural resources.

They turn over a set percentage of their revenues to the federal government used to fund functions of defence, diplomacy, education, banking, public health and other general public matters.

Nigeria

Here in Africa, the Federal Republic of Nigeria owns vast natural resources. Oil is the primary source of revenue for the government and it’s unevenly distributed. 82 per cent of the total revenue of the general government or 40 per cent of the GDP comes from oil proceeds and the revenue is concentrated only in a few of the 36 states.

The oil revenue is shared between the federal government, the state and local governments. The 1999 constitution provides for the common pool of financial resources, the Federation Account, under which monies are distributed among the federal, the state and the local governments in each council.

The National Assembly defines Federation grants to the states to supplement revenues of that state and the monies are paid into the State Joint Local Government Account pegged at least 13 per cent. 

Kenya should borrow best practices and principles of resource revenue allocation both vertically and horizontally among counties to reduce protracted wars on financial resources that cripple operations of counties, hampering services delivery, particularly to the poor people.

Perhaps we should consider expanding the tax regime of the county governments under Article 209 (3) of the 2010 Constitution so as to expand their revenue streams.

Equally, as some counties stare at losing monies already budgeted for in the current financial year, the national government should consider increased vertical allocation together with increased allocations to the Equalisation Fund to balance the scales. However, differing from this wisdom, turning a blind eye on both the population factor and bridging the inequality gaps may give rise a bigger conflict.

-Mr Amisi is Member of Parliament for Saboti Constituency


Devolution Commission on Revenue Allocation Revenue allocation
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