After record taxes, State now goes for service fees, fines

President William Ruto’s administration has now turned its focus on fees and fines paid to State agencies for various services as the government targets an additional Sh112 billion in non-tax revenue to supplement tax revenues in the current financial year.

Dr Ruto’s government expects the various state departments to collect a record Sh431.2 billion in appropriation-in-aid (A-I-A)—or fees, fines and levies—in the Financial Year 2023/24, explaining the desperate adjustments on various services offered by the State.

This is an increase of Sh112 billion, or 35 per cent, from Sh319.4 billion that the various State agencies collected in the financial year that ended in June, a new report by the National Treasury shows.

Some of the services that the Kenya Kwanza administration is eyeing for additional A-I-A include increased college fees, land transactions fees, registration and immigration fees, museum entry fees and fines for minor traffic offences.

These non-tax revenues are expected to rise further to Sh488.9 billion in the next financial year starting July 2024 and Sh541.1 billion in Financial Year 2025/26 as the government moves to update levies for various government services.

Because A-I-A is revenue which a State entity receives to finance its activities, collection of more A-I-A means less disbursement from the Exchequer, or the national government’s earnings from the various taxes.

This would be a major reprieve for the National Treasury which is under pressure to fund an expanded Sh3.95 trillion budget in the current financial year, with interest payments taking a big chunk of the tax collected.

Consequently, the State has moved to increase fees or fines on land transactions, college education, replacement of IDs, processing of passports, and fines on minor traffic offences.

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Some of the departments that are expected to have more A-I-A include the State Department for Roads, which is expected to collect Sh81 billion, virtually all of it from the roads maintenance levy that motorists pay when buying fuel.

The State Department for Higher Education and Research is expected to get Sh60.7 billion, an increase of 40.5 per cent from Sh43.2 billion in Financial Year 2022/23. The increase is largely due to the increase in fees by the 32 public universities.

Petroleum Development Levy, which is also paid by motorists, is expected to give the State Department for Petroleum Sh29.4 billion, State Department for Medical Services (Sh20.6 billion), State Department for Transport (Sh11.8 billion), State Department for Tourism (Sh11.2 billion).

Other state departments that collect a lot of A-I-A include the National Treasury (Sh9.3 billion), State Department for Public Health and Professional Standards (Sh7.9 billion), State Department for Crop Development (Sh7.6 billion), State Department for Energy (Sh7.3 billion).

“The government is trying to find ways and means of mobilising resources,” said John Mutua, the Programme Coordinator at the Institute of Economic Affairs Kenya, a think-tank.

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Mr Mutua notes that although some of the fees had remained stagnant for so long, there was a need to have clear criteria that would inform the adjustment of the charges.

The Interior Ministry has had to publish two notices on the reviewed charges, with the first Gazette notice increasing some of immigration and registration services by up to 20 times.

In the changes, which have since been suspended by the High Court, the cost of processing a basic passport went up by 66.7 per cent to Sh7,500 in the latest review of charges and fees announced by Prof Kithure Kindiki.

This is an increase from Sh4,500, a move that is likely to make it harder for ordinary Kenyans to acquire the critical travel document.

Most of these fee reviews have been pushed by the Bretton Woods institutions, including the World Bank and the International Monetary Fund (IMF), which want Kenya to avoid defaulting on its debt.

The cost of applying for an official land search is set to double to Sh2,000 from Sh1,000 currently in a policy that will see the Lands Ministry collect billions from the essential service.

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The World Bank-driven regulations published in 2021 by the former Water Cabinet Secretary Sicily Kariuki last sought to raise user charges 100 times from 50 cents per cubic metre to Sh5 for domestic use and livestock farming. This sharply increased the water bills paid by homes.

Dr Ruto’s government has already kicked off an uproar with implementation of far-reaching tax measures such as the doubling of value-added tax (VAT) on fuel and the introduction of Housing Development Levy on salaried workers.

These measures have been blamed for contributing to the high cost of living, which has been aggravated by a weak shilling with households paying steep prices for food, fuel and electricity.

But the President has insisted the new measures are aimed at getting the country out of its debt hole with some analysts fearing there is a high risk of default.

“The time has come, therefore, to retire the false comforts and illusory benefits of wasteful expenditure, and counterproductive subsidies on consumption by which we dug ourselves deeper into the hole of avoidable debt. The new direction may not be easy, but it is ethical, responsible, prudent and, most importantly, necessary,” President Ruto said in his recent State of the Nation Address. “We have had to take hard decisions and make painful choices because we owe it to Kenyans to do the right thing and confront facts as they are without flinching or equivocating,” added Dr Ruto.

However, the new tax measures have not achieved the desired results, particularly with emerging global shocks that have weakened the Kenyan shilling and thus forced the government to increase interest payment on external loans by Sh200 billion.

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