Within the logistics industry, the current licensing systems are not concerned with keeping a sustainable marketplace running. These county governments engage in rent-seeking behavior and do not give any regard to the cost that businesses must bear to merely exist.
Businesses, as well as transportation companies such as ours, face the challenge of multiple taxation when moving goods and services across county borders.
This article proposes that multiple taxation is a manifestation of a weak governance structure in Kenya that refuses to curb the rent-seeking behavior of county governments.
Multiple Intercounty Taxation
County governments have two main sources of revenue, equitable transfers from the national government or their own sources of revenue. The counties source
revenue from fees related to county licenses, user charges for county services, permits, levies, property rates, and entertainment taxes among others.
Whereas these charges should target local residents, businesses, or any use of county services and resources, county governments have levied some taxes that target nonresidents or businesses which do not have interaction with county services.
Let’s talk about the multiple licenses or fees levied by county governments when goods or services move across county borders.
Movement/County Permits and Licenses
For the transportation of all common goods from or to other counties, county permits that expire at the end of the calendar year, are imposed. Think of these county permits as a license to operate in said county. It is equivalent to the business permits (trade licenses) that business owners operating within municipalities and county councils are required to have irrespective of what they sell.
This is a charge levied on trucks delivering and offloading goods to an open-air market or a supermarket.
Cess is a charge levied by county governments at barrier points mainly found at county exit and entry points.
This tax is based on the size of the vehicle and tonnage and is meant to enable the county government to address the major damage to road infrastructure caused by trucks. The tax is also called road maintenance levy or infrastructure development levy.
This tax was introduced to fix the damage that trucks cause on county roads and should only be charged on county roads and not on national trunk roads.
For cess specifically, the tax should only be levied once, in the county of origin. The imposition and collection of cess on any goods being transported through a county should be prohibited, and cess designated for maintenance of county roads should only be collected on a county road, not a national trunk road.
A transporter is only required to produce evidence of paying cess in the county of origin. For example, a transporter ferrying vegetables from Nyandarua county, which are destined for sale/distribution in Kitui, is only required to pay cess in Nyandarua county and does not pay cess when transporting goods through Kiambu, Machakos, Nakuru, or Nairobi depending on the route used.
Transporters of extractives such as stone, sand, and ballast are required to pay cess fees in each county where they pass through in addition to the cess paid in the county of extraction.
Issues with this tax:
i) Counties adopt different standards of measurements when levying cess. In addition, a trader moving products
across such counties with different units of measurement faces the challenges of the complexity of different units of measurement.
ii) Businesses are subjected to multiple taxation by being obligated to pay cess in each county where they transport their goods, especially in counties where they don’t recognize that the business has paid cess in the county of origin.
iii) Counties have poor cess administration processes and collection systems. They mainly erect barriers on highways and have to stop each vehicle for inspection and determination of the amount payable. This has resulted in cumbersome processes in transport and logistics where goods are subjected to delays while in transit.
Counties collect cess from roads classified under national government (especially Class A, B, and C.) Even where a transporter has not transported goods on any county road, the counties still impose and collect the fees. There is, therefore, no policy justification for a county to levy cess fees for goods transported on national government roads without any use of the county roads.
Motor Vehicle Branding Fees
County governments levy fees for external branding of motor vehicle, which ranges between Ksh.5,000–8,500 per year per motor vehicle.
Counties seek to levy the fees from any branded vehicle whose business is based in the county, as well as any branded vehicle driving in or through the county even if the business is not based in the county.
Issues with this tax:
i) Businesses are subjected to multiple taxation by being obligated to pay fees for each branded vehicle that drives into each county where the business enterprise supplies goods or services. The charges apply to any branded vehicle irrespective of the purpose of driving into the county and duration of stay within the county.
ii) Counties impose vehicle branding fees on motor vehicles whose business operators do not have a commercial establishment in the county.
iii) County governments often impound branded vehicles driving into or through the counties and demand that the operators must pay for the motor vehicle branding fee.
Counties also demand that any person, transporter, or company distributing goods or services, for example from a manufacturer or supplier to a wholesaler or retailer, must have a distributor’s license issued by the county.
Issues with this tax
i) Businesses (especially manufacturers and distributors) are subjected to multiple taxation by being obligated to pay for distribution licenses in each county where they distribute, offload, or supply goods to business customers (Business to Business transactions) with the commercial establishment in the respective destination counties.
ii) A manufacturer or distributor with coverage of more than one county has to apply for licenses in each of those counties irrespective of whether they have a commercial establishment in those counties or not.
The multiple fees paid in each county increase the cost of distributing goods and increase the cost of doing business for manufacturers, distributors, and wholesalers.
The levying of inter-county fees for goods being transported into or through the counties also restricts the free movement of goods and services across the country and acts as a barrier to trade within the common market in the country.
This is all clearly a result of policy gaps that do not harmonize the operations and functions of county and national governments. Immediate attention from the National Treasury, Ministries of Trade and Transport is required to restore a business and investment-friendly climate.