Revenue collection by the 47 counties hit Sh7.71 billion in the first quarter of the current fiscal year, official data has shown, the highest over a similar period since the inception of the devolved system of governance in 2013 and pointing to improved efficiency.
A new update report by the Controller of Budget shows that own-source revenue (OSR) from streams such as parking fees, business permits and land rates in the three months to September 2019 represented a four percent rise or Sh300 million more compared to the Sh7.41 billion that was realised over a similar period of 2018/19.
The performance comes at a time when the National Treasury has unveiled plans to assist counties increase their collections, including through automation and enforcement.
“During the reporting period, county governments generated a total of Sh7.71 billion, which was 13.8 percent of the annual target,” said Controller of Budget Margaret Nyakang’o. “This was an increase compared to Sh7.41 billion generated in a similar period of Financial Year 2018/19.”
Analysis of OSR as a proportion of the annual revenue target according to the Controller of Budget data indicates that Isiolo, Narok and Samburu achieved the highest proportions of targeted collections at 38.1, 35.5 and 33.8 percent respectively. During the period, Isiolo collected Sh59.3 million against a target of Sh155.8 million while Narok collected Sh1 billion against a target of Sh2.99 billion. Samburu on the other hand collected Sh90.1 million against a target of Sh267 million.
Conversely, counties that recorded the lowest proportion of own source revenue against annual targets were Turkana at five percent (Sh53.9 million), Kitui at 4.7 percent (Sh79.2 million), and Kericho at 3.6 percent (32.9 million).
The devolved units have perennially failed to hit their targets since 2013, which has been blamed on poor collection systems, high default rates by businesses, corruption and weak resources. The perennial misses by the counties have pushed them to over-rely on transfers from the National Treasury to plug funding gaps for salary payments.
Since devolution started, counties have had to grapple with low own revenue collections and revenue leaks that have made the devolved units dependent on the Treasury to meet their financial obligations. The aggregate annual own source revenue target for counties in the financial year 2019/20 is Sh55.86 billion.
All the 47 counties collected Sh32.4 billion in the year to June 2018/19 against a target of Sh49.2 billion. This was a marginal drop from Sh32.5 billion in the earlier year that ended June 2017.
Perennially low collections and delayed releases from the Treasury have seen counties struggle to meet their financial obligations on time, leading to an increase in pending bills. In turn, this has led to projects stalling, delayed workers’ salaries and frozen payments to suppliers, slowing down operations in the regional governments.
More counties have in the recent past moved to automate their major revenue streams to stop rampant theft of public resources through the manual payment systems.
Counties such as Nairobi, Narok, Kakamega, Kisii, Kiambu and Meru have automated revenue collection systems to plug loopholes, thus boosting local collection.
A recent study by the Treasury showed that OSR collections by counties are up to four times below the minimum potential, shining the spotlight 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.
Going forward, six out of 47 counties will be required by law to contract the Kenya Revenue Authority (KRA) for revenue collection if a new proposal is adopted. The six, which are classified as devolved units with “relatively high revenue” are Nairobi, Mombasa, Kiambu, Narok, Nakuru, Kisumu, Machakos and Nyeri.
“It would be easier for KRA to collect revenue from more urbanised counties with large formal sectors; this would allow KRA to fully apply its professional skills, personnel and technical resources,” says the Treasury in a draft national policy to support enhancement of county revenue.
The proposed national policy and legal framework has been created by an inter-agency committee drawn from county and national government teams. It contains radical reforms to broaden county tax bases while strengthening revenue administration capacities.
For a brief period, KRA collected local revenue for the defunct Nairobi City Council, but this arrangement was prematurely terminated.
Kiambu has an MoU with KRA to collect property rates, land rent and special business permits. Park entry fees, the largest revenue stream in Narok, is being collected by KAPS, a private firm.