Uncollected taxes, poor enforcement bleeding counties dry, auditor's report shows

Counties are losing billions in shillings due to poor revenue collection systems, political waivers and lax enforcement of tax obligations, an audit report has revealed.

Auditor-General Nancy Gathungu, in her report for the 2022/2023 and 2023/2024 financial years, noted that some governors have been issuing "expensive" waivers to please the electorate at the expense of much-needed revenue, leaving counties heavily dependent on disbursements from the national government.

The report highlights that 13 years since devolution, county governments continue to lose billions due to theft and leakages in opaque revenue collection systems, which are often exploited by unscrupulous officials.

More than three-quarters of Kenya’s 47 counties are still struggling to meet their revenue targets

According to a recent report by the Commission on Revenue Allocation, counties have the potential to collect Sh260 billion annually but are currently raising less than Sh100 billion.

In Kisii County, the Auditor-General flagged the executive for selective and lax revenue collection. A review of records for the 2023/2024 financial year showed that the county had budgeted to collect Sh25 million from land rates but only managed Sh18 million, resulting in a shortfall of Sh6 million.

Outstanding property rates

“Further, a review of the county executive electronic records revealed that the devolved unit had shown a lack of commitment and had failed to collect long outstanding property rates, inclusive of interest and penalties, totalling Sh546 million, which is owed by plot owners within Kisii municipality and other areas in the region,” reads part of the report.

Additionally, the county executive failed to collect revenue amounting to Sh1.6 million from a land lease at the Kisii Agricultural Training Centre.

The county had leased two acres of land to a processing company for 15 years at a monthly rent of Sh70,000, with a one-year grace period. However, at the time of the audit in August 2024, the amount had not been paid, and no efforts were made to recover it.

Manual invoicing

The report also revealed that invoicing in Kisii County was done manually, and electronic records were only kept for property rates and county premises monthly rates. It notes that this lack of an audit trail resulted in unaccounted revenue.

Governor Susan Kihika’s Nakuru County is owed over Sh7.9 billion in revenue arrears, significantly affecting its ability to meet its own-source revenue targets.

According to the report, among the top debtors is Kenya Railways, which owes the county Sh4.3 billion, and Kenya Wildlife Services (KWS), which has an outstanding debt of Sh3.7 billion from Lake Nakuru National Park revenue. Other notable debtors include Pyrethrum Processing Company (Sh17.6 million), Kenya Grain Growers Cooperative Union (Sh1 million), Nakuru Catholic Diocese (Sh4.4 million), Kenya Farmers Association (Sh2 million), Midlands Hotel (Sh2.3 million) and Keroche Breweries (Sh11 million).

Kihika, who took office in 2022, has made some efforts to improve revenue collection, increasing it from Sh3.2 billion to Sh3.6 billion. However, the report notes that Nakuru still struggles to sustain itself, as its wage bill exceeds Sh6 billion annually.

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“When we were awarding Nakuru City status in 2021, we considered the issue of revenue, and the authorities then offered to ensure the county generates sufficient revenue to sustain at least the operations of the city. But since then, the revenue hasn’t hit even Sh4 billion,” Senate Public Accounts Committee Chairman Moses Kajwang said.

Liquor licence fees

The audit further revealed that Nakuru County failed to collect liquor licence fees from 1,087 liquor outlets, resulting in a revenue loss of millions of shillings. This is contrary to Regulation 63 of the Public Finance Management (County Governments) Regulations, 2015, which mandates proper safeguards for revenue collection.

In Kajiado County, revenue arrears amounting to Sh11.9 billion remain uncollected, with no evidence of efforts by the county executive to recover the debts.

“The audit revealed revenue in arrears of Sh11.9 billion owed by several debtors. However, the county executive did not provide evidence of any efforts made to recover the debt,” reads the report.

In Kericho County, internal investigators discovered that an officer from the county executive registered and operated an unauthorised mobile payment number to collect inspection fees for fire compliance, resulting in a loss of Sh152,290 between January and August 2024.

Other counties, including Baringo, Kilifi, Nairobi, Kisumu and Kiambu have also been flagged for failing to recover millions in land rates, with some opting to offer huge waivers, further reducing their revenue potential.

The Auditor-General’s report emphasised the need for counties to enhance their revenue collection mechanisms, curb corruption and enforce strict measures to recover outstanding debts to achieve financial sustainability.