Stakeholders hold a consultative forum on the Draft Model Tariffs and Pricing Policy and Guide
By Caroline Kinyulusi
The Commission’s key stakeholders on Thursday, March 30, 2023, deliberated on the draft Model Tariffs and Pricing Policy and Guide. “We need to remove some of the hurdles to make devolution work better. At this point, the Commission is working on enhancing national and county governments’ revenues. We want to eliminate double or even triple taxation of citizens. Once the Model Tariffs & Pricing Policy is completed and adopted by the counties, citizens will understand clearly why they are paying certain fees and charges,” said CRA Vice Chair, Koitamet Ole Kina, during the event’s opening.
The Inter-Agency Team that developed the Model Tariffs & Pricing Policy comprised CRA, the National Treasury, Council of Governors, KenInvest, State Depts of Housing & Public Works, KIPPRA and county government representatives (Machakos, Nairobi City County and Kiambu).
The Commission Secretary/CEO, CPA James Katule, observed that the Model Policy sought to answer these questions:
- What is the basis for each fee or charge?
- Is the amount citizens are paying in fees and charges commensurate with the services provided by that county government?
Counties must develop a Tariffs and Pricing Policy for levying fees and charges
CPA Katule further noted that six key streams of revenue were included in the Model Policy based on earlier studies by CRA and the National Treasury – trade licenses, market access fees, parking fees, building plan approval fees, rent and outdoor advertising.
Section 120 of the County Governments Act requires each county to develop a Tariffs and Pricing Policy, which essentially forms a basis of levying fees and charges for the services that they provide. Such a Policy has to be aligned with existing national government laws and policies:
(1) A county government or any agency delivering services in the county shall adopt and implement a tariffs and pricing policy for the provision of public services.
(1A) Notwithstanding subsection (1), a county government or any agency delivering services in the county shall adopt and implement tariffs and pricing policy subject to the existing National Government laws and policies.
The county tariff policies provide citizens with information that helps them to understand and interpret the fees and charges they pay.
The Model Policy and its Guide thus provide a solid basis for charging citizens the fees and charges. This helps counties to develop transparent and understandable Tariff and Pricing Policies with an accurate basis for tariff setting.
The policy will hold counties accountable for fees and charges levied
In his remarks read by Joseph Mbatha (Senior Deputy Director, The National Treasury), Dr. Chris Kiptoo, the PS National Treasury and Economic Planning noted that the Model Tariffs and Pricing Policy will not only enhance county government’s revenue generation from fees and charges but also ensure that the devolved units are held accountable of the charges levied through effective service delivery.
“Section 120 of the County Governments Act clearly outlines that in the adoption of the Tariffs and Pricing Policy, the amount individual users pay for services should generally be in proportion to their use of that service. This further promotes voluntary compliance in payment of taxes by the citizenry,” he said.
A Comprehensive Own Source Revenue Potential and Tax Gap Study of County Governments commissioned by CRA and the World Bank in 2022 estimated that the revenue potential of all 47 County Governments is at least Kshs. 215.6 billion against their Own Source Revenue collections of Kshs. 35.9 billion in FY 2021/22.
The efforts to enhance OSR generated by County Governments resulted in the development of the National Policy to Support Enhancement of County Government’s Own Source Revenue by an Inter-Agency team which was approved by Cabinet in August 2018. The Policy requires county governments to develop policies and legislation anchoring their levies, including a Tariffs and Pricing Policy.
Panelists answering participants questions at forum
Other efforts to enhance county governments’ OSR include the development of the National Rating Bill which aims to unlock more revenues for counties from property taxes and the County Governments’ (Revenue Raising Process) Bill, which outlines the process to be followed by counties in exercising their constitutional power to impose, vary or waiver taxes, fees, levies and other charges.
The Need for Tariffs and Pricing Policy in the Counties
Currently, no county government has complied with section 120 of the County Governments Act by establishing a Tariffs and Pricing Policy to provide a basis for their fees and charges. Counties are relying on defunct local authority by-laws and legislation such as Finance Act in setting county fees and charges, which is contrary to the law. There is also a disconnect between fees charged and the county services provided.
The key principle in setting county fees and charges is that fees must be proportional to the services offered. Other guiding principles in the setting of county tariffs, fees and charges include affordability, equity, financial sustainability, destitution, transparency, environmental sustainability, consistency and promotion of local economic development.
The objectives of a Tariffs and Pricing Policy is to determine the cost of providing county public services and to map and match county revenue streams with expected services. Additionally, a Tariffs and Pricing Policy should provide for an economic, efficient and sustainable way of setting tariffs, fees and charges at the county level. Subsequently, the development of the Policy will provide citizens with information to understand and interpret the fees and charges they pay and the services that they should expect from the county in return.
The Guide is a reference tool with a step-by-step procedure to be followed when setting tariffs for all county governments’ user fees and charges and assists county governments to develop their own Tariffs and Pricing Policies. It also demonstrates how to calculate the different tariffs.
The Commission’s role
The Commission on Revenue Allocation is constitutionally mandated to give recommendations on matters concerning financing and financial management of county governments.
Further, the Commission may in formulating recommendations on this mandate when appropriate, define and enhance the revenue sources of national and county governments. It is in this regard that the National Policy to Support Enhancement of County Governments’ Own Source Revenue assigns the Commission the role of assisting county governments to develop their Tariffs and Pricing policies.