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Counties lose revenue billions after passing contested laws

By Everlyne Kwamboka | October 16th 2020 at 23:26:10 GMT +0300

Several county governments have failed to raise enough revenue due to legal tussles on by-laws passed without following the right procedure.

This has seen courts rule in favour of those challenging the laws on public interest, leaving the counties to carry the burden of paying lawyers representing them in those cases and losing billions of shillings.

Some of the counties have been reprimanded for introducing taxes contradicting the national finance law.

For instance, in a case that took six months to be concluded by the High Court, a group of contractors challenged the manner in which the Machakos County Government Finance Act 2020 and the Management of Quarry Activities Act 2016 were passed.

High Court Judge David Kimei said mining regulation is still a function of the national government, adding that the county government’s decision to introduce levies for annual quarry permits per acre, building stone and murram royalties, quarry cess for ballast and other crushed material contravenes the Constitution.

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“However, the conflict is a call to action to reform the fiscal regime governing the mining sector so as to ensure that the national and county governments get their fair share and at the same time avoid what would amount to tax injustice,” the judge ruled on October 8.

Justice Kimei said he was satisfied that the 23 petitioners have been prejudiced by the actions of the Machakos executive and assembly in purporting to carry out levies, charges, cess, licences and other taxes under the impugned Act yet there is in existence the Mining Act.

“The respondents have not convinced me that they have acted lawfully towards the petitioners who feel that they have been held by the neck through the impugned legislation. This court must rise to the occasion and come to their aid by granting the orders sought,” he said.

In Taita Taveta, the decision by Governor Granton Samboja’s administration to increase transportation levy for iron ore from Sh150 to Sh1,000 per tonne was thwarted by the court due to lack of public participation in passing the Finance Act 2018.

Justice Eric Ogola ordered that the previous charge of Sh159 shall apply for the period covered by the Finance Act 2018 under reference, and if Samruddha Resources (Kenya) Ltd had paid more than Sh150, the county government shall refund the excess.

The company had disputed the cess on grounds that since it pays royalties to the national government under the Mining Act, it should not make additional payments.

It said further charges by the county, whether by cess or taxes, fall outside its mandate.  

“Where one is dealing with international miners, the audience for public participation cannot be restricted to those who attend public barazas, local church, mosques or those who listen to vernacular radio broadcasting,” reads the judgment delivered on May 4.

In Meru, farmers who export fresh-cut flowers won a case against the county in December 2019.

The High Court ordered that they continue with their operations until the time they will agree with the county government, through a public participation forum, on a proper mechanism of collection and harmonisation of cess.

Judge Francis Gikonyo also declared unconstitutional a decision by the county to block movement of trucks ferrying flowers from the Kenya Flower Council.

The judge said the Constitution is alive to the fact that the burden of taxation should be shared fairly, as the national and county governments raise revenue through imposition of taxes and charges.

The judge said county legislation that imposes tax should not prejudice national economic policies, economic activities across county boundaries or the national mobility of goods, services, capital or labour.

“This is to avoid double taxation or creating a heavier burden of taxation on concerned taxpayers... These issues should be addressed through effective public participation where taxation expertise is also tapped,” the judge said in a judgment made on December 11.

Just a few days ago, the High Court quashed the Mombasa County Finance Act 2019 for operating in contravention of the Constitution.

Justice Dorah Chepkwony ruled that the Act was never gazetted as stipulated in the Constitution. County legislation can only come into effect after gazettement.

The county government collects over Sh13 billion in revenue from various levies and rates imposed through the Finance Act on licences, permit fees and land rates.

County Revenue Revenue Sharing Formula
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