Project Case Study
The Revenue Potential: How Kenya’s County Governments could close their Financing Gaps
Study for Kenya’s National Treasury and stakeholders to estimate the revenue potential of Kenya’s 47 counties
Since Kenya devolved powers to its 47 counties in the revised 2010 Constitution, county governments have struggled to collect their own revenues.
A new draft policy and County Revenue Bill was adopted in 2018 to broaden the county revenue base and improve collections. But its implementation required a better understanding of the potential revenues at the county level and of the barriers or opportunities in realizing that revenue-raising potential.
Kenya’s National Treasury with support from the World Bank, asked Adam Smith International to undertake a study of the revenue potential for Kenya’s County Governments. Kenya’s counties had grown increasingly dependent on financial transfers from the National Government in recent years as their own revenues decreased relative to the transfers. This study analysed how much revenue counties could potentially collect if they had full compliance (called a “top-down” analysis) and if they brought their revenue administration practices into line with the current best-performing counties (a “frontier” analysis). The study made recommendations on how counties could enhance their revenue. The study, from March to July 2018, engaged National Government agencies, County Governments and the private sector.
- If all counties performed at the level of the most effective counties then revenue could potentially increase from Ksh 35 billion annually to between Ksh55 and 66 billion
- In the longer term when administrative capacity and legislative reform are in place, county total revenue potential ranges from Ksh 125–172 billion
- Property tax has the most potential: under very conservative assumptions – a 1% rate on the top 10% highest-valued properties, counties could raise up to Ksh 66 billion – almost double the entire revenue raised currently across all counties.