Sunday, Nov 23rd 2014

The Financial Aspects Of A Devolved System

Wednesday, June 13, 2012 - 00:00 -- BY DANIEL KAMANDE
Renumeration Commission
Commission on Revenue allocation Chairman Micah Cheserem during the launch of the Horizontal share formula for public debate on allocation of finances for county developments. Photo/ Jack Owuor

The next general elections will see Kenyans elect the county assemblies and governors. This will make establishment of devolved government a reality as envisioned in the new constitution. With devolution, powers will be transferred from the central government to county governments, and Kenya will be divided into 47 counties. The new constitution recognises one of the main objects and principles of a devolved government as the right of communities to manage their own affairs and further their development. This will give the people a sense of identity and self-empowerment, and they will feel recognized in their contribution to the growth of their own county. However, there is a lot that still needs to be done for the gains envisioned in the constitution and in particular the devolution process to be appreciated by all Kenyans.

The question then becomes, how will the resources be shared? The new constitution provides for equitable sharing of national resources. Specifically, the constitution requires that revenue raised at the national level be shared equitably between the national and County governments. It details a criterion to be followed in vertically determining the equitable shares of both the national and county governments on the one hand; and horizontally among the 47 counties. Thus once established, 15 per cent of the revenue collected by national government will be shared equally among the 47 counties; already there is hot debate on the allocation of the monies that shall go to the county governments. The Commission on Revenue Allocation came up with some indicators that will be used to allocate funds to counties which are: population, poverty levels, county land area, prudential financial management/performance index, and fund equalization index. However, the Commission on Revenue Allocation still faces stiff challenges as some of its suggestions are meeting varied reactions from Kenyans.

The issue of population has been met with mixed feelings. According to the Kenya National Bureau of Statistic, Nairobi’s population stands at 3.1 million, followed by Kakamega whose population stands at 1.7 million, Bungoma’s 1.63 million, Kiambu 1.62 million while Nakuru follows closely with 1.6 million people. Therefore, the Commission indicates that the higher the population of a country, the higher the funds it is going to be allocated. If approved by Parliament, Nairobi, Kakamega, Bungoma, Kiambu and Nakuru will get a lion’s share of funds due to their large populations.

Areas with high poverty levels which according to the KNBS are majorly in the North Eastern parts of Kenya; Turkana, Mandera, Wajir, Marsabit, West Pokot and other areas known to face severe famine situations from time to time shall also be considered and a 12 per cent proposition has been made for the allocation on the various counties based on the poverty levels. The equalization fund from the national government has also been put in place to ensure that the development of all areas is looked into. Worthy to be noted is that 20 per cent of the fund will be shared equally among the 47 counties. Other counties that shall prove themselves worthy by exemplifying good performance shall get an extra 15 per cent of the fund that goes to the counties if the Commission’s suggestions are passed by Parliament.

The county governments will have power to raise and spend revenue. The Constitution through the taxation section gives county governments power to generate revenue. The county government may impose property rates, entertainment taxes and any other tax that it is authorised to impose by an Act of Parliament. In addition, a county government may borrow with the approval of the county assembly and only if the national government guarantees the loan. Once various taxes have been determined they will have to be collected. The practice has been that local authorities collect local taxes within their jurisdiction. Experience indicates that most of local authorities have limited capacity to discharge this function.

With the new constitution, it is still a subject of debate whether the Kenya Revenue Authority will collect revenue on behalf of the counties or whether it shall assist the counties in building their own capacities to collect their own revenue. There has been dispute between the Ministry of Finance and that of Local Government over the management of the revenue of national and county governments. In the long term, if the county governments are suppressed leaving the control of finances in the hands of the central government, then the whole concept of devolution will be defeated. In fact, county governments without the power to control their own finances will be political and administrative units, negating the whole idea of devolution of the country into counties with more efficient financial management systems.

What will be cost of the devolution? The costs attributed to devolution are not new costs. There have been some funds (budget) which have been regularly earmarked for districts and the municipal/ county Councils. Most of the districts and the councils’ budgeted items in the existing central government budget need to be transferred to counties as the functions are equally transferred. The Salaries and Remuneration Commission also needs to establish realistic salaries for public officers at county level. For the members of county assemblies, the commission may consider providing for allowances, not salaries, as their functions will not call for full time commitment.

Would Kenya experience improvements in living standards that are associated with devolution? Where it is practiced, devolution affects the nationals of the country both direct and indirect. For example, UK experienced falling levels of poverty and improving employment rates across the country after ten years of devolution; there has been improvement of social housing; and on social care, devolution has enabled costs for older people on lower incomes to be reduced. Every living being with free will and self-movement seeks to find what is best for him and the community. If every individual would have the common good within them, then without doubt we would reap the positive effects of devolution.

Kenya has over the years since independence witnessed a culture of corruption, poor governance, negative ethnicity which has resulted in ethnic conflicts, insecurity is widespread and this has ensured that there is still widespread poverty. Political uncertainties, marginalization, excessive waste of natural resources, excessive political intolerance, gagging as well as cut-throat political competition has become the order of the day. The devolved government is therefore a new dawn and it is expected that Kenya will elected responsible leaders who are development oriented to govern the devolved counties.

Daniel Kamande is advisory manager at Ernst & Young, East African Region; views expressed here are solely his and not necessarily that of Ernst & Young.