Outdated land valuation roll denies Nairobi Sh68bn revenue

Nairobi has posted the slowest growth in revenue among Kenya’s most urbanised counties over the last six years of devolution, an analysis shows, pointing at an underperformance of Sh67.66 billion or 87 percent of the capital’s potential.

An assessment by the Commission on of Revenue Allocation (CRA) indicates City Hall collections, which amounted to nearly Sh10.25 billion in the year ended June 2019, have improved by a measly 0.37 percent since the onset of devolution in 2013.

CRA, the agency responsible for the formula for sharing resources between the national government and the 47 counties, blames the flat growth in Nairobi’s revenue largely on underperformance in collections from landlords despite a boom in property prices.

Enhanced compliance by landlords can push up revenue collections to Sh77.91 billion, according to CRA’s estimates, meaning City Hall has only achieved about 13 percent of its potential.

City Hall currently charges property owners land rates based on 25 percent of the unimproved site value prescribed in the 1980 valuation roll.

Land rates contributed Sh2.04 billion to Nairobi’s revenue in the year ended June 2018, data released by County Revenue Department showed in August.

“Our conservative projection is based on collections of about 2-5 percent of the current property valuations. We have not even added the new buildings or estates,” said Sheila Yieke, director of legal affairs at CRA. “If Nairobi just collects five percent of property under current valuation they are using, they will be able to raise up to Sh100 billion.”

Mombasa recorded the highest growth in own-sources- of-revenue (OSR) over the period at 13.69 percent to Sh3.71 billion followed by Uasin Gishu (Eldoret) with a growth of 8.49 percent to Sh919 million, CRA said citing statistics from the Controller of Budget.

Nakuru’s revenue since onset of devolution has grown 7.57 percent to Sh2.82 billion and Kisumu’s 5.20 percent to Sh843 million in June 2019.

“Growth in Mombasa collections are largely due to business at the port, they are also now collecting cess on the Kwale minerals (titanium) going out through Mombasa and also the big hotels.”

Besides the outdated land valuation roll, low compliance levels have also contributed to Nairobi’s struggle to collect land rates.

City Hall is currently reviewing the roll to factor in current prices, a process which started in earnest with a retreat in September.

The valuation is expected to result in increased rates for some areas such as Upper Hill, which has largely transitioned from a predominantly residential area to a financial services district of the capital.

The review, which City Hall earlier projected will be complete by January 2020, may also see land rates in a few other areas drop.

“Rates paid will increase, some will be by bigger margins, but others may actually be less from what is paid now based on the appreciation of the land in the areas,” City Hall’s Chief Valuer Isaac Nyoike said in July.

Below-potential revenue collection hurts delivery or improvement of water and sanitation, drainage, refuse collection and solid waste management as well as firefighting and disaster management services in Kenya’s five largest urban centres.

Under the Urban Areas and Cities Act (UACA), 2011, which recognises Nairobi, Mombasa, Kisumu, Nakuru and Eldoret as cities, such services are classified as basic.

CRA’s analysis, based on statistics “from various reports”, shows that only 34 percent of the population in the five cities have access to water reticulation systems, while less than 10 percent are within reach of solid waste collection services.

Further, 60 percent of the populations reside in informal settlements, 36 percent of whom are in slums, with a housing deficit estimated at 300,000 units a year.

Dr Thomas Kibua, director of academic programmes in the Institute of Public Policy and Governance of Strathmore University, says counties, which were supposed to re-engineer their economies to grow so that they have opportunities to raise their own cash, may have veered off the path.

Instead of coming up with policies to promote private sector investments, counties are increasingly imposing levies and taxes which have “made it difficult for businesses to grow”, he told a forum on equitable sharing of resources between the national government and the counties in Nairobi.

“We are developing dying cities. These counties hold huge portfolio of dead capital. And dead capital has a number of aspects. For example, if you move from here (Nairobi central business district) to Kangundo Road or Thika, and ask yourself the buildings that you see holding urbanisation, how many of them are being used. Go to any marketplace in any part of this country and count the number of shops and ask yourself, how many are operational?” he posed.

“That’s capital which has been invested by retired teacher, retired nurse that’s not generating any income. So we are holding a big stock of dead capital in terms of buildings and land and that capital is not generating any flow of income.”

Property rates, business permits, parking fees, building permits, billboards and advertisement fees are the largest sources of revenues for the counties, besides the equitable share from the exchequer.

The CRA analysis estimates Mombasa’s revenue in the year through June underperformed by Sh6.62 billion, Kisumu (Sh6.27 billion), Nakuru (Sh4.13 billion) and Uasin Gishu (Sh1.63 billion).