Increase in the cost of doing business in counties has become a cliché for manufacturers and the sector is looking forward to a solution to the issue with bated breath.
There is light at the end of the tunnel from the Model County Revenue Legislation Handbook which was launched on Wednesday. Life has been made easy for County Governments’ legislation formulation by the launch of the county model handbook which provides the revenue raising model laws that the county government can adapt.
As counties draft their revenue raising laws, key amongst them being; Finance Laws, Trade License Laws, Property Tax laws and the Entertainment Tax laws it would be ideal to refer to the handbook.
Manufacturers as well as other businesses continue to experience challenges as counties are introducing very high taxes that are acting as a barrier to distribution of goods across the country. Such taxes include entry fees, distribution fees, export health certificate, branding fees just to mention but a few.
Spare a thought for the small scale manufacturing sector which is trying to get its feet off the ground and is facing all these charges. Efforts to create more employment and revenue from this sector may be fruitless if the unfriendly business legislation in the counties continues.
For a long time manufacturers have been at pains trying to urge counties to improve inter – county trade and remove excess taxes that were contributing to the high cost of doing business.
Inasmuch as industrialists appreciate the need for counties to collect revenue to fund development projects in counties, captains of industry have for a long time been calling for an increase in the tax base and reduction in the number of taxes in order to attract more investment into the counties.
Efforts have been noted from some utilities such as Kenya Power who have engaged the business community in various counties on the progress being made to redress the power issues which is a welcome move.
The same should be trickled down to other business aspects by counties. Business membership organizations have been engaging county governments on issues that affect business and the most common issue in most meetings has been tax issues. There is need to ensure that counties attract investors and not scare them away by imposing multiple and hefty taxes.
Kenya has a brilliant Constitution which clearly stipulates, in Article 209, who may impose a particular tax between the national government and the county government and also what is not allowed.
There is no need to play cat and mouse on trivials at the expense of creating jobs and shoring up the economy from a vibrant manufacturing sector because of unfavourable county legislation.
It is not a new phenomenon that both private and public sector has woken up to, a red flag was raised even before the constitution was implemented and delaying tactics in resolving the issue are costing the country much more.
Over a year down the line in the implementation of the new constitution, one has no plausible reason why double taxation should be allowed to continue. One county introduced cess tax on all agricultural produce through its Finance Act 2013. Currently the cess from agricultural produce is being collected by the Horticultural Crop Development Authority (HCDA) based on the Legal notice No. 190 of 2011. Producers of horticultural crops are therefore taxed twice when exporting their produce. Needless to say that such a practice will not make local products competitive on the global scene.
Another county reintroduced entry fees for goods into the county in its Finance Act 2013 which currently affects the free flow of goods into and out the county considering that county is a major transit town not only for Kenya but also for the East African Community. Yet Article 209 (3) (c) of the constitution stipulates that a county may impose an additional tax other than property and entertainment taxes only when permitted by an act of parliament. So far no act has been passed to that effect.
Further promotion of partnerships between the business community and counties in building legislative drafting capacities in order to develop favourable revenue raising laws that meet revenue raising targets of the counties as well as attract and retain investors is an option worth exploring.
International best practices require that license fees are collected for purposes of service delivery by the regional/local/county governments. License monies should be targeted at service delivery; and give the public feedback as to what the revenue has been used to do to encourage accountability.
The revenue legislations should focus on the taxes provided for under article 209 3 property rates and entertainment taxes before enactment of further legislations on additional taxes. The drafters should differentiate between fees and taxes. Fees should be for services rendered and taxes for revenue raising.
There are other ways of collecting and retaining more revenue at county level. There is need for counties to develop measures to control revenue leakages at the county level. By sealing off all loopholes and revenue leakages all collections will be utilized towards service delivery and development of conducive environment for citizens and the business community.
It may not be a bad idea for the Council of Governors in partnership with the industry develop a county doing business index to evaluate the ease of doing business within the counties in order encourage attraction and retention of investment as well as assess the performance of each county.
The launch of the County Model Revenue Legislation Handbook is a good starting point in streamlining all county legislation. One hopes that the guidance in the handbook on revenue collection at the County level will be embraced to support business growth.
Some counties have already imbibed the model legislation and incorporated its contents into their respective legislations which is a welcome development. One awaits to see the speedy implementation of the model legislation by all counties. That would bring some relief and spur the potential of the business sector.
(The writer is the Chief Executive of Kenya Association of Manufacturers and can be reached on [email protected])