27/07/2020
Billow Kerrow.
MT KENYA WRONG ON COUNTY REVENUE STANDOFF
The stalemate on the new county revenue sharing formula in the Senate is fueled by false sense of entitlement by Mt Kenya region leaders as demonstrated below. It all started in November 2018 when over 70 elected leaders from the region declared in Naivasha that the region was sidelined in development. They stated that whilst the region generated 60% of the country’s GDP, it only received 20% of county revenue share.
The 9 counties that make up the region do not generate 60% of our GDP. And they don’t get 20% of the revenue too – they get less and correctly so. GDP is the total value of goods and services produced in a country. Our GDP is valued at sh 10 trillion. The revenue shared between the counties is actual tax revenues collected by KRA, which was sh 1.4 trillion in 2018/19 financial year.
VAT is the largest source, at sh 410B, & is paid by all Kenyans because it is charged on 99% of items used/consumed/ imported by Kenyans. For instance, the bottle of water purchased by a pastoralist in Lodwar has 14% VAT, paid at source, mainly Nairobi or other major towns where industries were set up because infrastructure is available. PAYE is next, at sh 293B paid by 3.8 million Kenyans in employment. The largest source is company workers, teachers & civil servants working across the country, but PAYE is deducted at source, again mostly in Nairobi.
Corporation taxes by companies is next at sh 296B, followed by excise duty at 196B and customs duty at 105B. Nearly 80% of these taxes are collected in Nairobi, and Mombasa ( VAT & import duty). Our industries & businesses are generally located in Nairobi where the taxes are paid. Similarly, we all import our goods mainly through Mombasa where we pay the VAT, Duties, IDF, etc. Yet, all these goods are supplied across the country. This was the wisdom behind centralization of revenue collection in our Constitution.
KNBS reported in 2019 that Nairobi contributes 21.7% to GDP, yet it generates nearly 60% of the tax revenues. Similarly, Mombasa’s GDP is only 4.7%, well behind Nakuru at 6.1% and Kiambu at 5.5%, but it generates over 20% of the taxes through the port. Hence, higher GDP does not necessarily correspond to higher tax generation. Taxes paid by one large petroleum, telecom or cigarette company may be more than taxes collected from all regions outside Nairobi & Mombasa combined.
Nairobi got sh 16B from the 2020/21 sh 316B county revenue allocation. That represents 5% despite contributing nearly 60% of the tax revenues. If Nairobi were to use GDP as these leaders suggest, it would seek 21.7% of the total county allocations, amounting to shs 69B! Similarly, Mombasa got only sh 7B, being 2% of the county allocations and not 20% of the taxes generated by the port. If Mombasa were to use GDP ratio, it get double the amount.
Is Mt Kenya region sidelined in revenue allocation? No. The 9 counties have a population of 8.5 million, representing 18% of the national total. In 2020/21 allocations, they receive sh 53.3B, being 17% of the total county revenues. On per capita basis, sh 316.5B will work out to sh 6,600 per person. This region’s allocation works out to per capita of sh 6,200. Hence, if we base the sharing on population which they deem essential, they got their one man one shilling mantra fulfilled.
So what’s the issue? The region’s leaders believe naively that their numbers are probably half the country! They also think they generate all the taxes. In 2003, when examining the cost of devolved governments, we established that Central Kenya contributed 2% of the tax revenues. Not much has changed since. Most of our farm produce such as tea, coffee, flowers etc are for exports; KRA only gets income taxes from these businesses. There are no taxes on the cabbage, beans or maize on the farms. Productivity is quite apart from tax revenue generation. They need to study KRA sources of revenue to understand which sectors/ areas raise the taxes.
The new formula has been carefully crafted to channel resources to already developed regions by selecting parameters such as hospitals beds, access roads, farm homesteads etc. This is inequitable and ultra vires the Constitution that sets out factors to be considered. It must be rejected.
