Counties losing billions in uncollected revenue

County Governments across the country lose Sh55 billion annually in unrealised revenue collections due to under-utilisation of resources.

A report by the Commission for Revenue Allocation says counties have the potential to generate about Sh 93 billion in own source revenue if they effectively utilise the available resources.

The report titled Study of County Governments Own Source Revenue Potential and Tax Gap Kenya, says that the counties generated around Sh 38 billion annually on average from own sources over the last three financial years (2017/18, 2018/19, and 2019/20), with the remaining Sh 55 billion being unrealised.

Analysis shows that Narok, Tana River, Laikipia, and Samburu counties appear to perform best in generating revenues from own sources considering their economic size, as captured by the latest GCP figures from 2020.

“This high performance, identified in this study, can be attributed to the fact that these counties, with the exception of Tana River, have game reserves. the total revenues that could be generated from all streams if all County Governments performed in line with the best performing counties in Kenya,” said Dr Jane Kiringai, Chairperson, Commission on Revenue Allocation.

The report further show that Nairobi City County Government collected around Sh9.5 billion on average over the last three financial years, while its potential is estimated at around Sh 25 billion.

Kiringai says that if Nairobi City County Government would generate revenues in line with the best performing counties, it could increase the revenues it generates by nearly Sh 15 billion.

 Kiambu, Nakuru, and Mombasa emerged as the three counties with the largest revenue potential after Nairobi City, able to generate Sh 5.2 billion, 4.5 billion, and 4.4 billion per year, respectively.

 The estimated annual revenue potential for Machakos, Narok, Kisumu, and Meru are over Sh 2.3 billion each.

Own revenues

Meru County’s potential is around Sh 3.2 billion annually but it only collects 20 percent of the revenues it could potentially generate if it operated in line with top-performing County Governments.

A recent report by the Office of the Controller of Budget showed that the counties managed to raise Sh 34.4 billion from own sources in 2020/21 against a target of Sh 54.3 billion.

While county own revenues increased in total compared to the previous financial year, the County Governments managed to raise only 65 percent of their target, leaving room for substantial improvements in revenue generation.

The counties interviewed in the study pointed out that there is scope for enhancing performance in generating revenues from various sources, including property rates, trading licensing, liquor licensing fees, parking fees, cess, market fees, healthcare fees and charges, advertising, and charges on tourism.

Property rates

The streams that can generate more revenues than currently collected in most counties are property rates, trading licensing, and parking fees. For example, representatives from one County mentioned that property rates have the capacity to generate up to three times the current revenues.

However, with the onset of the pandemic in 2020 the report shows that Counties relying on the tourism and hospitality sectors were hit the most by the pandemic.

 Restrictions that were in place directly affected revenue collection through reductions in employment, and decreases in trade, consumption, and other activities further hindering revenue generation.