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How graft, weak systems cost counties Sh185 billion in taxes – Business Daily

Counties are missing out on an estimated Sh185 billion in internal revenue collections every year highlighting the adverse impact of weak manual systems used by the devolved units and corruption.
A tax gap impact report by the Commission of Revenue Allocation (CRA) and World Bank estimates the internal revenue potential of counties at Sh216 billion against the average of Sh31 billion they net yearly.
The huge revenue misses have been blamed on use of manual systems, corruption among revenue officers and outdated valuation registers that do not match prevailing market prices of property.
Failure to maximise on their vast revenue potential has forced counties to rely on equitable cash sent by the National Treasury and grants to foot staff salaries and finance basic services such as health and roads that have been allocated paltry funds.
The study shows that outdoor advertising is the most underutilised revenue stream with an estimated Sh81 billion going uncollected every year followed by levies on health facilities at Sh33 billion.
“We (counties) are tinkering on the margins in terms of collecting what we should raise mostly from the informal sectors,” CRA chairperson Jane Kiringai said yesterday while releasing the report.
A tax gap refers to the difference between potential and actual revenues from a stream as averaged in the three financial years to 2019/20.
CRA and World Bank say that estimates of the tax gap for each revenue stream reflect the extent to which counties can boost revenues if they put in place proper policies and systems.
Other significantly underutilised streams are Single Business Permits (SBPs) with Sh23 billion uncollected yearly followed by cess from the transport of natural resources such as minerals and sand at Sh16 billion.
Property rates and parking fees complete the list of the top six under-tapped streams with Sh14 billion and Sh9 billion un-collected every year.
Counties have since inception in 2013 been plagued by corruption among revenue officers who collude with businesses to deny the counties cash from valid permits and the use of manual registers and valuation rolls that are not updated as the case for property rates.
Counties are yet to transition to 100 percent automated revenue collection systems that are key to curbing loss of revenue by rogue officers.
The devolved units over-rely on transfers of the 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— has in the past nearly crippled critical services at the counties such as hospitals while in other cases county staff went for months without salaries.
Nairobi misses out on an estimated Sh6 billion annually— the highest for all counties— followed by Nakuru with a gap of Sh1.985 billion, Machakos county (Sh1.51 billion), Kakamega (Sh1.178 billion) and Kisumu at Sh0.941 billion.
The 47 counties raised Sh35.91 billion in the financial year ended June against a target of Sh60.42 billion, according to data from the Controller of Budget.
Properties in Nairobi, Kiambu and Mombasa account for more than half of the total value of those in the country underlining the vast amounts that the units miss out on a failure to use update valuation rolls.
But while the report calls for enhanced and tech-based systems by the counties, it cautions that imposition of higher charges on sectors such as health and agriculture can risk derailing efforts to universal access to healthcare.
“In particular treating health services as a means to maximise revenues can contradict the commitment of the Government of Kenya to universal access to medical care,” reads the report.
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Joseph Muongi

Financial.co.ke was founded by Mr. Joseph Muongi Kamau. He holds a Master of Science in Finance, Bachelors of Science in Actuarial Science and a Certificate of proficiencty in insurance. He's also the lead financial consultant.