County governments in Kenya have the uphill task of ensuring they raise enough revenue which they can channel towards running their affairs. Before 2013, former local government authorities collected taxes, fees and charges from their jurisdictions, but the revenue collection mechanisms were weak and often led to revenue leakage.
Under the devolved system of government, counties now have more power and control over the instruments that are required to efficiently manage revenue collection and expenditure. One of the strategies that should be applied across all the 47 counties is the effective use of legislation through the county assemblies to institute policies that make the process more transparent and robust.
Article 209(3) of the constitution states that a county may impose property tax, entertainment tax and any other tax that it is authorized to impose by an Act of Parliament. Through this constitutional provision, county assemblies across the country have been given the ability to legislate on business enabling bills which would strengthen their capacities to raise revenue locally.
All the 47 devolved units get a share of the country’s annual revenue from the national treasury, but this is hardly ever enough to cater for both recurrent and development expenditure. In this case, it is increasingly important that counties are able to raise their own revenue locally.
Even as counties strategize on increasing their incomes from taxation, the politics of it is also a subject that cannot be ignored. Former US president Calvin Coolidge famously pointed out that collecting more taxes than is absolutely necessary is “legalized robbery.” Thus, those in charge of counties must be presented with options that increase the county revenue without hurting residents and those who are in business. Some of the bills that are crucial to legislating on revenue raising include the finance bill (annual), the trade licensing bill, the rating bill and the revenue administration bill.
The Council of Governors, Kenya Law Reform Commission and the Commission on Revenue Allocation (CRA) partnered to produce the Model County Revenue Legislation Handbook in 2014 which counties can use to ensure that the measures for raising revenue are properly defined and anchored in law. This in part cured the chaos witnessed in 2013 and subsequent financial years, where county government imposed all manner of “unconstitutional” taxes, fees and charges on residents without following a set guideline, prompting protests.
Examples abound of wrong application of the law among the devolved units when it comes to levying of taxes. For instance, in 2014, Kwale government allegedly issued an invoice to a Titanium mining company, Base Titanium to the tune of Ksh. 378 million in the form of cess. During the same year, angry bodaboda operators in Machakos County demonstrated over new taxes introduced by the county government that were considered steep. All these incidents, and many others, point to a lack of consultation with all the stakeholders and lack of adherence to the law.
The taxation regime that has been applied for a long time, in many counties, has tended to support an unfair system where some traders in the informal sector like mama mbogas pay the revenue collectors a fixed sum every day. In the overall analysis, they end up paying a huge cumulative amount of tax to their own economic detriment. For instance, the Ksh. 50 they pay every day for each stall comes to Ksh. 1200 per month and Ksh. 14, 400 a year (assuming they each work 6 days a week) which is a colossal amount compared to what other more established business owners are required to pay in order to conduct business. Fairness should be introduced through legislation to ensure everyone plays by the same set of rules.
Despite the informal traders paying such a high amount for the “business permit” annually, there are seldom any meaningful services brought to them. As it so happens, taxes are expected to be deposited in the counties’ consolidated fund which also contains the shareable revenue from the national government. However, charges such as license fees are for delivering services directly to those traders who pay for them. For instance, the town/ city needs to be cleaned, street lighting installed, roads paved, proper structures put up for the traders e.g. toilets and stalls among other initiatives to improve the business environment. These services should be seen to be offered to improve the lives of the mama mbogas, matatu operators, boda boda operators, other business owners and their clients. Once businesses experience the benefits accrued from paying charges to the collector of revenue, there will be more cohesion between government and the business community.Different tax regimes across different counties also leads to a situation where doing business across counties becomes expensive and a complicated affair. This is because a license issued in one county is not transferable to another county. Again, rational decisions have to be made by counties to collaborate in ensuring cross- county businesses thrive. This is where regional economic blocks and cooperation come in.

One of the legislations that should have smoothed out the process of obtaining order in revenue collection and administration within towns, municipalities and cities is the Urban Areas and Cities Act. However, the definition of a town in that law requires 10, 000 residents to be residing in the area. Municipalities and cities are required to have a minimum population of 250, 000 and 500, 000 residents respectively. County governments found this law difficult to implement since majority of the counties would not have municipalities, towns or even cities that could be covered by this law since the threshold set was high. Were the law to be effected, town managers would be in place and their roles would include budgeting, raising revenue and planning for towns. County governments also did not wish to let go of the control on revenue streams that are derived principally from their urban areas.
Through the Public Finance Management Act of 2012, counties are mandated to have a County treasury to manage their cash within a framework established by the county assembly and by regulations. It is then the duty of the county leadership and its officers to ensure that the funds collected from residents and business people are used prudently for economic growth.