County Governments need comprehensive mechanism to raise sustainable own revenue

devolution1The 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.

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By Cont-ED Posted in kenya

One comment on “County Governments need comprehensive mechanism to raise sustainable own revenue

  1. This is a great discussion topic

    I believe Job and Adongo had also done a write up on this a couple years back and this forms the core of the devolution process

    Devolution was all about proper allocation of resources. In the past, all areas of the country simply channeled funds to a central bottomless hole from which the big man chose to reward whomsoever he desired.

    In the new dispensation, each administrative area (be it county, constituency or ward) has a larger say on development priorities but more importantly all regions at least are entitled to some share of the national cake

    Of course this is an evolving process and right now we are only taking baby steps towards this realization.

    The biggest challenge is that there are people who are accustomed to sitting at the main gate and siphoning funds, so the idea of reduced pot of gold does not fly. But that aside, central government, despite the devolution, is still a bloated entity

    Remember that close to 70% of govt revenue goes towards sustaining recurrent (administrative) expenditure. We need to get proper numbers and not go by percentages but for now we’ll use the percentages

    How much of these recurrent expenditure structures have been devolved? I would say about less than 30% . i.e more than 50% still remains with national government.

    This means that government still needs to get the bulk of national revenue (as gained from taxation and the likes) in order to feed its excesses.

    Devolved government automatically implies that counties must collect revenue, but with a still bloated national government, it means raising of taxes i.e the citizen must be taxed by the county government and then still taxed by the national government., and then some The question is how much can a citizen be taxed before they finally crumble under the tax burden?

    In our present parliament made of jubilee dunderheads, they have no qualms about increasing taxes to fund national and county governments. But for sustainable development, as county governments evolve, and functions get devolved, county governments should be collecting more of the taxes and only federal taxes paid out to national government. Also as county governments attract investment, they can provide incentives to industry so as to ultimately generate more county revenue.

    Sadly, accountability remains a major problem for both national and county governments. Sleaze/corruption are still endemic in public administration.

    Nevertheless, I still support all efforts to increase county share of national revenue to over 40% and thus spread distribution of resources to all areas of the country.

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