How counties are struggling to raise revenue

County Governments received a total of Ksh.370 billion from the National Government as Equitable share in the 2021/22 financial year.

The units, however, collected a dismal Ksh.35.91 billion against their own set target of Ksh.60.42 billion as own source revenue, representing 59.4% performance to the target. 

What does it mean?

This implies that the counties’ own source revenue collection to equitable share allocation was 9.7%. This basically means that the counties financed barely 9.7% of their budgets. This rate shrinks further when Conditional and non-conditional grants are brought into the equation.

The Commission on Revenue Allocation (CRA) released a comprehensive Own Source Revenue and Tax Gap Study on June, 2022.

The study narrowed down the revenue streams to the top 16, as a basis of considetration, which the CRA believes contribute to 80% of the total counties’ own source revenue. The study showed that the counties have the potential to collect over Ksh.216 billion from the streams selected.

Consequently, the potential of counties own source revenue to equitable share allocation then would have been  Ksh.370 billion Vs Ksh.216 billion implying that the counties had a clear potential to finance over 36% of their budgets through their own source-generated revenues.

Unfortunately, on average the counties are only doing barely 16% of their potential, leaving the 84% of revenue either uncollected, ineffectively collected, or collected and diverted in the wrong direction in contravention of the public finance management act.

With a combined total wage and salary bill of Ksh.180 billion, the counties would comfortably pay for their bill from the local collection, or better put, all the pending bills owed by the counties of about Ksh.159 billion would be paid from their own generated revenues.

Efforts should be directed to the counties, to support them in all means necessary, to unlock this huge potential of their own source revenue to ease over-reliance on the equitable share as the only financing option.

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Murungi Ndai

Mr. Ndai is an experienced public sector economist, experienced in sub-nationals having greatly influenced development of policies relating to revenue mobilization by Counties Governments. He collaborates with the private sector, governments and NGOs to address critical topics, including county growth strategies, borrowing and leasing by counties, MSME support and public finance management.
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