Counties
Premium
Counties in trouble over illegal cess collection
Most of the 47 counties are staring at potential lawsuits over millions, possibly billions, of shillings they have been illegally collecting from motorists and traders.
In a landmark judgment, the Supreme Court has stopped the devolved units from imposing taxes for services offered by the national government.
This means that counties that have been collecting revenue on amenities that are under the purview of the central administration will have to refund the money as they have been doing so illegally.
Levy charges
Judges Philomena Mwilu, Njoki Ndungu, Smokin Wanjala, Mohamed Ibrahim and Isaac Lenaola termed as “unconstitutional” any charges imposed by the counties on services they do not render.
“Whereas a county can levy charges, it must do so in exchange for an amenity. Put differently, a county does not have the authority to charge a cess, levy or tax where they do not offer anything in return,” stated the judges.
Counties can only charge for services if the roads accessed by motorists are within their purview, they said.
The devolved units could lose millions in revenue that they have been collecting from trucks that move goods across their borders through roads managed by the national government.
Base Titanium Ltd had moved to court to have a Sh3, 000 cess imposed on each of its trucks entering Mombasa County scrapped for being unconstitutional.
The apex court found that Governor Hassan Joho’s administration had been illegally collecting taxes from the company each time its trucks transported minerals to the Mombasa port.
The judges found that for the trucks to access the Port, they have to use the Likoni-Ukunda Road, which is an A14 road under the Kenya National Highways Authority (Kenha).
“That road (A14) falls directly into the category of a national road. That category falls directly under the national government, which is in charge of its development, rehabilitation, management and maintenance,” said the judges.
Devolved units are in charge of roads that fall under Class D, E, F and G. They manage them in collaboration with the Kenya Rural Roads Authority (Kerra).
The judges said if at all there was an access fee owing, then the proper entity to which that amount is owed should be the national government.
“In that regard, we find that the cess imposed by the County Government of Mombasa under Item 90 of the schedule to the Mombasa County Act 2014 was improperly imposed as a charge for services rendered for services provided by the County Government and is not a charge for service as contemplated by Article 209 (4) of the Constitution of Kenya,” they said.
They said the county government failed to state if it provided street lighting, parking or maintenance of the road accessed by the company’s vehicles, as it is clear it provided no service at all to warrant imposition of a tax.
“Further, having established that it is not a county road, it is then improper for county government of Mombasa to levy a charge for road service for the same road that vests in the national government,” they said.
The court also found that a receipt that the county has been issuing to the drivers does not disclose the nature or details of payment, as they are only marked ‘miscellaneous income’ or ‘Likoni Revenue Barrier’.
To the mind of the court, the non-disclosure of the details and nature of payment, as exhibited in the documents presented before it, goes against Article 201(a) of the Constitution, which calls for openness and accountability, including public participation in financial matters.
The judges noted that the intention of this provision is to ensure efficiency within the public financial management sector, which has faced tremendous challenges occasioned by gaps that has resulted in the past embezzlement of public funds.
“It is clear to us that in issuing receipts marked ‘miscellaneous income’ the County government of Mombasa has created avenues for possible abuse. It is imperative that any payments to counties must clearly state in precise, unambiguous words what the payments are for,” the judges said.
The Kwale mineral sands operator sued the county and Attorney-General Kariuki Kihara over the hefty cess imposed on its trucks. The cess is contained in the County’s Finance Act 2014.
The court has also ordered the county to refund the company Sh1.5 million it paid as cess as of December 31, 2014.
“Any other additional sums that the appellant has so far paid to the county from January 2015 to the date of this judgment as cess on trucks transporting goods across Mombasa county’’ boundaries shall be pursued at the High Court,” stated the judges.
The judgment has exposed devolved unit to further suits by truck owners who have been charged heavily for transporting goods across the counties.
Other counties, which have been benefiting from the revenues in this manner, could also face legal action should the affected people, or entities use the judgment to seek legal redress.
In enacting laws, counties must follow the Constitution and ensure that the charges invoked will not be detrimental to national economic policies, economic activities across boundaries or the national mobility of goods, services, capital or labour.