By Ndiritu Muriithi
Many counties have found it difficult to increase their own
source revenue collection. Looking at the topics of the upcoming
conference on this subject published on-line, I can discern five reasons why
Counties experience this difficulty.
OSR is not direct taxes, performance contracting has
plateaued, revenue systems do not collect, revenue estimation is problematic,
and traditional enforcement not possible. Let us explore each briefly.
Own source revenues are not direct taxes.
A startling and confusing claim. So, let us peel the
onion. With the exception of property taxes and cess, the other
streams are appropriations in aid. Fees for services. Most motorists will be up
in arms if you are asked them to pay parking fees on an unpaved, unmarked street.
You certainly will not pay for water unless it has been
delivered, and may dispute even when it has. As Governor, I was regularly
criticized by three social activists who felt the Nanyuki water tariffs were
too high, never mind the tariffs are regulated by the Water Services Regulatory
Board.
The health sector
takes up more than fifty percent of the budget in all counties – both on the
expenditure and revenue sides. It is easy enough to see that the consultation
fees, laboratory charges, pharmacy payments, in-patient charges and so on, are
not taxes but fees for the services clients are receiving.
How can you increase revenue in health? Do you want citizens
to get sicker (sic)? complained one county health executive when told he needed
to improve his collection. Quite the opposite though. Public and
promotive health are all about preventing citizens from getting sick, so no
health service would wish the opposite. But you can increase utilization and
coverage.
Performance management
You can increase the range of services available, and to
lower level facilities closer to the citizen. You can improve her ability
to pay for the services by increasing health insurance. You can improve
the availability of commodities. You should then use health revenues to improve
services in the facilities that generate the revenues in the first place.
The first step by most counties to ring-fence this stream has been to give it a
name – facility improvement fund (FIF).
The second step has been to allow use of the revenues at
source. I find the second step problematic because the best practice rule
of revenue, both in public and private sectors is never to use it at
source. Both the Constitution and the Public Finance Management Act
demand that all revenues must be paid in to the County Revenue Fund. Still, an
escape hatch. Exceptions allowed if the revenue has been reasonably excluded by
an act of parliament or assembly. OSR is the result of service delivery.
Performance management is, therefore, at the heart of increasing it.
The last big change in performance management in the public
service was introduction of performance contracting, now nearly two decades
old. The idea has by now plateaued. Performance contracts have become
routine – destined for dusty desk drawers after signing. Compensation is
determined by the Salaries and Remuneration Commission (SRC and not in any way
linked to performance, and, separately with non-performing staff is a tall
order. In theory you can sack a non-performing member of staff. You simply have
to document the non-performance, and demonstrate that you have made every
attempt to assist the staff member improve her performance.
The Public Service Commission is the court of first instance
for disputes between Counties and their employees. Only after that, can they go
to the Labor [High] Court. The courts are, however, generally more
sympathetic to the employees. Commonly known as revenue collection systems, the
most accurate description of what the online systems deployed in counties do,
is tracking.
First, actual transactions involve a service level staff – a
doctor attending to a patient, a lab tech performing a laboratory test, a Vet
examining livestock to issue a livestock movement permit and so on. The actual
service is not automated. Second, the client pays using mainly mainstream
mobile money services, with monies being channeled to collection accounts in
commercial banks.
Revenue collection systems
Some revenue collection systems have created wallets, that
clients pre-load in order to pay. These have limited value add, given that the
dominant mobile money services are also based on wallets. But the systems
provide the most effective way of tracking and monitoring payments in real
time. This is no small feat.
Properly used, it can lead to significant OSR growth. Revenue
collection systems are beginning to integrate with service provision systems
such as on-line building plan approvals, health information and pharmacy
management. The latter are examples of systems that the service level
personnel use while, or to, provide the service. This integration
provides one of the next frontiers of own source revenue growth.
Revenue estimation remains a problematic area. To be fair,
one of the most detailed efforts at estimation is the CRA published
Comprehensive Own Source Revenue (OSR) Potential and Tax Gap Study in June
2022. County governments regularly use it. The estimates of potential
suffer, however, from lack of detailed county level data.
Only a handful of counties have managed to produce County
Statistical Abstracts. It is easy to see that single business permit
(SBP) revenue is the direct result of the number of licensed businesses, itself
a proportion of the total number of businesses in a County. One of the reasons
tax authorities are successful is that they yield a big stick.
KRA can issue agency notices to your bank account, then
proceed to pay themselves. But obviously you cannot do the same for ministerial
appropriation in aid. That is why KRA has nothing to do with A in A. You
cannot enforce service delivery. Certainly not in the traditional
sense. You can clamp a car, or confiscate wares of a market vendor, but
this revenue is perishable. Once they day has passed, there is no
opportunity to collect.
@NdirituMuriithi,
an economist and Managing Partner Ecocapp Capital
