Focusing on health and property taxes, the third edition of Own Source Revenue (OSR) Conference is on February 11-12. It comes at a time when OSR is growing strongly.
In the 2024/25 fiscal year, counties collected Sh67.3 billion, the highest amount since the second devolution started. This was 78 percent higher than just two years earlier.
Growth in OSR is good news for counties service delivery in agriculture, health, water, early childhood education, and other critical devolved functions.
Still this is less than 30 percent of the assessed potential, a disappointing outcome. And it is not for lack of trying. Since 2013, there has been many reports, studies and initiatives aimed at optimising own source revenue.
The Commission for Revenue Allocation (CRA)’s Comprehensive Own Source Revenue (OSR) Potential and Tax Gap Study remains topical, and is referenced by many county governments.
CRA recommends that counties form revenue boards. Many have. They have all attempted to automate revenue collection. With a few exceptions, automation has not yielded desired results, because it was done poorly.
There has been an erroneous view that point of sale devices (POSs) represent automation. They don’t.
The devises require a human being to operate. Automation is when you remove human intervention, so that citizens can pay without assistance. With multiple payment channels available, today automation is much easier to achieve.
High revenue performers have one commonality – they have focused on tracking service delivery as the key driver of revenue collection.
This is because county revenues are largely fees for services, property taxes being the exception.
Health services are the best example. If doctors are not attending to patients, there are no consultation fees. If the pharmacies have no medicines to dispense, you cannot expect payments! The same can be said of meat inspection, artificial insemination services, and livestock movement permits among others.
Often, revenue boards find the work very frustrating, with line departments abdicating service delivery, expecting that the business of collecting revenue belongs to the revenue board.
Use of technology and financial structuring will likely feature again in the conference next month. It is clear that high performers are those who are relying heavily on technology.
And it is not just a revenue collection system, but rather, better use of technology across health, human resources and enterprise management.
The counties with strong revenue growth are able to attract resources from the capital markets including leasing, and tenant purchase.
With expenditure needs outstripping the sum of own source revenue and equitable share, leasing is critical for health finance. Imaging and diagnostic equipment are particularly well-suited for leasing, making it practical for counties to push more diagnostic capability to level 3 and 2 facilities.
Bonds have remained elusive. In previous conference, delegates sought lessons from Tanga and Laikipia. The first succeeded, but no one has done it in Kenya.
Structuring is quite important in mobilising additional resources. The Laikipia Infrastructure Bond was financing part of the infrastructure development of smart towns. It was to be repaid with cashflow from single business permits, parking, building plan approvals.
Financiers will likely raise issues on political risk. Cancellations and frustration of commercial contracts, and delayed payments have been the bane for contractors. This prompted the Public Procurement Regulatory Authority to issue a circular to County Governments and their entities, reminding them that under section 176 of the Procurement Act, it is an offense to delay contractor payments.
Political leaders strive to be seen as hard working.
They launch programmes and projects. Although the way to communicate, launching can be wasteful, and reinforces an obsession with inputs as a way of demonstrating work. Many formal reports, by departments, treasuries focus on the money budgeted or spent. And while a necessary condition, a pile of money is not sufficient for true and lasting benefits to accrue to the citizen.
To obtain impacts, you need flawless implementation, and most importantly, a change in behaviour of the target beneficiaries. To improve maternal health, for example, it is not enough to build maternity facilities at the dispensaries.
You have to persuade the population to use them, by altering health seeking behaviour.
This leads us back to performance management as the basis for growing own source revenue. I have been working in many counties, from Homa Bay to Migori, Wajir, and a commonality of high performers is the regular (often monthly) tracking of service performance tracking, often weekly. Often referred to as Governor’s Revenue Roundtable.
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