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County economic blocs could provide other revenue means

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A past Senate session. FILE PHOTO | NMG

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Summary

  • The tussle created in the Senate by the third basis for equitable sharing of revenue among county governments may not be the last. In fact, there are all indications that subsequent bases will not lack contention(s).
  • The row is partly borne out of the fact that while Article 209 of the Constitution assigns tax powers to the two levels of government, it gives limited tax powers to devolved units.
  • Article 209 mandates county governments to collect only property and entertainment taxes, and fees and charges for services rendered.

The tussle created in the Senate by the third basis for equitable sharing of revenue among county governments may not be the last. In fact, there are all indications that subsequent bases will not lack contention(s).

The row is partly borne out of the fact that while Article 209 of the Constitution assigns tax powers to the two levels of government, it gives limited tax powers to devolved units.

Article 209 mandates county governments to collect only property and entertainment taxes, and fees and charges for services rendered.

The problem is that these taxes are inadequate to finance all the devolved functions. For instance, in the fiscal year 2018/19, the aggregate own source revenue raised by county governments stood at Sh40.3 billion, against the annual target of Sh53.9 billion.

This underperformance, as the Commission for Revenue Allocation (CRA) notes, results in an imbalance between county governments’ expenditure responsibilities and revenue raising powers, which creates a fiscal gap; and to fill it, they must share in the national fiscus (as envisioned in Article 202).

It may be time to rethink the formula approach.

But even more pertinent, counties—both individually and collectively— should probably now look elsewhere when it comes to resource mobilisation, especially for development purposes.

Individually, there is still scope for the more urbanised regions to deepen own-source revenues by, for instance, sealing all pilferages.

In the just-ended fiscal year 2019/20, counties had targeted to raise Sh58 billion in own-source revenues, a feat which they obviously didn’t meet (by March 2020, they had collected Sh28 billion).

To help counties seal the pilferages, Section 160 of the Public Finance Management (PFM) Act of 2012 can be tightened to explicitly mandate the Kenya Revenue Authority (KRA) as the only revenue collector at both levels of government.

Currently, the Act offers a county executive committee member for finance a choice between the KRA or another agent to collect county government revenues. Further, depending on prior demonstrated fiscal (im)prudence, a county can issue medium to long-term debt instruments.

Collectively, formation of economic blocs can provide solid platforms for resource mobilisation by (i) enabling counties to establish vehicle(s) that can mobilise resources, domestic or external (the most audacious attempt at this was the Lake Region Economic Bloc’s plan to acquire a commercial bank); and (ii) allowing for resource sharing where two or more adjacent counties share a resource that can be economically exploited.

In fact, there is a Bill in the Senate that seeks to put in statute resource-sharing between counties (as well as economic blocs).

Beyond resource mobilisation, economic blocs can create new markets, by inviting the private sector.

However, due caution must be exercised to the extent that these groupings should not exacerbate existing bureaucracies by adding onto already stacked up thick layers of decision-making.

The overarching objective should be to provide social and economic mobility for the subjects.

@GeorgeBodo