Counties’ revenue potential untapped - Treasury budget paper

The national treasury./File
The national treasury./File

Counties’ revenue potential stands at Sh124.7 billion annually, according to the National Treasury.

Property tax and land rates form the major revenue source for the sub-national governments providing a total of Sh66.2 billion.

The Draft 2019 Budget Policy Statement shows that business licences, vehicle parking fees, liquor licences, outdoor advertising charges and building permits held a revenue performance potential of Sh23.4 billion, Sh12.6 billion, Sh10.2 billion, Sh6.3 billion and Sh6.0 billion respectively.

This followed the finalisation of a policy to improve revenue collection by the 47 devolved units and relieve the National government's financial support burden.

The county governments have been performing below expectations in raising revenue, leading delayed projects, payments to civil servants and increasing pending bills payable to suppliers.

The controller of budget reported Sh7.41 billion collected from own sources in the three months to November.

According to the treasury, county governments targeted to raise Sh49.2 billion in own-source revenue during the 2017/18 financial year, but collected Sh32.5 billion similar to collections in 2016/17 financial year.

“This means there was nil improvement,” the draft showed.

The statement further showed the own source revenue performance had deteriorated since the devolution system, with their collections financing only a smaller proportion of their spending.

The revenue was only able to support 15.5, 13.1, 11.9, 10.2 and 10.7 per cent to their spending in the six years from 2013 to 2018.

“This trend confirms growing reliance by the counties on transfers from the national government… And as far as county governments’ fiscal performance is concerned, the main challenges relate to weaknesses in own-source revenue and the unstable pattern of financial activity within each budget period,” it stated.

In the financial year 2018/19, counties received Sh314 billion and conditional allocations amounting to Sh62.4 billion.

However, amendments announced in September to the Sh3.03 trillion budget due to public outcry on high taxation and spending saw the funds cut by Sh9 billion to Sh304.9 billion.

The in the 2019/20 budget projections county governments will receive an increase in allocations to Sh310 billion.

The allocations will proceed with an increasing trend to Sh318.06 billion and Sh326.33 billion in 2020/21 and 2021/22 financial years respectively.

Public finance management requires that county governments allocate a minimum of 30 percent of their budget to development expenditure. However, according to the controller of budget, only 9 Counties complied with the requirement in 2017.

Among the counties with the lowest percentage of development to total expenditure are Taita Taveta, Nairobi, Kisumu, Vihiga, Meru, Wajir, Nyamira and Machakos, all which had below 15 percent.