Counties must work on boosting own revenue sources
KEVIN OSIDO and SHEILA YIEKE
This past week, the Commission on Revenue Allocation (CRA) and the National Treasury put together a training for technical staff of the County Assemblies.
These included Assembly clerks, fiscal analysts, budget and legal officers as well as civil society groups that engage with County governments and the public.
Following a resolution of Intergovernmental Budget and Economic Council (IBEC) on enhancement of county governments Own Source Revenue (OSR) in 2015, the Treasury under organised a conference to move the conversation forward.
The conference recommended the need for a National Framework Legislation aimed at regulating the introduction of additional taxing powers by counties and in line with Articles 209 and 210 of the Constitution and Section 161 of the Public Finance Management Act, 2012.
Now, more than ever, there is need to address under-performance of counties’ OSR, caused by challenges in collection and administration of decentralised taxes and charges.
Other challenges include inadequate revenue policies and legislation; multiplicity of fees and charges; human resource capacity deficits; weaknesses in enforcing compliance by tax payers; low automation and integration of revenue administration; coupled with ineffective internal controls and audit mechanisms.
The IBEC resolution also sought to deal with counties’ revenue measures that have negative implications for national economic policies and activities, including mobility of goods, services, capital and labour.
As a result, an Inter-Agency Working Committee was formed to develop a Policy and Legal Framework to support county OSR and approved by Cabinet on August 14, 2018.
A study has identified a wide range of streams from which counties are collecting revenue.
Across the board, there are at least 100 streams, and in some counties, several hundred separate fees and charges.
This reflects an inconsistency in reporting of revenue streams, which are often the same or similar sources reported under a slightly different name.
In fact, most of the revenue is collected from a handful of sources, with the most commonly reported being land and property rates; lease rents; health service charges; single business permits; trade/building permits; liquor licences and cess; parking, market, advertisement and billboard fees.
It has emerged not all revenue streams are suitable for revenue enhancement efforts, including user charges, which are based on payment of a fee for accessing a service.
As we grapple with the possibility of the Constitution Amendment Bill, 2020 under the Building Bridges Initiative, becoming law — which enhances revenue allocation to counties from 15 per cent to 35 per cent — we must be conscious of the disconnect between existing revenue collection and policy objectives.
The justification and design of taxes, fees and charges at the counties is not clear and in most cases was inherited from the defunct local authorities without refinement.
We encourage counties to focus revenue improvement efforts on a few sources that have a clear policy rationale, the greatest revenue potential and are cost-effective to collect.
A legal review found that counties can’t rely on transitional legal provisions. They need own legislations. However, this creates inconsistency and a proliferation of levies and approaches to revenue management.
There is a need to consider how to guide counties to establish some common frameworks, to ensure consistency while allowing discretion to local contexts, as appropriate.
We note, with concern, that County Finance Acts are being used to impose all manner of fees and charges.
This is not sufficient to provide adequate regulatory functions and collection procedures, which require separate and substantive legislation.
For counties to effectively enhance own source revenue streams, they will also have to deal with weak or absence of rate payers’ databases, human capacity, ineffective enforcement, high cost of revenue collection where counties spend more to collect less, lack of revenue systems, revenue collection loopholes and leakages, lack of investment in rate payer education, matching fees and charges to services and political interferences among others.
In coming years, counties will have to innovatively initiate processes that will ensure over-reliance on the National government is minimised, including development of an Integrated County Revenue Management System.
Thankfully, CRA has developed National Guidelines on Property Taxation which County Governments should embrace.
Above all, counties must ensure effective public participation in the exercise of fiscal responsibility. - The writers are Executive Director, County Governance Watch and Legal Director, CRA