Kenya counties’ wider tax plans scare investors

Eager for more revenue, Kenyan county governments are proposing to impose  new taxes on everyone from chicken rearers to miners and even the dead, creating an environment that investors say is increasingly unpredictable.

Created last year, Kenya’s 47 county administrations are pushing for more revenue-raising powers, even after receiving 43% of government income this year, compared with the 15% minimum set in the constitution. Opposition politicians and elected county governors are calling for a referendum that may raise the allocation to a mandatory 45%.

"The counties are at risk of creating an impression that they are going to tax anything they can get their hands on," Jason Lakin, country manager of International Budget Partnership Kenya, an advocacy group, said. "It can create an environment of uncertainty that is not good for investment."

Consumers and businesses are already feeling the pinch as the Treasury raises taxes to help President Uhuru Kenyatta fulfil last year’s electoral campaign pledge to build railways and ports. The government is reintroducing a capital-gains tax in January next year and last year widened the basket of goods that is subject to the 16% value-added tax.

Counties are responsible for basic health services, farms, local roads, water and waste management in exchange for receiving their share of national revenue, including equalisation payments for poor regions and a development fund to create jobs and raise support for social programmes.

While the central government has sole authority to collect income taxes, value-added charges and custom and excise levies —  accounting for most of public revenue — county administrations get to set and pocket property fees and entertainment taxes. Both can charge for service provision.

"Counties are going after what they consider low-hanging fruit," Kenya Private Sector Alliance director Patrick Obath said. "We are speaking with authorities to help make them realise they need to balance raising revenue to develop their county" with tax fairness.

Mombasa county assembly, in its finance bill this year, proposed charging $2 per tonne, or $10 per consignment, for cargo shipped from East Africa’s biggest port, sparking complaints by the Shippers Council of Eastern Africa that it would raise the cost of trade.

Both levels of government are struggling to spend what they already have. The counties together used 65% of the funds budgeted for in the 2013-14 fiscal year compared with 81% for the national government, according to reports by the Office of the Controller of Budget.