Nakuru Governor, Ms. Susan Kihika, has disclosed that she is working with the County Assembly to formulate mechanisms to improve locally collected revenues as part of a strategy to expand the devolved unit’s revenue streams and seal loopholes that resulted in the loss of some of the funds collected.
Kihika indicated that her administration was implementing strategies to improve revenue collection and was rolling out a cashless system of payment to weed out pilferage of funds. The devolved unit plans to raise over Sh1.5 billion in the current financial year.
The governor was speaking today after a consultative meeting with Vice-Chancellor of the National Defense University-Kenya (NDU-K) Major General Said Mohammed Farah at the county headquarters in Nakuru.
She disclosed that her government would increase efficiency and called on the business people who evaded paying taxes to pay to enhance service delivery in the devolved unit.
According to the governor, the decision to expand tax brackets, implement an enhanced revenue collection framework, and increase human resources has been a massive game-changer.
Kihika said her administration is committed to strengthening accountability and fiscal discipline in the use of devolved resources to deliver better services and enhance equitable economic development.
While hailing NDU-K for developing a curriculum for training revenue collection officers, the governor disclosed that her administration is enhancing Own Source Revenue (OSR) streams through the adoption of a cashless mode of payment, the installation of CCTVs at key revenue collection points, and deploying a vibrant and dynamic workforce.
While noting that these measures have minimised revenue leakages and thus enhanced performance, Kihika further reiterated her administration’s resolve to seal all the loopholes that interfere with the optimal use of revenue generated.
She highlighted some of the revenue streams being enhanced, such as property tax, building permits, business licenses, liquor licenses, vehicle parking fees, and outdoor advertising.
“The Nakuru County Finance Bill 2023 is critical to the generation of Own Source Revenue (OSR). The county has not passed a Finance Bill since 2019. The Bill concentrates not on increasing levies but on expanding the tax base. Counties are collecting less revenue than their potential, and this is because of poor systems and leakages,” Kihika stated.
A tax gap impact report by the Commission of Revenue Allocation (CRA) and the World Bank estimates that Nakuru misses out on an estimated Sh1.985 billion annually of its internal revenue potential.
Counties run on cash transfers from the national government and own-source revenue (OSR) in the form of taxes, charges, fees, loans, and grants. Between 2013 and 2022, counties’ OSR was extremely low, accounting for less than 15 per cent of their budgets, implying over-dependence on transfers from the national government.
The 47 devolved units spend about Sh175 billion on employees’ pay. This explains why county workers go for two or three months without pay whenever cash transfers from the National Treasury are delayed, as happens most of the time.
County revenue potential in most counties OSR relative to Gross County Product (GCP) has been below 2 per cent, which is far below the best practice for sub-Saharan African countries, revenue to GDP level, which is about 25 per cent.
According to the Commission on Revenue Allocation (CRA) in FY 2021-2022, the average revenue generated by all counties from their own sources was about one-third of their potential, which points to vast unexploited county revenue.
Kihika affirmed that the county government was determined to ensure transparency in all of the county’s financial dealings. “As much as counties agitate for increased funding, accountability should be compulsory. I advise my counterparts in 46 counties that we cannot run away from accountability,” she said.
She observed that one of the main purposes of devolution was to bring public finances closer to citizens in a manner that would allow them to have a say on how county budgets were planned for and used.
She added, “We are committed to complying with the Constitution and the 2012 Public Finance Management Act (PFMA), which require each of Kenya’s 47 counties to publish information during the formulation, approval, implementation, and audit stages of the budget cycle. Nakuru County has competent and well-staffed financial management staff and systems.”
Kihika said that she will ensure the timely generation of both budget estimates and implementation documents so that citizens can hold the county government financially accountable, adding that making documentation against which accountability can be gauged is a right of Kenyans.
“Although the lack of information does not automatically mean funds are being embezzled, the lack of budget reporting encourages embezzlement. We will ensure that we account for every penny spent, as per the Public Finance Management Act. There will be no leeway for unauthorised spending,” assured the county boss.
The devolved units overrely on transfers of an equitable share of the revenue from the national government to pay staff salaries and other daily costs that have come at the expense of development projects.
Delays in the release of equitable share, money shared between national and county governments, have in the past nearly crippled critical services at the counties, such as hospitals, while in other cases, county staff went for months without salaries.
She stated that the county government was working on an integrated county revenue management system, including digitising land and property records.
“Digitising land and property records and updating valuation rolls also remain critical and integral components in enabling our county to optimise its revenue potential. We are also setting revenue targets per quarter,” said Kihika.
Major General Farah challenged the County Government to leverage on the expertise of the university to surmount some of the challenges as it seeks to improve service delivery.
He announced that a team from the county government and NDU-K will hold deliberations to concretize on areas of collaboration.
Cuts in fiscal transfers to counties combined with population growth time value of money imply that county per capita spending will decline over the next two to three years unless counties OSR performance is significantly enhanced to close the resource gap.
A report by CRA for the year ending June 2022 shows that a majority of counties flouted the budgetary allocation limits. They also missed the target for own-source revenue (OSR) collections, collectively netting Sh35.9 billion against the target of Sh60.4 billion for the fiscal year.
Only four county governments (Turkana, Migori, Lamu, and Vihiga) were able to collect more than one hundred per cent of their annual OSR target in the fiscal year,” said the National Treasury in disclosures contained in the 2023 draft Budget Policy Document.
These missed milestones, experts say, point to revenue mobilisation weaknesses that are borne out of the fact that many counties do not have an economic base that can generate taxes, and yet they have to provide a wide range of services to their residents.
A June 2022 study by the Commission on Revenue Allocation (CRA) estimated the revenue potential of county governments at Sh215.6 billion, which is six times the actual collection in the past fiscal year.
The scope of taxes they can levy is also limited, coupled with leakages that the CRA reckons can be cured by the adoption of automatic and cashless payment systems and the streamlining of taxation and fee structure by the counties.
Out of the 47 devolved units, 36 surpassed the 35 per cent cap on wages and benefits spent in relation to revenue. Of the 11 that met the wage cap threshold, the top performers were Tana River, Mandera, and Isiolo, at 28 percent of revenue.
Meanwhile, Machakos, Garissa, and Kisii counties spent the highest share of revenue paying workers at 62 per cent, 60 per cent and 58 per cent respectfully. The Treasury data shows a strong correlation between containment of wage expenditure and improved spending on development in counties.
Only 12 out of the 47 counties spent more than 30 per cent of their annual outlay on development programmes. Half of these 12 counties were also on the list of the 11 that kept their wage expenditure below the required limit.
The worst offenders were Nairobi, Garissa, and Narok counties, which directed just 10.7 per cent, 12.5 per cent and 12.6 per cent of their budgets respectively to non-recurrent expenditure in the period.
On the other end, Marsabit (41.8 per cent), Uasin Gishu (37.1 per cent) and Nakuru (35.3 per cent) spent the largest share of their budgets in development projects, with the latter two investing significantly in urban infrastructure as they chased city status for their largest towns.
In the approved budgets laid down at the beginning of the fiscal year, all but two counties (Nairobi and Kiambu) had allocated 30 per cent of expected expenditure to development, pointing to changes in expenditure priority during the year due to funding shortfalls.
One of the ways being mooted to address the recurrent development budget imbalance is for counties to make better use of the debt market, where they can issue bonds to support development projects.
The meeting was graced by Deputy Governor Mr. David Kones, County Executive Committee Member in Charge of Education Ms. Zipporah Ngugi, Chief of Staff Mr. Peter Ketyenya, and Education Chief Officer John Koech.
Others were NDU-K Director, Centre for Security and Strategic Studies, National Defense University, Brigadier Oscar Kizito Muleyi, Head of Corporate Communications, Colonel Paul Njuguna, Director for Applied Research and Strategic Policy, Col. Ronald Makori, and Coordinator of Training, Col. Bernard Mwaniki.
By Anne Mwale