Harmonise county levies to stimulate economic growth
- There is little to no harmonisation in county revenue laws and business licensing requirements, a situation that is affecting the competitiveness of businesses.
- Counties should not be too overzealous when taxing businesses. Rather, they can rationalise spending, lower tax collection targets and let businesses thrive
Six years after its implementation, devolution has borne mixed results.
Socially and politically, it has introduced a more inclusive model of governance, giving Kenyans at the grassroots a voice in key decisions.
Economically, it has created new markets with increased spending power outside of Nairobi due to the exchequer’s annual disbursements of around Sh300 billion to counties.
On the flipside, devolution has introduced new challenges – particularly in the ease of doing business.
There is little to no harmonisation in county revenue laws and business licensing requirements, a situation that is affecting the competitiveness of businesses.
Punitively high taxes across different counties are a barrier to distribution of goods across the country.
These taxes include entry fees, multiple distribution fees, multiple vehicle branding fees, single business permits demanded in every county of distribution, building plan approvals and export certificates.
As a result, the cost of doing business has increased. Manufacturers are the worst hit.
Kenyan-made goods are priced significantly higher than imports from China or India due to a high manufacturing cost base.
Additional costs brought about by lack of harmonisation of county revenue laws and licensing requirements are compounding the situation, leading to lower sales and poor capacity utilisation across the manufacturing sector.
Manufacturing is one of the economic sectors that is receiving special attention from the national government under President Uhuru Kenyatta’s "Big Four Agenda".
As a result, it has been the beneficiary of a host of government-backed incentives aimed at unlocking growth, including an electricity rebate of up to 30 per cent aimed at subsidising the power supplied to manufacturers.
Electricity is the single largest cost driver in Kenya’s manufacturing sector, accounting for close to 40 per cent of total production costs, according to the Kenya Association of Manufacturers (Kam).
The rebates are therefore expected to improve competitiveness, along with other measures that the national government is rolling out, such as infrastructure development and the overhaul of Special Economic Zones.
These efforts to revitalise manufacturing and make it account for 15 per cent of the gross domestic product (GDP) by 2022 – which is close to double its current contribution to GDP – could run into headwinds if county laws and licensing are not harmonised.
A good starting point would be to breathe new life into the Integrated Devolution Data Portal, which Kam launched a few years ago in collaboration with the Commission on Revenue Allocation (CRA).
The portal serves as a central national repository for information on county legislation and devolution-related issues in all 47 counties.
It is a critical source of information on key revenue laws, county revenue enhancement measures and county taxation legislation. This can support peer learning and benchmarking across counties.
The second part of this equation is for leaders to have the political will to make short-term sacrifices for long-term gain.
Given the current cash crunch facing the national government, most county chiefs are under increasing pressure to raise revenue.
They should, however, not be too overzealous when taxing businesses. Rather, they can rationalise spending, lower tax collection targets and let businesses thrive.
Then – with an expanded tax base as a result of prospering businesses – proceed to levy reasonable taxes that allow all businesses to thrive.
With strong political will and a clear focus on the long-term benefit, Kenya can improve its fiscal and regulatory environment.
This would unlock immediate benefits for the manufacturing sector, which is effective in job creation and poverty reduction due to the fact that it is labour-intensive and has strong linkages with other key sectors such as agriculture, transport, utilities and retail.
The writer is the Commercial Director at Pwani Oil.