How do Participatory Institutions Impact Revenue Collection at the County Level?

As Kenya’s devolved system of government approaches the 10 years mark, the creation of opportunities for further self-governance in which governments and citizens can deliberate together to plan, budget, and address gaps in service delivery represents a great milestone. However, resource constraints remain a big and common challenge and a limitation for the devolved units to meet their constitutional obligations to the Kenyan citizens.

Kenya’s counties rely heavily on national transfers (equitable share) to finance their budgets alongside County Own-Source Revenue (OSR) which comprises fees, charges, rates, and other taxes assigned to county governments. Although the national transfer represents the largest share of county revenue and is a somewhat predictable and reliable source of financing, county governments have no control over the transfer timelines and frequency. In some cases, counties have gone for months without receiving their national transfer shares while the amount available through OSR makes a small portion of the revenue pot, thus raising concerns on the ability of county governments to sustain their operations.

Albeit representing a small portion of the financing pot the growth of Own-Source Revenue (OSR) represents the most viable and feasible opportunity for the devolved units to achieve self-reliance. County governments are directly responsible for its management including collection, policy, and legal frameworks. According to the COB, over the last three fiscal years through 2018/19, counties’ collections averaged 68% of the annual revenue target. Challenges in managing this function include low compliance by tax-payers which lead to costly enforcement of revenue laws and regulations and the application of complex collection mechanisms in some counties.   

In this webinar, we brought together key stakeholders to explore ways in which county governments can enhance the management of OSR through efficient and effective governance systems and processes, with a focus on the role of Participatory Institutions. A panel of lead researchers and governance practitioners reflected and shared lessons to establish ways in which the existence of Participatory Institutions and ideals of governance systems such as public accountability and transparency impact collection and general management of local revenue (OSR). 

Notes from panelist 

  • Participatory Budgeting (PB) is an example of a participatory institution that has been tested and adopted across the World. PB is a rapidly growing program that can be customized to produce desired development outcomes. The adoption and application of PB in Brazil present a classic example of its effect on local governance. PB draws its power and effectiveness from the fact that the process involves the public in allocating real money; thus, the process leads to real outputs that are also binding on the government. 
  • When complemented with governance ideals such as government transparency and accountability in the management of taxes and other public resources, and properly designed, Participatory Budgeting has the potential to improve the credibility of government and build trust which then leads to long-term and sustainable improvement in tax compliance, low-cost enforcement of tax laws and policies, and overall cost-effectiveness in the collection and administration of tax revenues. 
  • To enhance the credibility of government and build trust, participatory budgeting and other participatory mechanism result in citizen’s sense of ownership of the projects identified and allocated resources to address common and immediate needs, creates platforms for deliberation and collective decision-making while the government is more obligated to accountability and transparently deliver on the commitments made through participatory processes. More so, through transparency and accountability of taxes revenues,  governments persuade citizens by demonstrating the value of taxes through the publishing of budget information including quarterly reports that show revenue collection performance and status of programs and project implementation. According to County Budget Transparency Surveys (CBTS), only five (5) counties consistently published quarterly implementation reports.

Relevant lessons from county governments

Governance practitioners in Kenya argue that there is limited empirical data to link participatory institutions and ideals of governance such as transparency and accountability to tax revenues in Kenya, however, some county governments have experienced incremental changes in revenue, although marginal. 

In Elgeyo Marakwet County, the revenue registered an annual revenue growth of 10% since the enactment of the county’s Equitable Development Act (EDA) 2015  – a law that empowers citizens in each ward to directly allocate an average of KES 35 million (or USD 350,000) annually. Mr. Maritim suggests that the county may not authoritatively attribute the revenue growth to public participation and the ability of citizens to allocate a portion of the budget; however, he notes that the level of taxpayer compliance to tax revenue laws has equally improved and may not be a coincidence. To demonstrate the direct correlation between factors that affect taxpayer willingness and accountability of government on the actions it takes,  delayed construction of a market and Boda Boda (motorbike) shades in West Pokot County. resulted in the users of the respective shades refusing to pay respective fees and charges in protest. This is a common experience across most counties in Kenya including extreme cases in Kiambu and other counties where taxpayers consider litigations as alternative measure mechanisms for corrective action. 

 

Annette Omollo, World Bank Kenya sharing her experience on how PB has impacted development in different counties.

 

John Kinuthia, from IBP Kenya discusing on how trust and transparency can persuade taxpayers

Observations and reflections from Participants 

  • There is a need to expand the scope of conversation both vertically and horizontally going forward. Horizontally, the discussion should consider exploring examples of relevant case studies from across a representative number of counties in Kenya and also international experiences from a wide variety of contexts to provide an expanded list of applicable lessons and practices. 
  • Meaningful participation is a resultant effect of an informed citizenry, thus, there is a need to incorporate knowledge and capacity development in the participatory processes. The outputs of participatory institutions should include civic education to citizens on various governance practices, roles of various government institutions as well as citizens’  rights and responsibilities and how they are to play these roles. Limited access to information, including budget data and information, budget financing mechanisms, and the expected outcomes represents a major challenge to the informed participation of citizens and eventually impedes taxpayer reciprocity.
  • The link between various parts of the PFM system is inadequate to stimulate a structured debate on how to grow local revenue through stronger participatory institutions, especially on how these taxes are used and accounted for. For example, to demonstrate the value of a new market or market structure and understand and appreciate the return in value from the payment of fees and charges, tax-payers must be proactively engaged in setting the fees, charges, and rates and subsequently made to share the vision and objectives of tax revenue-raising measures. 
  • An assessment done by the Commission on Revenue Allocation (CRA) on revenue administration frameworks in Tana River, Turkana, Uasin Gishu, and Samburu supports the value of deliberate efforts to engage taxpayers in setting revenue targets. According to the Commission, these county governments implement targeted public participation approaches in which specific taxpayers e.g. ratepayers are convened to deliberate on land and property rates. 

Conclusion and recommendations

In conclusion, submissions of the panelists support the argument that citizens are willing to pay taxes when they know they have power over allocations and are guaranteed that the government will keep its commitment to utilize the taxes transparently and accountably. 

The adoption of Participatory Budgeting (PB) is possible in the Kenyan context, however, a clear and shared purpose and vision for the adoption must be established. Whereas PB has proven to be a successful approach to participation, the counties that have attempted to adopt it have either stagnated or abandoned its implementation, thus, the need for institutionalization of the participation. Partially, this is because of limited knowledge and understanding of its effect on other parts of governance systems beyond citizen empowerment, transparency, and accountability. Another way to increase the adoption and institutionalization of PB and other effective participatory institutions is to entrench it in the political agenda of political leaders to leverage on political structures and ambitions in deepening the practice.

“Increase trust and tax morale increase reciprocity” Michael Touchton

Resources:

To listen to the zoom meeting click on this link https://drive.google.com/file/d/1TDmp_yC1Qh7lj8Oj-5LGKnsdRYJWMp_C/view?usp=sharing

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Rationale of Participatory Budgeting

According to the World Bank Research on PB in Kenya, different counties implement a varied models of participatory approaches including Participatory Budget (PB) programs. Overall, more successfully designed and executed participatory