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MOBILIZING LOCAL REVENUE FROM THE BUSINESS SECTOR Roy Kelly Duke University <email@example.com>. Innovations in Local Revenue Mobilization World Bank Workshop Sponsored by the Tax Policy and Administration and Decentralization Thematic Groups,
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Innovations in Local Revenue Mobilization
World Bank Workshop Sponsored by the
Tax Policy and Administration and Decentralization Thematic Groups,
World Bank Institute and Lincoln Institute of Land Policy
23-24 June 2003
If taxation: Maximize revenues fairly and efficiently within administrative and political constraints
If regulation: Fees should be limited to costs of administration/enforcement (except to offset negative externalities)
Benefit Principle: local businesses should pay for the general benefits they receive—not captured by direct user charges. Benefit taxes can be both efficient and equitable.
Entitlement Principle: local communities are entitled to a share of the proceeds from economic activities.
Caution from the economists: Firms can pass on the tax burden to suppliers and consumers, and possibly ‘export’ a portion of the tax. This affects the ultimate incidence of a tax on businesses and resulting efficiency and equity positions.
Market Failuresprovide justification for government intervention—often exercised through regulatory controls such as licensing.
Public health: licensing of food & alcohol trade, slaughter slabs, meat processing, etc.
Public safety: entertainment & casinos, street trading, industries liable to cause pollution, etc.
Public welfare: zoning—licensing for location, limiting excessive competition and quality control (e.g., taxis, certain traders, …)
Although policy can be fine tuned, the primary obstacle to successful local revenue mobilization is:
Kenya Local Government Reform Programme
Primary Focus and Accomplishments:
- Local Authorities Transfer Fund (LATF)
- Single Business Permit, local authority integrated financial operations management system (LAIFOMS)
- Local Authority Service Delivery Action Plan (LASDAP)
Phasing and Future Scenario
Decentralization Policy, Constitution Review, Local Government Act Review, public sector management and sectoral reforms, capacity development, econ recovery plan
Series of GOK studies, Omamo Commission,
KLGRP secretariat, …
Capacity of local governments
Devolution of functions to local governments
High Economic, Administrative and Compliance Costs with low revenue yield and regulatory impact
Over 300,000 reported businesses by LA(s)
Activity Type Nation Counties
(as % of Nation)
Traders 56% 50%
Informal sector 15% 42%
Lodging/catering 12% 56%
Agricultural 5% 63%
Industry/workshop 5% 33%
Education 2% 40%
Others 5% 20%
Rationalizethe policy and administrative procedures in order to:
A Single Business Permit is “a permit that allows the conduct of a business or trade, including a profession or occupation, within the area of a local authority.” (LGA, Cap 265, Section 2)
A comprehensive definition:
Note:Although other licenses should not be charged, businesses can be required to pay other fees and charges such as user charges for garbage collection, advertising, etc.
Fee Structure and Administrative Procedures were simplified to
through a “One Stop Shop” (OSS)
Kenya SBP Form
SBP Data Form