Opinion: County governments fleecing businesses

Posted on July 29, 2013

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 Businesses bleed from County Woes and Double Charges.

By Betty Maina

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The ugly side of devolution is beginning to rear its head. In an unprecedented move tantamount to creating illegal trade barriers, over 10 Counties have introduced illegal fees and charges without consultation in a manner that will surely kill industry in Kenya. Machakos County has insisted on giving companies delivery permits at a fee to deliver goods into the area, while Kwale County charges a “distribution fee”. A local firm was recently asked by Mombasa County to pay Ksh. 25 per bale for delivering Rice into the county. Another was charged a cess charge for Sisal produced in Taita County. Malindi County has been charging vehicles coming from a salt firm an entry fee while Homa Bay County informed quarry owners in the area that they intend to start collecting cess and royalties from them.

In other instances, the cash strapped governments have taken to replicating fees and charges. Nyeri, Embu, Kwale, Kilifi, Murang’a and Kajiado counties are impounding vehicles that pass through their county for not possessing a branding permit conveniently ignoring permits issued in other counties.

Previously, any business distributing nationally was able to access all it’s markets in Kenya via a Single Business Permit (SBP). The licence was paid for and issued by a local authority; and once issued the SBP was respected, recognized and reciprocated by other local counties. Today this has suddenly changed. We now have an unacceptable situation where a company must contend with new advertising/branding fees in more than one county. This is costly and unfair for business given that no company is going to pay 47 branding permits to deliver goods nationwide.

Prior to March 2013, Section 163A (8) of the Local Governments Act, cap. 265 protected firms from indiscriminate fees. The new constitution is even more clear. Under Article 209 (5):   “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 national mobility of goods, services, capital or labor. “ As such, the new levies/charges are in clear violation of both the old and the new constitution.

Mombasa County is particularly ruthless. Levies passed but suspended in 2007 have been suddenly reintroduced. Although recently gazetted in 2012, these charges were challenged and the court upheld and shelved their introduction due to lack of stakeholder consultation. The charges are now back in full force and although companies have complained, they were only granted a 3 weeks respite and are expected to eventually comply.

If these illegal levies are allowed, then the unacceptably high cost of business will have a severe and negative impact on the private sector. This is an unfortunate thing since Counties seems to be paying lip service to the sound economic sense of growing business through long term strategies. It will complicate and contradict efforts to attract and woo investments, create jobs or fight poverty.  The Jubilee Government goal to create 100,000 jobs annually will require an  economic environment with double digit growth and concerted effort by all levels of Governments is required. We urge the devolved units and in particular our new Governors to look at the big picture and not short term considerations as they seek to raise revenue.

When Devolution was entrenched in the country’s constitution, it was seen as a platform to ensure service delivery to all Kenyan in spite of the vicissitudes of politics.  The idea was to ensure that no matter what happened on the political front, Kenyans would continue to enjoy quality services and that every Kenyan had access to basic services and representation. As noble as the idea is, its implementation seems to be another story fraught with difficulties that are now costing businesses and could eventually result in lost jobs. We agree that service delivery comes at a cost and maintain that county governments need to explore creative and innovative ways to raise funds. The Kenya Association of Manufacturers is willing to work with any Country through our Public Private Dialogue (PPD) forums to help our counties chart a sustainable and promising new future. The path must be one of collaboration and consultation with Industry and the old mindset that industry is a cash cow to be milked through taxes needs to change.

The new fees contravene the spirit of devolution and the law, since according to the constitution, any new charges levied by county governments after March 4th should be vetted by the county assembly through a process that involves public participation. The laws must be business friendly and all operators should be notified before they are executed. This stipulation was put in place to protect businesses from being ambushed with ad hoc fees. To the understanding of the business community, what we should be paying to the county governments are fees and charges that were in place before the swearing in of President Uhuru Kenyatta. That is, before the repeal of the Local Government Act Cap 265. These are only payable until 30th  September 2013 as provided in Sections 22 and 23 of the County Governments Public Finance Management Transition Act No. 8 of 2013.

The problem should therefore be approached with economic sense and prudence. The Senate and the Transitional Authority need to intervene quickly before it gets out of hand and counties begin to think it is their God given right to milk the hapless private sector dry.

 

The writer is the chief executive of Kenya Association of Manufacturers and can be reached on ceo@kam.co.ke

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