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Kenya: Kenyans Snared By the Ghost of Double Taxation
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Business Daily (Nairobi)
12 May 2008
Posted to the web 12 May 2008
Mwaura Kimani
Kenyans could be losing millions of shillings due to an overlap of roles between the Central Government and local authorities, says a new report by a local think-tank.
Pooling the two key social welfare funds--the Constituency Development Fund run by the Central Government and the Local Authorities Transfer Fund (LATF) managed by the local government-- would eliminate areas of duplication.
The Institute of Policy Analysis and Research says in the report that this would cut on wastage related to mismanagement and graft.
One of the main areas of duplication is in taxation where the local authorities collect taxes alongside the national taxman, the Kenya Revenue Authority (KRA).
"This has given the impression that there is too much tax being levied on Kenyans. The presence of too many collecting agencies is likely to encourage tax evasion, "says IPAR.
"Local Authorities should deal with simple taxes such as market gate charges and leave KRA to deal with the more complex ones such as land rates."
Kenya's tax burden on the gross domestic product stands at 24 per cent compared to an average of 13 and 15 per cent for Uganda and Tanzania respectively.
According to the Institute, there is need to rationalise the number of local authorities in the country so as to maximise value for public finance since most of them are too small and have a limited revenue base.
"As more and more devolved funds become available at the grassroots, pooling the resources would address the needs of the communities in a more integrated manner," says the report.
This could be achieved through harmonisation of district level planning where the needs are captured in a strategic plan that would be systematically funded by these taxes.
The reforms would be a major relief to millions of Kenyans who have missed possible CDF and LATF -funded projects because of corruption and general mismanagement.
According to the formula for allocation of CDF, 7.5 per cent of all the Government's ordinary revenue collected every year is paid into the fund. Three quarters of this is distributed to the 210 constituencies equally.
The remaining quarter is distributed affirmatively, with poorer constituencies getting more as determined by the national poverty index.
"The roles of the two governments (Local and Central) must be harmonised through a devolution process leaving the former in charge of service delivery and resource mobilization," says Mr Daniel Muia, a researcher at IPAR who co-authored the report.
Over the years, the management of LATF has been a source of complaints in the local authorities and ordinary Kenyans.
The accusations bordered largely on allegations of corruption, pitting either the councillors against town clerks or the councils against the residents.
The transfer fund was established in 1999 through the Local Authorities Transfer Fund Act, which was passed in 1998. Its objective is to improve service delivery, financial management and reduce outstanding debts in local authorities.Currently the fund comprises five per cent of income tax collected by Treasury every year. It makes up about 24 per cent of the revenue in local authorities.
Last month, Finance Minister Amos Kimunya released Sh9.2 billion to the 175 local authorities in the country, with the Nairobi City Council receiving the biggest chunk of the fund at Sh1.7 billion.
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In the disbursment, a basic minimum of Sh1.5 million was allocated to each of the 175 local authorities in the country. A further 60 per cent of the fund was disbursed on the basis of population in each local authority.
In 2006, MPs voted to increase the CDF allocation from Sh7 billion to Sh21 billion. Allegations of corruption and financial mismanagement have dogged the CDF since its inception in 2004.
The CDF Management Committee says the fund had filed 35 cases with the Kenya Anti-Corruption Commission for investigation and possible prosecution.
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