The devolved system of governance and development that Kenya constitutionally adopted has been rolling out for the last one year with significant achievements in increased level of participation, social inclusion and accountability. While there is focus on increased revenue sharing between national government and devolved units, apart from governance tightening accountability the real challenge to the Counties is financial sufficiency and long-term sustainability.
The County governments should be granted significant powers to raise their own revenue in a bid to enhance financial sufficiency;strengthen fiscal responsibility and compensate the well-developed counties that stand to lose from a more equalization-based system of resource sharing transfers.
While counties have formal responsibilities over major categories of spending and accounting for huge crucial sectors of the economy spending, including basic services like health, agriculture, roads etc, they have fewer powers to raise their own revenue.
The current economic, fiscal and taxation policy is unbalanced. The national government continues to determine fiscal and taxation policy with very limited participation of the county governments. The national tax determination and revenue available for equitable sharing between the two spheres of the government is significantly retained by national government The implementation of the devolved fiscal policies for the delivery of quality public services is yet to give the desired efficiency and effective delivery.
This is informed by two factors.
First, the national government is still solely determining the socio-economic policy and controlling the largest segment of the national budget through state departments even in situations where the functions have largely been devolved.
Secondly, the taxation and fiscal policy is still favourable to the national government. A rigorous well-structured multi-stakeholder dialogue needs to happen on the appropriate system of intergovernmental relations on revenue sharing and taxation policy.
There are still major shortcomings in the current devolved fiscal policy system and key reforms are urgently needed. Increase down-revenue generating capacities could be achieved for instance, by allowing counties to levy, with limits, a surcharge on the fast-growing personal income tax, or by shifting to them the power to levy some domestic excises.
Further while certain property taxes are already assigned to the county governments, increased freedom in setting their rates — as well as improved property valuation methods — could also boost this source of revenue, especially for the more urban and prosperous Counties.
The ability for counties to raise their own revenues offers them a valuable degree of freedom that allows them to implement programmes of their own choice and size. This is an important step of realizingsustainable devolution financial autonomy. International experience suggests that greater levels of revenue autonomy tend to bring significantly higher benefits than costs.
The system of concurrent powers between the two spheres of government gives rise to duplication, wastage of resources and the avoidanceof responsibility for delivery outcomes. There is still lack of clarity in the assignment of powers and functions of concurrent responsibilities in certain critical sectors of the economy and governance.