The counties and money have been in the news in more ways than one recently.
Most prominent and most interesting, perhaps, have been the recent reports from the Controller of Budget. The CoB has explained she has refused to approve the release of funds — though quite a small percentage (about two percent ) — because the proposed expenditure was unlawful or proper procedures had not been followed.
Governors were not best pleased, saying the CoB was trying to take over the role of the Auditor General. Maybe they do not understand what the role of the CoB is.
Before the current Constitution, the Auditor General (Au-G) was called the Controller and Auditor General (CAG). The Auditor-General function is to study carefully the reported expenditure of public bodies for a period — particularly for the previous financial year.
The Auditor-General at the time proposed to the Constitution of Kenya Review Commission that the functions should be split into two. He felt that it was too much for the CAG to have to perform both functions. So what is the CoB’s function? The CKRC Final Report said that the CoB function was “to oversee the Budget implementation … by ensuring money is actually spent according to plan and to provide accounts of actual versus budgeted expenditure on a rolling basis”.
The CoB is to approve any proposed use of money before it is withdrawn to be spent — not to tell the county what budget decisions to make, but to check that the way the money is spent conforms to the approved budget. The Au-G looks at the accounts of what was done after the event. These are two very different tasks. Indeed, the power to effect expenditure before it takes place has greater promise than raising alarms after the financial horse has bolted.
THE POWER TO TAX
A second thing that attracted attention was a Supreme Court case about counties charging “cess”. The trouble with this is that cess is usually a tax. And counties have very limited power to levy taxes. The Constitution gives them the power to raise only property rates and entertainment taxes. It also mentions the possibility of “any other tax that [the county] is authorised to impose by an Act of Parliament”.
Am I being unnecessarily confusing when I say that “cess is usually a tax”? True, the dictionaries define cess in a way that indicates tax. So: “A rate levied by local authority and for local purposes. Now superseded in general English use by rate”. And since we may have got the word from India: in that country it has been used to mean “A tax levied for a specific object”.
Now in Kenya we often called the last a “levy” — like the fuel levy. The problem is that words are not magic. Their meanings depend on how they are used. If something is really a tax you don’t change its nature by calling it a charge or a fee (or a cess).
Counties are allowed to charge for services, and they have the power to regulate certain activities. The latter would include a fee for a licence — so the county can keep a record of who is entitled to carry on the activity and possibly to impose conditions. If someone else offers a service but the county wants to be paid every time the service is used but does not itself add any benefit, this is a tax — and it does not change because it is called a charge.
There have been several cases in Kenyan courts about “cess”, but not all satisfactorily argued. Courts (perhaps the lawyers) do not seem to have got straight the difference between a fee or charge and a tax. The normal understanding of a tax is that it is a compulsory payment for the purpose mainly of raising money (there may be a secondary object — like making something like tobacco more expensive). If you pay a tax you cannot say “I have a right to the supply of something in return for my payment.”
A fee or charge is required in return for something – for a goods, service, or a permit to do something.
In 2021 the Supreme Court had to deal with Mombasa county’s demand for cess from traffic destined to the port, specifically for the transport of minerals from Kwale county. The court held that the road over which the traffic passed was not a county road but a national road.
Therefore the county was providing no service: “A county does not have the authority to charge a cess, levy or tax where they do not offer anything in return,” the court said. The use of the words cess, levy or tax is rather confusing. The reality is that there being nothing in return, it was a tax, and therefore not allowed because it was not a property rate or entertainment tax.
A county could have a toll road for which a charge is made for specific use, or issuing a season ticket that covered any number of uses of the road for a certain period. Like the Nairobi Expressway — a national toll road. But they could not, to my mind, impose a charge on all road users living in the country even if they did use county roads, if that charge was not related to the actual use of county roads by each specific motorist. That would be a tax.
And if they did try to charge people who used county roads, but imposed it only on vehicles carrying, for example, minerals, they would have to argue hard to justify charging only certain road users, because that is on the face of it discrimination — and unconstitutional.
Studies have shown that cess on produce varies from county to county. It is also possible for one consignment of a particular crop to be subject to several cesses as it makes its way across the country. The whole system is undesirable — it makes it more expensive for goods to be delivered to or from more distant areas, increasing their marginalisation. And it generally hampers free movement of goods around the country.
It would be good to have a case that really sets out the criteria for identifying a charge, a fee and a tax.
SPENDING POWER
I noticed a news item a few days ago about a county government providing some sort of facility at a prison. And a couple of governors have paid the fines, or bail, for convicted or remand prisoners. If this was out of the own pockets that is great. But could a county government as such pay for these things?
County governments are governments. But they are governments with limited powers. The Constitution (Fourth Schedule) lists the “functions and powers of counties”. These include “Pre-primary education, village polytechnics, homecraft centres and childcare facilities”. But primary, secondary and university education are national government functions. A county could not set up a secondary school or university. Can it spend money on a bursary scheme for secondary school or university students?
Correctional services are a national government function. A county could not have its own prison. Can it spend money on a prison or prisoners?
I am aware that many people would view a bursary scheme as among the useful things a county could do. But popular approval could not make an activity constitutional, if it was not.
Most counties get most of their money from the national government revenue. That allocation of revenue is based on the responsibilities of the national and county governments. If a county spends money on one issue it will have less, obviously, for others. Is it right that it should be able to spend on a function that is not assigned to counties, while not having enough to spend on functions that do belong to counties?
I must say this does not seem to bother the Controller of Budget.
One day a case on something like this will come before the courts, and the issue will be clarified.
(Edited by V. Graham)
