National Policy on County Governments Own Source Revenue and the County Government (Tax Regulation) (Draft) Bill, 2016 - Kenya Private Sector Alliance (KEPSA)


Devolution, as stated in the Constitution, is expected to promote economic development at the grass root as well as promote the provision of proximate, easily accessible services throughout the country. In order to achieve this objective, the county governments are entitled to reliable sources of revenue to ensure the effective delivery of services. The county governments may raise revenue by imposing property rates, entertainment taxes and other taxes authorised by national legislation and charges for services provided by the counties.

The two levels of government must impose those taxes or licensing fees only as authorised by legislation. Further, Article 209(5) requires that counties should not exercise their revenue powers in a way that prejudices national economic policies, economic activities across county boundaries or the national mobility of goods, services, capital or labour.

However, counties have failed to adhere to these constitutional provisions. Businesses have hence faced an unpredictable business environment which increases the cost of doing business indiscriminately across counties. Article 201 which provides for sufficient public consultation in public finance matters is also often violated by counties.

Specifically, the following issues have emerged:

Double taxation of certain products and services. These taxes range from agricultural taxes (cess) to advertisement taxes and entertainment taxes.

Unlawful taxation: Most user fees, charges and taxes imposed by counties are not anchored in legislation nor in policy but implemented every financial year through County Finance Acts, but which are in contravention of the Public Finance Management Act, 2012.

Punitive Trade Licensing Practices: County governments are responsible for the licensing and regulation of commercial enterprises. The Single Business Permit (SBP) regime was designed to reduce the cost of compliance in paying business taxes. Not all counties have implemented SBP and trade licensing has been reintroduced in many counties despite the trade licensing reforms of late 90’s and early 2000’s. Businesses are also required to pay other fees in addition to SBP such as fire permits, health-related levies, hotel licenses and liquor licenses.

Administrative Inefficiencies: Most levies (such as cess and market charges) by county governments are collected manually and in cash therefore prone to revenue leakage and manipulation. Cases of unprofessionalism, harassment, use of force and discriminate charging are allegedly commonplace.

Revenue Collection vis-à-vis Provision of Services: Article 209(4) of the Constitution allows the national and county government to impose charges for the services they provide. However, there is often no linkage between the charges levied by the county governments and services provided. For instance, some county governments charge parking fees without providing designated parking spaces.

The National Treasury has now developed a draft National Policy on County Governments Own Source Revenue and the County Government (Tax Regulation) (Draft) Bill, 2016 to address the outlined challenges and regulate the process followed by county governments in the exercise of their power under Articles 209 and 210 of the constitution to impose, vary or waiver taxes, fees, levies and other charges. KEPSA agreed with the National Treasury that it would undertake nationwide stakeholder consultation to gather views and input from the private sector on the draft Policy and Bill, and is, therefore, seeking BAF support to carry out this consultation process.

Expected Outcome

The main aim of this project is to ensure that the resultant policy and law create a conducive framework for economic development while promoting revenue collection. A responsive policy and appropriate law on county own resource revenue will eliminate multiplicity of taxes and charges; eliminate or minimize the opportun