A majority of counties lack legal backing for tax administration and are yet to update tax registers, significantly hurting their efforts to meet internal revenue targets.
An assessment of the counties’ revenue collection and management systems by the Controller of Budget (CoB) found most of them were yet to enact enabling revenue administration legislation.
Counties have since the inception of devolution two decades ago failed in their efforts to meet ambitious revenue targets, leaving them overly reliant on cash transfers from the national government.
The 47 devolved units raised Sh35.9 billion in own-source revenue for the 2021/22 financial year, missing their target by Sh25. 3 billion and marking yet another year where the units dismally missed their targets.
“The following gaps have been identified, especially when viewed from the perspective of good international practice, absence of or inadequate legal framework that backs the administration of several OSR [own source revenue]streams, such as the absence of the Revenue Administration Acts,” said CoB Margaret Nyakango in the Tax Administration Diagnostic Assessment Tool (Tadat) report.
Revenue Administration Acts enhance the mobilisation of revenue and facilitate growth in economic activities and trade by ensuring compliance with tax and customs laws.
The Tadat survey was conducted on 20 counties to gauge the strides made, if any, by counties to beef up their revenue collection and management systems.
Enactment of the Revenue Administration Acts gives legal backing to the specific own source revenue streams while an updated tax register helps counties to identify the active taxpayers and pursue the defaulters, ultimately helping narrow revenue leaks.
The CoB added that the counties should seek policies within the national tax administration to boost their collections.
Counties, hurt by dismal own revenue collections, over-rely on the National Treasury for cash to run their daily operations.
Delays in the release of the cash have thrown the units into a new paralysis, highlighting the need for the counties to shore up their revenue collection systems.
Last month, governors threatened to shut down operations over the failure of the Treasury to send billions of shillings due to the devolved units as equitable share.
Intergovernmental Budget and Economic Council — the agency tasked with ensuring the national and county governments work together mainly on the budgeting processes of the devolved units last year made it compulsory for all 47 units to undergo a Tadat test.
Ibec further directed the counties to allocate at least Sh10 million in the current financial year to fund the Tadat test.
Counties are also collecting cash payments in revenues mainly from the markets, a platform that has for years been cited as a conduit for significant pilferages further hurting efforts to meet revenue targets.
