Narok, Samburu, Isiolo top revenue collectors

Narok, Samburu and Isiolo recorded the best performance in own-source-revenue (OSR) collection in the first-half of 2018/19, latest data by the Controller of Budget Office (CoB) shows, revealing an overall trend of improvement by all the 47 counties.

Analysis of OSR as a proportion of the annual revenue target showed that, Narok, Samburu, and Isiolo recorded the highest proportions at 74.1 percent, 68.7 percent and 57.8 percent respectively.

Narok netted Sh1.84 billion for the period July-December 2018 against an annual target of Sh2.48billion. Samburu realised Sh174.4 million against a goal of Sh254.03 million while Isiolo had a collection of Sh87.25 million against a target of Sh150.86 million.

On the opposite side, Kisii at 12.7 percent, Wajir (13.1 percent) and Kericho at 13.5 percent recorded the lowest proportion of OSR against their respective annual target.

The CoB said overall OSR by counties improved in the first-half of 2018/19, raising hopes of reduced dependence on the Exchequer releases and conditional grants.

“During the reporting period, county governments generated a total of Sh15.37 billion, which was 29.9 percent of the annual target. This was an increase of 54.5 per cent compared to Sh9.95 billion generated in a similar period of the financial year 2017/18, which was 18.1 per cent of the annual revenue target” the CoB said.

The aggregate annual own source revenue target for counties in the fiscal year 2018/19 is Sh51.32 billion.

During the period under review, the Nairobi generated the highest amount of OSR at Sh3.88 billion, followed by Narok and Nakuru at Sh1.84 billion and Sh1.55 billion respectively.

Wajir, Tana River and Lamu at Sh26.21 million, Sh20.78 million, and Sh17.39 million respectively generated the lowest.

A study released in February by the National Treasury showed that OSR collections by counties are up to four times below the minimum potential, turning focus on inefficiencies by the devolved units.

The OSR potential and tax gap study revealed that the 47 county governments can raise a minimum Sh124.7 billion annually.

In 2017/18, county governments targeted to raise Sh49.2 billion in OSR but only collected Sh32.5 billion, similar to collections in 2016/17. This was a massive Sh92.2 billion below the potential. Nevertheless, OSR performance in the financial year 2017/18 was better (66 percent) than in 2016/17 (56.4 percent), which had a higher target (Sh57.7 billion).

“The study’s main policy finding is that counties should focus revenue improvement efforts on streams with a strong policy rationale, significant revenue potential and cost-effective to collect,” the Treasury said in its report from the study which followed a worrying trend where OSR performance has continued to deteriorate since the inception of the devolved system.

“Not all revenue streams are suitable for revenue enhancement effort. In general, user charges are based on fee payment for accessing a service, and health services, for instance, should not be targeted for revenue enhancement in case they make crucial healthcare inaccessible,” it noted.

According to the study, property taxes hold the biggest potential for OSR collections in counties, estimated at Sh66.2 billion annually. Other prospective OSR sources include business licences (Sh23.4bn); vehicle parking fees (Sh12.6bn); liquor licences (Sh10.2bn); outdoor advertising charges (Sh6.3bn) and Sh6bn from building permits.

Data showed that over the years OSR has been financing an increasingly smaller proportion of the county governments’ spending. For instance, it financed 15.5 percent in 2013/14; 13.1 percent in 2014/15; 11.9 percent in 2015/16; 10.2 percent in 2016/17; and, 10.7 percent in 2017/18.

“This trend confirms growing reliance by the counties on transfers from the National Government. Globally, locally-generated revenue is a key indicator of subnational governments’ fiscal autonomy, and hence the need to strengthen contribution of OSR to budgets of Kenya’s counties,” the Treasury added.

The dip in OSR collection over the years has meant that conditional grants and Exchequer releases to county governments have been climbing from 2013/14 to cover for the shortfall.

Official data showed that dependence on transfers from the Exchequer climbed to a record high in the 2016/17 financial year — an indication of flaws in collection and management of their own revenue collections.

The Treasury in 2018 developed a policy to enhance the county revenue collections.

The policy targets assisting the devolved units to determine their revenue potential and improve revenue forecasting; supporting developing laws to anchor their revenue measures; and, ensuring that all counties established institutional arrangements for collecting OSR, and revamped revenue management systems.