Counties must generate and manage own revenue to win donor confidence
It is that time of the year again when the government prepares its budget and defines its financing options. It is the third year when this exercise is being carried out by 47 county governments and the national government – 48 governments in total.
In most cases, citizens are preoccupied with the proposed expenditures which articulate the intended development projects and the service provisions by the government. Citizens pay less attention on the financing options that the government intends to take.
This, however, has significantly changed with the onset to a devolved system of government. Sharing of the national revenues and taxation measures being taken by both national and county governments have become a key issue of discussion and contestation.
The county governments’ taxes, fees and charges in particular have elicited new interest, contestation and protest.
The responsibilities of county governments as established through the Constitution goes beyond the basic responsibilities that were the preserve of defunct local authorities. They go beyond providing basic services and ensuring that the public has access to social amenities.
The county governments are expected to facilitate the counties to move into a new trajectory of growth and development. Put simply, in a number of years Kenya should have thriving towns all over the country and eventually these county towns and urban areas should be upgraded to cities.
The county governments’ performance should eventually be measured by the extent to which they have managed to improve human security and the human development index.
The county governments’ performance should be measured against their economic growth, food security, creation of employment, and increased connectivity not only physical but technological (feeder roads, Internet), among others.
It is against this background that county governments prepare the County Fiscal Strategy Paper, the budget estimates and the Finance Bill. The County Finance Bill sets out revenue raising measures. It provides the details of what taxes, fees, levies and charges the county government has set that will enable it to raise its own revenues, in addition to income shared from the national revenues.
It is in the interest of the county governments to raise their own revenues, which gives them latitude to do more development and provision of services beyond what the shared national revenue can achieve.
However, if the taxes are perceived to be punitive and the accrued benefit to the citizens is not clear from the onset, this leads to non-compliance (avoidance and evasion).
In the recent past we have experienced protests, court cases and other legal and political interventions that have led to the annulment of taxation measures.
Own revenue is critical in that, firstly, these revenues can be used to augment the ongoing development projects and service provision in the counties.
Secondly, own revenues can be crucial in county borrowing or contracting of debt. At this stage, county governments cannot contract debt because regulations have not been set and also because they can only do so when the national government agrees to guarantee the loan.
Based on the past performances of the local authorities and semi-autonomous government agencies whose debts the national government was forced to pay when they did not fulfil their obligations, it is expected that the national government would be wary of becoming a guarantor for any county any time soon.
Also considering that there are 47 counties, and accepting one application would mean accepting another, the debt contracting for counties is not likely to start soon.
However, a county government could justify borrowing if it has a solid track record of raising and managing significant own revenues consistently, efficiently and effectively. The extent to which a county generates and manages its own revenues may be the most justifiable basis for contracting debt in the near future.
Thirdly, donors are currently looking for opportunities to support counties in development projects and capacity building. In most cases, donors do not provide grants without a commitment of matching funds by the recipient.
Counties can negotiate major grants by having in place flexible own revenues which can be used as matching funds to donor grants.
In most cases, at least 10 to 30 per cent of a project fund must be contributed by the receiving government as a matching fund. In the first two years under devolution, most counties collected less than the defunct local authorities used to collect. This is despite increasing taxes, fees and other charges.
One of the reasons cited for poor performance in collecting own revenues was poor communication and lack of participation in determining the taxes, fees and charges.
The other reason for poor performance is that with a considerable high amount of national shared revenues, most counties did not pay attention to ensuring that their own revenues were collected efficiently and effectively. In essence, the revenue collectors rarely got the facilitation, motivation and supervision.
Most counties have also not addressed staffing issues as the inherited defunct local authorities’ staff are still unconfirmed in their new positions under the county governments.
County governments have to address these operational and staffing issues even as they look into the strategic issues that will enable them to raise their own revenues in an efficient, effective, predictable and equitable manner.
They have a clear mandate of spurring growth and development at the county levels, and mobilising own revenues can leverage other county resources from shared national resources and donor grants to achieve these critical objectives of devolution.