Audit raises red flag in counties' revenue
Early this year, a study by the National Treasury established that Own-Source revenue (OSR) collections by counties are up to four times below the minimum potential.
The OSR potential and tax gap study revealed that the 47 county governments can raise a minimum Sh124.7 billion annually.
The Auditor-General has fingered counties for failing revenue collection with some missing their targets by up to Sh7 billion.
What makes it worse is that over the last four years, all the 47 county governments registered a significant shortfall in the collection of their own generated revenue.
In the 2017/2018 financial year report, the Auditor-General warns, continued decline in budgeted local revenue and its collection may hamper or compromise service delivery.
According to the report,the Nairobi County target was to collect Sh17.22 billion in the 2017/18 financial year, but it ended up collecting Sh10.15 billion, which was an under collection of Sh7.07 billion, 41 per off the mark.
In fact, according to the report, the total amount collected as own source revenue in the 2017/18 was lower than what the county collected the previous year which was Sh10.93 billion, a reduction of Sh775 million.
“No reasons have been given for the reduction in revenue collected and failure to meet budget projections,” the report, signed by retired Auditor-General Edward Ouko says.
The reports were tabled in the Senate on Tuesday.
Early this year, a study by the National Treasury established that Own-Source revenue (OSR) collections by counties are up to four times below the minimum potential. The OSR potential and tax gap study revealed that the 47 county governments can raise a minimum Sh124.7 billion annually.
In the financial year 2017/18, county governments aimed at raising Sh49.2 billion in OSR but only managed Sh32.5 billion, similar to collections in 2016/17, a massive Sh92.2 billion below the potential.
Nevertheless, OSR out-turn in the financial year 2017/18 was better (66 per cent) than in 2016/17 (56.4 per cent), which had a higher target (Sh57.7 billion).
“The study’s main policy finding is that counties should focus revenue improvement efforts on streams with a strong policy rationale, significant revenue potential and cost-effective to collect,” the Treasury said.
Audit shows that Mombasa County was to raise Sh3.5 billion in OSR. However, it ended up collecting only Sh3.1 billion
In Kakamega County, the report notes that local revenue budget and actual collection has been in decline in the last four years.
While in 2017/18, the county had projected to collect Sh774 million, it only collected 504 million, resulting in under collection of Sh269 million, which is a 35 per cent variance.
In the 2014/15 financial year, the county had projected to collect Sh903 million, but ended up collecting sh516 million. In 2015/16, the projected figure was Sh1 billion but the county ended up collecting half of it, which was Sh504 million.
In the 2016/17, the county revised its target downwards to Sh894 million but the actual collection still slumped further to Sh444 million.
“The management did not explain the specific measures being put in place to ensure that all the budgeted revenue is collected and accounted for to enhance service delivery to the residents,” the report said.
In Kiambu where the county executive sought to raise Sh1.9 billion in the 2017/18, it only collected Sh1.6 billion — Sh238 million less than its revenue target.
Comparatively, the county collected Sh2.06 billion in the 2016/17 financial year which slumped to Sh1.6 billion in the year that followed, indicating a decline of Sh379 million.
In Machakos County, the Auditor-General observes that the budgeted OSR was Sh1.5 billion, but the actual amount collected was Sh1.08 billion. The county’s OSR also declined by 14 per cent from the previous year’s collection of Sh1.2 billion.
While raising the red flag over the inability of the 47 county executives to maximise revenue collection, the Auditor General warned that delivery of service in the counties will be hampered.