Why counties are struggling to realise their revenue potential

Outdated manual systems, weak enforcement and poor record keeping prevent counties from meeting their revenue targets, a new report has revealed.

The latest county expenditure review by the Controller of Budget shows counties missed their own-source revenue targets by 23 per cent in the financial year ending June 30, 2025.

“In FY 2024-25, county governments missed the Sh87.67 billion OSR target by Sh20.37 billion (23 per cent),” the report indicates.

The Commission on Revenue Allocation (CRA) has said counties have the potential to raise Sh250 billion annually from their own resources.

Counties that reported the lowest OSR performance include Siaya at 47 per cent, Kajiado at 55 per cent, Machakos at 56 per cent and Isiolo at 58 per cent.

Others were Taita Taveta (64 per cent), Bungoma (65 per cent), Kisumu (65 per cent), Kakamega (65 per cent) and Nairobi (66 per cent).

“The underperformance in OSR collection indicates that county governments could not implement all planned activities due to budget deficits,” the CoB said.

The report attributes the revenue shortfall to factors including the continued use of manual collection methods prone to leakages; fraud and underreporting due to weak oversight.

Automation efforts in some counties have either stalled or remain incomplete, leaving revenue streams fragmented.

Baringo, Garissa and Lamu were cited as counties where gaps in automation undermine efficiency and accountability.

“County governments should prioritise complete automation of all revenue streams through robust, integrated systems that guarantee real-time collection, reconciliation, and reporting,” the report recommends.

Many counties also rely on outdated or incomplete taxpayer databases and valuation rolls, limiting their ability to bill accurately and expand revenue sources, such as property rates.

For example, Baringo, Kajiado and Lamu have failed to update valuation rolls, curtailing their ability to optimise collections.

Enforcement of revenue laws is also weak. In many cases, penalties for non-compliance are either unclear or poorly applied, leading to widespread defaults.

Counties such as Baringo, Garissa and Makueni were highlighted as having weak compliance monitoring and inadequate staff capacity.

“County treasuries should institute clear penalties, strengthen compliance monitoring frameworks, and invest in capacity building and modern tools for revenue staff,” the CoB advised.

The report further flagged the continued heavy reliance on cash, poor reconciliation practices, and delays in banking daily collections as major risks.

These gaps expose public funds to misappropriation and revenue leakages.

The CoB recommended counties minimise cash handling by adopting cashless payment solutions, enforcing timely banking of collections and strengthening internal controls.

CRA studies show most counties still rely heavily on a few traditional streams such as property rates, single business permits, market fees and parking charges.

Opportunities in other areas remain largely underexploited, including outdoor advertising, natural resource cess, quarry royalties, entertainment taxes, liquor licensing and returns from county-owned assets such as bus parks and leased land.

Emerging sectors such as tourism, fishing, mining and solid waste management also present untapped potential.

However, outdated valuation rolls, incomplete asset registers, weak enforcement, and minimal innovation have prevented counties from exploiting them fully.

As a result, counties remain heavily dependent on national equitable share transfers, limiting their fiscal autonomy and ability to invest in local development.