Insights from the cost of OSR research in Kakamega County

A team, led by ICT Director Joseph Kuria, alongside CRA staff and a representative from the Public Financial Management Reforms Secretariat (PFMR), conducted a comprehensive data collection exercise at the County Government of Kakamega from December 4th to 9th, 2023. The primary focus was to gather data on the costs associated with Own Source Revenue (OSR) collection within the County.

During this visit, the team engaged with Kakamega’s CECM of Finance and Planning, CPA Livingstone Imbayi, as well as officials from the Kakamega County Revenue Agency. The objective was to obtain quantitative and qualitative data related to the County’s OSR Budget Estimates and Expenditures.

Article 209 (3) empowers a County Government to generate revenue from own sources like: Property rates, Entertainment taxes and any other tax that is authorized to impose by an Act of Parliament. County governments may also impose fees and charges on services they provide. CRA is mandated under Article 216(2) of the Constitution to recommend on matters concerning the financing of and financial management of county governments. Article 216 (3)(b) further mandates the Commission to define and enhance the revenue sources of both levels of Governments.

Field visits to some revenue collection points

In addition to quantitative data from the County, the team visited several revenue collection points to gain insights into the operational systems and processes involved in revenue collection. Accompanied by the CEC Finance, members of the County Revenue Board, county Revenue Officers, and Clerks, they explored various revenue collection locations in Lugari, Mumias and Kakamega town.

  1. Traders’ Market in Lugari Sub-county
2. Matete Sub-County Hospital
3. Mumias Market

Notable challenges hindering optimal revenue collection

A number of challenges were observed, including inadequate legislation, and weak technological and human capacity for revenue collection. These have hindered Kakamega County Government’s ability to meet its OSR potential.

A recent study by CRA and the World Bank showed that Kakamega can collect up to Ksh.5.9B, compared to the Ksh. 1.31B collected in the FY2022/23. Although Kakamega was 7th in Kenya in actual OSR collection last financial year, the collections are just a fraction of its potential of Ksh.5.9B annually.

Key revenue streams like public health services, business permits, cess, advertising and parking drive its earnings. Nevertheless, there is unexplored potential in these and other revenue streams like market fees, property rent, land rates, among others. CRA is, however, building Kakamega and the other counties’ capacity to collect optimum OSR to be more self-sustaining.

About the Cost of OSR collection Study

The CRA study is driven by the need to solve one of the pressing challenges in revenue administration and management, identified in the National Policy to Support Enhancement of County Own Source Revenue – weak understanding of county revenue administration costs. The cost of revenue administration at the county level is not well understood and research data is lacking. This makes it difficult for counties to collect fees and charges efficiently.

Furthermore, although county governments are permitted four administrative arrangements for revenue collection and management, there are no guidelines on how to select the most suitable as counties lack data to guide in the selection.

CRA opted to conduct the Cost of OSR Collection study in five pilot counties, three of which have Revenue Boards and two have revenue departments. After concluding the data collection, the data will be analysed then presented in a report, to be validated by County Revenue Boards and Directors of Revenue in the piloted counties.