Institute for Development Studies, University of Nairobi

The paper discusses briefly the reasons for budgetary plight which faces most large cities and particularly those in the developing countries. The case of Nairobi, a primary city subject to many of the forces discussed above, is then examined in some detail and a forecast given of its fiscal outlook by 1985. The almost inevitable gap between revenues and expenditures is, in the case of Nairobi, seriously deepened by the recent abolition of the Graduated Personal Tax, a major revenue source of the city. Various methods of coping with the fiscal crisis are then discussed anda substitute tax measure suggested, designed not only to replace the lost GPT revenues but to improve the efficiency of the city's revenue structure. The suggested measure proposes the imposition of a municipal surcharge on the national income tax liability of Nairobi residents. Albeit tentatively, the paper examines the various economic and administrative aspects of the surcharge.