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According to OECD (2011) and Hugh (2010) taxation has become a major area of development support and advice. Several reasons for this are likely: the potential benefits for state-building, growing desire to reduce reliance on foreign development assistance, the fiscal impact of trade liberalization, the financial and debt crisis in countries that provide development assistance, and the acute financial needs of some developing economies. Developed countries have advanced and successful tax policies which enhance revenue collection. An overview of budgeting suggests that all countries, either developed or developing, have come to grips with a constant struggle to face overwhelming demands for services while facing equally severe fiscal constraints (Francis et al, 2006).According to IMF(2011), developing countries face many common tax challenges, most of are qualitatively the same as in advanced economies—but much larger(Gordon and Li (2009), Heady (2002), and Keen and Simone (2004)). But there is also a difference in the developing countries in terms of the natural resource, the geographical location and history. For example small islands are better able to impose taxes at the border than are landlocked countries; this may explain both why they have been less inclined to adopt a VAT(Keen and Lockwood (2010) and why, when adopted, it tends to perform well(Ebrill et al. (2001), and Aizenman and Jinjarak (2008)). International partnerships- the World Bank & the IMF and the IMF, the OECD, the United Nations, and the World Bank Group-on tax policy and administration reforms towards helping the developing countries been formed. One of the pillars of the World Bank–IMF Joint Initiative to Support Developing Countries in Strengthening Tax Systems includes the development of “improved diagnostic tools to help member countries evaluate and strengthen their tax policies”(World Bank 2015b).
These diagnostic tools are: Tax Administration Diagnostic Assessment Tool, the fiscal incidence analysis developed with the Commitment to Equity Assessment, the Custom Assessment Trade Tool kit, an integrated tool for measuring customs performance across countries and over time and the Integrated Assessment Model for Tax Administration.Revenue collected by governments is used to benefit the country in many ways, and requires that it serves the country efficiently and effectively. OPCS (2011) defines efficiency as raising revenue while minimizing economic distortions in labor, consumption, saving, and investment decisions by individuals and businesses. The over-reliance on the National Governments in countries developing countries like Kenya has brought about increased public debt where the governments are forced to borrow either internally or externally. And with growing donor fatigue and dwindling domestic revenue reserves the need to strengthen national revenue collection systems has become particularly imperative and therefore the devised means of collecting revenue continues to be a challenge. Notwithstanding the pressing need to increased revenue flows, revenue collection is done at the sacrifice of economic and citizen welfare. Musgrave and Musgrave (1984), Bailey (1995) and Visser and Erasmus (2005) object with the above statement by saying that public revenue collection should comply with the best practices of equity, ability to pay, economic efficiency, convenience and certainty. Most of African countries face a lot of obstacles in either utilizing the available revenues in efficient and effective manner or exhaustively extracting the revenue potential (MOFED, 2009).Local governments heavily rely on property taxes, which have proven to be relatively unresponsive in meeting increasing demands from the public. As a result, local governments are continually forced to levying of non-property taxes and fees (Steiss et al, 2011). In developing countries revenue growth is hampered by a combination of local government insufficient taxing authority and weak revenue sources(Kayaga, 2007). As a result there is a huge gap between the revenue collected and the forecasted (Bird and Mika, 1992).
The need for County Governments to have reliable revenue is a key principle of Kenya’s devolution. This is contained in Article 175(b) of the Constitution of Kenya, 2010. The devolution arrangements also feature political and administrative devolution, as well as fiscal decentralization. The 47 County Governments budget for devolved functions and generate revenue from local sources. The Constitution defines County Governments’ funding sources to include: equitable share of at least 15 percent of most-recently audited revenue raised nationally (Article 202(1) and 203(2)), additional conditional and unconditional grants from the National Government’s share of revenue (Article 202(2)), equalization Fund based on half of one percent of revenue raised nationally (Article 204), local revenues in form of taxes, charges and fees; and loans and grants. Constitution allows Counties to impose: property rates, entertainment taxes, charges for services they provide and any other tax or licensing fee authorized by an Act of Parliament as a means of collecting local revenue(own source revenue).1.2 Statement of the problemCounty Governments are entrusted with fiscal powers to raise revenue to finance their functions but since their establishment in 2013, they rely almost entirely on the equitable share transfer to finance their budgets from the National Governments. In the first three post-devolution years, the equitable share transfer comprised 73.3 percent of counties’ aggregate budgets. In reality, the equitable share financed 92.1 percent of counties’ actual spending in FY 2015/16, up from 89.5 percent in FY 2014/15. During this period, counties’ equitable share transfer grew from Kshs. 196 billion in FY 2013/14 to Kshs. 280 billion in FY 2016/17, and Kshs. 302 billion in FY 2017/18. It appears that this growth has accompanied Counties’ increasing transfer dependency. The dependency of the County Governments on the National Government is an indication of the existence of challenges in revenue collection. This has forced the government to borrow internally and externally leading to more economic problems in the country. Kenya Local Government Reform Programme(2014) says that the local authorities have not been successfulin achieving their obligations due to the fact that their expenditure always exceed their revenues, a situation rampant in most if not all the counties in Kenya.County Governments are not meeting their revenue targets. According to the Annual County Budget Implementation Review Reports of (2014), (2015) (2016), and (2017) on the statistics of projected revenue targets and actual revenue collected, most counties have not been able to reach their targets, indicating the existence of problems in revenue collection.The 2015 County Revenue Baseline Study and National Treasury Policy to support enhancement of own-source revenue both state challenges facing revenue administration and management as follows:
The Daily Nation newspapers in the country dated 7th March 2018 says that revenue collected in the counties in that financial year(2016/2017) fell below the target therefore the counties burden the Treasury as revenue collection reduces. Lack of public participation was blamed on the failure by the counties to minimize conflicts in county taxation and revenue collection. An issue of concern in the Daily Nation Newspaper dated 5th June 2016 where governors blamed Treasury for their failure to fulfill the public participation requirement in their decision making and governance activities. The Public Participation Bill (2018) seeks to provide a mechanism to facilitate effective and coordinated public participation.
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