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How counties can unlock billions in land rent to ease budget headache

Counties have performed dismally in OSR collections and hit a four-year low
Counties have performed dismally in OSR collections and hit a four-year low of Sh32.49 billion in the 2017-18 period against the backdrop of loopholes and inefficiencies in revenue collection systems. FILE PHOTO | NMG 
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Transferring land rent collection role to counties could enhance the regional governments’ Own Source Revenue (OSR) and reduce budget strains, a study by the National Treasury recommends, adding that inflation adjustments could make the situation better.

Land rent is imposed on leasehold parcels where annual payment has been reserved at the time the grant was issued. It is payable to the Ministry of Lands through the National Land Commission (NLC).

The study recommends amendment of the Land Act. “The Land Act, 2012 should be amended so that land rent is collected directly by county governments, not the NLC.

This will increase efficiency in revenue administration as all the revenues due to counties would be collected in one stop shop. There is also [a] need to revise land rents to increase the revenue collected,” the study proposed.

The Treasury adds that this, coupled with digitisation of the title deeds, would increase county collections in what remains the most prospective stream with Sh66.2 billion every year.

The report further says that a cut on the registration, survey and legal fees when registering property and making all land parcels rateable will increase compliance and further drive revenues.

Counties have performed dismally in OSR collections and hit a four-year low of Sh32.49 billion in the 2017-18 period against the backdrop of loopholes and inefficiencies in revenue collection systems.

Centralising all the county land registries and introducing valuation rolls backed by technology to match market prices of properties will boost counties’ biggest prospective revenue stream, says the Treasury.

Nairobi County has completed its new valuation roll and will start charging the new rates in January 2020, setting the stage for an increase in the Sh10 billion average OSR by the county capital every financial year.

“Computer Aided Mass Valuation (CAMA) system uses the same information as single property valuation and can handle and combine various valuation methodologies, including market value, cost-based, and income-based valuations,” the Treasury states in the report.

It says Single Business Permits (SBPs) should be used as the primary instrument for licensing and regulation of businesses, under specific trade licensing law.

SBPs are the second biggest potential OSR earners with an annual Sh23.4 billion but continue to contribute small amounts despite the high number of Small and Medium Enterprises (SMEs) across the country.

“National Treasury jointly with the Attorney-General will appeal the court judgment exempting certain professionals and their associations from the SBP, which will also be prorated. It should be noted that the SBP is distinct from the liquor licence,” the Treasury said.

Amending the Alcoholic Drinks Control Act, it recommends, will give the counties more enforcement powers to include licensing of liquor businesses and imposing fines on defaulters.

Additionally, it proposes a national legislation as a contingency for counties that are yet to enact own laws on regulation of alcoholic drinks.

To further boost OSR, the Treasury formed a multi-agency team to seal leakages in revenue collection by developing and implementing an integrated revenue management system.

The team drawn from the Treasury and all the 47 counties will broaden the devolved units’ revenue bases and increase their capacity to administer their revenue.

“As per the presidential directive issued in February 2019, the National Treasury has established a multi-agency team to develop and implement an integrated revenue management system for county governments… aimed at eliminating the leakages and large costs incurred by counties in their revenue collection processes,” Treasury Secretary Henry Rotich said last month.

The study shows that vehicle parking fees at Sh12.6 billion, liquor licences (Sh10.2 billion); outdoor advertising at Sh6.3 billion) and Sh6 billion from building permits are the other prospective streams that underperform.

Nairobi, Mombasa, Kiambu, Narok, Nakuru, Kisumu, Machakos and Nyeri have the highest number of formal sectors with the Treasury calling for partnerships with the Kenya Revenue Authority (KRA) and private companies to increase revenue collections.

Kiambu has contracted the KRA to collect property rates, land rent and single business permits while park entry fees —the biggest stream in Narok County — is collected by Kenya Airports Parking Services (Kaps), a private company.

Increased collection in OSR will reduce the over-reliance on Treasury disbursements and grants from development partners for development projects and payment of salaries.

A recent report by the Controller of Budget stated that the counties spent an average 24 percent of development budget in nine months of 2018/9, while some were barely scratching the surface at five percent.

While Sh190 billion was earmarked for development spending, only Sh46.5 billion was used, the Budget controller report says, asking the regional governments to have sustainable workforce.

Data by the Controller of Budget shows that the 47 units spent Sh236.94 billion on recurrent expenditure from a disbursement of Sh303.83 billion in the 2017-18 financial year, squeezing funds for development projects.

Counties are also targeting to issue bonds for building infrastructure.

Nyandarua and Makueni counties that received un-qualified audit opinion in the 2017-18 financial year have been chosen alongside Mombasa, Meru, Bungoma, Nandi, Laikipia, Samburu, Kisumu and Lamu to pilot the exercise.

Their ability to service the bonds will be determined through evaluation of their financial reports and running projects to gauge risk levels.

Counties are struggling with a ballooning wage bill that has stifled funds for development projects such as health and construction of roads.

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