Probe reveals how counties lose billions
Eric Wainaina @EWainaina
A probe report adopted by the Kiambu County Assembly has given a sneak preview into how counties are losing billions of shillings through massive theft, weak and inadequate collection systems and tax evasion.
The probe report by the Committee on Finance and Economic Planning shows the county could be losing up to Sh5 billion of its own revenue annually.
The same is replicated across the country going by a report published by the Adam Smith International indicating regional governments have been losing up to Sh140 billion revenue every year.
The 47 devolved units have been collecting about Sh35 billion yearly but the study commissioned by the World Bank on behalf of the National Treasury revealed that governors should be raising at least Sh125 billion during difficult times and up to Sh173 billion on rosier days and Sh143 billion on average times.
The report identifies the counties losing revenue due to looting and other loopholes as Nairobi, Kiambu, Mombasa, Turkana, Kisumu, Machakos, Kakamega, Kajiado and Uasin Gishu.
Theft at collection
The Northern Frontier counties, notably Mandera, Garissa and initially marginalised regions such as Baringo and Elgeyo Marakwet have also lost billions to theft at the collection stage.
“While data gaps hinder revenue gap analysis for most counties, where data was available, estimated potential compared to actual collections show gaps of between 35 per cent and 94 per cent for different county revenue sources.
Such substantial gaps are likely to be representative of most, if not all, counties,” said the report that cited corruption among revenue collection officers as part of the causes of revenue loss.
“This suggests that counties can gradually fund an increasing share of local service delivery from own source revenue if they are able to realise more of the available potential over time (while intergovernmental fiscal transfers will continue to play an important role for local goods and services, particularly in health, education and infrastructure).”
The study dubbed ‘Own-Source Revenue (OSR) Potential and Tax Gap’ in counties captures the first nine months of the period from the 2014/15 financial year to 2017/18.
It showed most of the areas, which have been abused, include the property sector that yielded an estimated Sh4.2 billion against a potential of up to Sh108 billion, building permits which fetched Sh1.9 billion when county governments can collect Sh10 billion as well as business licences where about Sh5.9 billion was captured yet the counties had capacity to earn at Sh23 billion.
From car parking about Sh4.7 billion was collected against a potential of Sh12 billion and advertisement where about Sh839 million was captured against possible Sh6 billion.
According to the report, officers have either developed parallel systems to help them pocket the revenue or collect bribes thereby denying the devolved units much needed revenue.
In some cases, counties do not have proper legislation to help them exploit their revenue collection potential normally guided by the Finance Act.
During the 2018/2019 financial year, according to the Commission on Revenue Allocation (CRA), 18 counties shared Sh6.3 billion under the fiscal responsibility parameter, with Lamu County benefiting with Sh1.2 billion, although according to the study, it never exploited the potential.
The report reveals Nairobi, which was supposed to collect Sh48 billion from property rates during the period under review, managed a paltry Sh3 billion, recording a Sh45 billion loss.
Potential for parking fees
And from business licences, the city county raised Sh1.8 billion yet it had a potential of Sh11.8 billion while from parking fees, it collected Sh2 billion when it had capacity to fetch Sh6.6 billion.
The county, which is led by Governor Mike Sonko, earned Sh720 million from advertisement and lost about Sh2 billion to theft and evasion.
Kiambu, which is supposed to collect more than Sh1 billion from business licences, fetched Sh600 million while only Sh279 million was realised against Sh1.19 billion from parking fees.
The county is also supposed to collect up to Sh9.3 billion from the property sector which has been booming in the region.
In Machakos, nearly Sh2.1 billion was lost from property rates and another Sh1.2 billion from business permits where it only managed to raise Sh198 million against a possible Sh1.4 billion.
Mombasa collected a paltry Sh403.8 million instead of a possible Sh703 million. The county was also supposed to raise up to Sh7 billion from land rates.
Turkana County, which is led by Governor Josphat Nanok, collected only Sh80,000 against a potential of Sh1.3 billion from property rates while his Murang’a counterpart raised Sh44 million instead of Sh1 billion during the review period.
And in Mandera, the county with a potential to collect Sh255 million from land tax managed Sh6 million similar to Samburu which has the potential of collecting Sh112 million.
Kisumu collected Sh144.5 million from the rates but would have raised between Sh1.9 billion and Sh2.3 billion.
In Kakamega, with a potential of Sh1.6 billion, only Sh19 million was reflected in the system while Makueni received only Sh11.6 million from a possible Sh1.6 billion.
Uasin Gishu county collected Sh88 million from property rates instead of a possible Sh1.6 billion.
The Kiambu probe committee chaired by Kinoo Ward Rep Samuel Kimani showed how the Governor James Nyoro-led administration is losing millions per day to theft whereby officers, mostly those charged with collecting building permits fees, quarry fees, cess, car parking and other daily charges collude with players in the sector to pocket the money.
The county collects between 40-50 per cent from parking services with only 15 per cent coming from building permits.
During the probe, the 17-member team made two visits to the Bob Harris Road cess collection point at Ndarugu in Juja, where they established that the county was losing more than Sh100,000 a day.
During the first visit, which was on June 3, 2020, out of 28 lorries whose number plates the committee discreetly took note of, only 10 were captured in the Y-reports while at the Cess collection point, an average of 27 lorries per hour were recorded yet the committee had tallied 76 vehicles in 1 hour 45 minutes,
“As a result of the visit by the committee, the Cess point realised collections of Sh108,000 at the close of business on 03/06/2020 against Sh81,900 realised on 02/06/2020 and Sh63,100 realised on 01/06/2020.
As a result of the committee’s inspection visits, the daily collection target had been revised from Sh80,000 to Sh150,000. During a subsequent visit by the committee on 08/06/2020, total collections of Sh103,000 had been realised by 2pm and that at close of business the total collection for the day was Sh165,000,” reads the report.
The report indicates the same for the Makongeni cess point in Thika where out of 21 lorries whose registration details the committee had taken note of, only 2 had paid and at Kilima Mbogo point they established lorries belonging to some specific companies don’t pay.
For parking fees, the MCAs toured Mama Ngina Street where they established that only 7 out of 14 vehicles had paid the requisite parking fees while at Bidco company where each lorry was supposed to pay Sh400, none of the more than 300 lorries had paid parking to the county.
“The committee was, however, informed that each of the lorries had paid some money to the county revenue officer,” said the report.
The committee hopes Governor Nyoro will move fast and rein in the corruption and seal the myriad loopholes that have seen the county lose the money.