Why counties are unable to hit revenue targets

Controller of Budget Margaret Nyakang'o when she appeared before the National Assembly's Finance Committee on February 23, 2024. [Elvis Ogina, Standard]

County governments are not meeting their revenue targets because the set limits are unrealistic, the Controller of Budget has revealed.

Over the last 10 years of devolution, the counties raised Sh344.41 billion, which was 63.5 percent of the aggregate target of Sh542.23 billion.

Controller of Budget Margaret Nyakango told the Senate Information, Communication and Technology Committee that such underperformance of revenue collection can be attributed to a lack of capacity to prepare credible revenue projections.

Dr Nyakango told the committee chaired by Trans Nzoia Senator Allan Chesang that the practice by county governments of operating multiple revenue collection accounts is a major cause of leakage.

She also said collections being spent at source require to be addressed by relevant stakeholders.

"Article 207(1) of the Constitution provides that there shall be established a Revenue Fund for each county government into which shall be paid all money raised or received by or on behalf of the county government," said Nyakango.

The CoB told the committee that the aim is to ensure that any withdrawals from the account are done in compliance with the Constitution.

She said her office and that of the Auditor General have reported cases of counties failing to disclose all their commercial bank accounts and spending of collected revenue at source, primarily due to a lack of supervision and oversight.

Dr Nyakango said the majority of county revenue administrators lack basic skills for the function, a key factor behind poor enforcement strategies.

"Adoption by counties of ICT systems is below par while manual revenue collection is prevalent with its inherent risks of abuse," said Nyakango.

The CoB pointed out that lack of effective internal controls and audit mechanisms by county governments contribute to loss of revenue.

Nyakango said non-rotation of staff in revenue departments as well as allocation of duties among staff in ways that do not enable checks and balances undermine the counties' revenue enhancement efforts.

Defunct authorities

She pointed out that many counties adopted the valuation rolls from defunct local authorities with the revenue collected therefore based on low values that have no relationship to the current property values.

Nyakango told the Senate ICT Committee that many counties do not have laws regulating revenue collection. The CoB said the Intergovernmental Budget and Economic Council has mandated a collaborative framework of PFM institutions to spearhead the Tax Administrative Diagnostic Assessment Tool initiative in all 47 counties.

Senator Chesang said a lot needs to be done to monitor the automated systems in counties since most of them were using revenue collection systems that were not compatible with the Integrated Financial Management Systems.

Vihiga Senator Godfrey Osotsi said some of the staff working in financial departments own some of the illegal systems where the money collected does not end up in the counties coffers.

"We would like to know the revenue collection systems used in counties and who are the vendors," said Osotsi.