By Charles Kanjama & Florence Shako

“We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

-Winston S. Churchill

Article 209 (3) of the Constitution provides that counties can impose property rates, entertainment taxes and any other tax that is authorized by an Act of Parliament. Only the national government can impose income tax, value-added tax, customs duties and exercise duties.

The taxes that counties may levy therefore include property taxes, entertainment taxes, fees and licenses (such as for business, catering, parking, land rents etc.), sewerage and water charges and any other tax that they are authorized to impose by statutes. Revenues generated by these tax policies will go a long way towards developing the counties but only if the revenues are collected fairly and allocated transparently.

Counties should avoid imposing taxes that they are not authorized to by law under the guise of raising revenue for their operations.

In May 2014, the Kwale County Government, in its County Finance Act, imposed a mining levy of Kshs. 5,000 on titanium per tonne. After its gazettement, Base Titanium, a subsidiary of Base Resources, an Australian firm, received an invoice from the Kwale County Government to the value of Kshs. 378 million for titanium cess. But the national government barred Kwale County from levying the firm since mining is a function of the national government. It was deemed unconstitutional.

Kwale County is not the only culprit. The Mombasa county government also flexed its muscle by trying to control the stakes at the Kenya Ports Authority by introducing its own levies for all cargo passing through the facility. In the 2014/15 Finance Bill, the county government of Mombasa has proposed a Transport
Infrastructure Development Levy of US$2 (Sh174) per metric ton to be remitted by all ships calling at the port. The levies were to be collected by Mombasa County through the port managers once the bill is ratified and implemented. This is unconstitutional as the county government has no authority to levy such taxes.

The Kilifi County Finance Act (2013) also imposed a Sh70 per tonne salt cess while eying income from salt firms operating in the area such as Kensalt, Mombasa Salt, Krystaline, Kemu Salt, Malindi Salt and Kurawa. This is also illegal and should not be permissible.

Section 161 of the Public Finance Management Act provides that in imposing a tax or other revenue raising measure, a county government shall ensure that the tax or measure conforms to Article 209(5) of the Constitution and any other legislation, and before imposing any tax or revenue-raising measures under this Article, shall seek views of the Cabinet Secretary and the Commission on Revenue Allocation.

The Constitution provides that the taxation and other revenue-raising powers of a county shall not be exercised in a way that prejudices national economic policies, economic activities across county boundaries or the national mobility of goods, services, capital or labour.

The county governments are acting in contravention to both the statute and the constitution when levying taxes in this manner and are prejudicing the economic prosperity of the counties.

The courts have upheld that such taxes are contrary to statute and unconstitutional. In Cereal Growers Association and another v County Government of Narok & 10 others (2014) eKLR, High Court judge Isaac Lenaola stopped county governments from collecting agricultural cess following the repeal of the Agriculture Act and Local Government Act which provided for collection of cess by local authorities.

However, county governments should not be denied access to mineral wealth and other resources to be found in their respective areas. They should be able to take advantage of the natural resources in their respective areas to enhance economic development. What is in dispute is the legality of the levies and not the notion that residents should benefit from the county’s resources.

National level instruments, for example the Mining Bill are the ideal vehicles through which counties should advance their case for access to mineral wealth. This is to ensure that they do so in a legal and constitutional manner.

By imposing levies and taxes beyond their constitutional and legal mandate, they risk scaring away investors due to unpredictability, only for the national government to step in and stop them in their tracks. It is simply cutting off your nose to spite your face.