Ideas & Debate

Properties taxes can boost county revenues

Most of these revenue streams are sourced from
Most of these revenue streams are sourced from the national government. FILE PHOTO | NMG 

One of the prerequisites of successful devolution in Kenya is financial stability of county governments. This would enable them to efficiently discharge their functions. There are five main funding streams for counties. These include equitable share of revenue raised nationally, conditional and unconditional grants from national government, equalisation fund for select counties, loans and grants, and counties’ own source of revenue.

Most of these revenue streams are sourced from the national government. Specifically, there is overreliance on equitable share of revenue, which often subjects operations in counties to disruptions wherever there are delays in disbursements by the National Treasury. Unfortunately, most counties have neglected taking measures to optimise generating their own revenue source.

Generally, mobilising own source of revenue by counties has been dismal. For instance, during the financial year 2017/18 counties targeted to raise Sh49.2 billion in own-source revenue. They collected Sh32.5 billion, an amount similar to the collections of financial year 2016/17, indicating a nil improvement.

Setting of soft revenue targets, leading to inadequate mobilisation, has often occasioned the low collections by counties. This has resulted in some counties raising revenue lower than what the defunct local governments used to raise.

This failure to mobilise adequate own source of revenue has led to adverse impacts such as delayed projects implementation and escalation of pending bills. Hence, for the counties to assert themselves and assure a reliable devolution, they have to optimise on their own source of revenue, a potential yet to be fully exploited.


The Constitution empowers the counties to impose property taxes, entertainment taxes and user charges and fees. Of these, property tax is one of the untapped tax bases with huge potential. County governors have majorly focused on issuing penalty waiver to mob up payments. However, such strategy has neither incremental revenue yields nor does it enhance buoyancy of this revenue stream, when the underlying fundamentals have not reviewed.

The value most counties use as basis to levy property taxes is determined using guidance provided in the Valuation for Rating Act and the Rating Act. The former statute guides on the preparation of the valuation rolls while the Rating Act provides for rates imposition and applicable forms of rating.

A valuation roll is a list of rateable properties that indicates the rateable owners, characteristics of land and assigned value of the land. This eventually determines the amounts of rates payable. These two Acts were enacted in 1956 and 1963 respectively, and kept under constant review, including alignment with the Constitution.

County governments have the mandate to enact their own laws to guide property valuation and rating. However, only few counties have done so. The consequence is that counties are imposing rates on valuation rolls prepared through the nearly outdated national legislation, occasioning imposition of rates that are out of sync with markets dynamics.

Typically, a valuation roll should be updated regularly. Only a few counties such as Kiambu have updated their rolls and Nairobi City County is in the process of doing so. This failure to enact property legislations to guide on valuation rolls leads to a scenario where counties have continued to retain the systems they inherited from the local authorities, further weakening performance on property revenue.

The legal inadequacy has led to the National Government being unable to remit annual payments to the counties in respect of national government land in the counties. The Rating Act provides that such annual payments should be made in form of contribution in lieu of rates (CILOR), pegged on appropriate valuation.

Since devolution, counties have not been receiving CILOR payments due to this inadequacy of the legal basis for making such claims and outdated valuation rolls. Without requisite supportive legislation and administrative guidance, counties have not been able to benefit from a revenue stream they deserve.

To address these aspects, an urgent review of the national Rating Act and the Valuation for Rating Act is necessary. Even though each county may enact such laws, it would be a time consuming exercise and unnecessary duplicity. A national legislation to guide these aspects would be appropriate to ensure every county has necessary legal authority to impose and collect property rates.

This would create uniformity in underlying property valuation and rating with respect to tax base, waivers, exemptions, and payment periods while retaining the mandate of the respective county to determine the applicable rate. Further, it would clear the air on the CILOR payments or exemptions granted by county bosses.

Counties ought to also develop principal revenue legislation for other revenue streams and provide a basis for every impost. Most user fees and charges are levied without legal anchorage. This often acts as a disincentive for compliance, especially where such levies are not commensurate with services offered. Specific revenue laws would expound on characteristics of every impost and make determination of tax payable clear and predictable.

The current trend by most counties is enacting an omnibus Finance Act that schedules levies and rates imposed. This is often without an attempt to offer clarity on the revenue base. It should not be so.