Local Government Organization and Finance: Uganda
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Overall Assessment and Lessons The experiences from fiscal decentralization provide important lessons for reforms that strengthen the financing of decentralized services. Experience shows the importance of having a clear delineation of expenditure assignments and a recognition that decentralization of responsibilities must be accompanied by sufficient resources to finance activities. The LGA has been instrumental in this respect, but the tasks and functions of the administrative units (parish and villages) have not been clearly delineated. Furthermore, attempts to cost the decentralized services were made very late in the process, and a number of functions have been transferred without adjusting the general funding flow or tax assignments (leading to unfunded mandates). Experience shows the importance—but also the severe difficulties—of developing a sustainable system of local government finance with a significant component of own-source revenues to ensure accountability, ownership, efficiency, and the long-term viability and legitimacy of a decentralized system. A number of factors have constrained the mobilization of own-source revenues: lack of a favorable legal framework for local government taxation (especially concerning the property tax),19 weak local government capacity in tax administration, and lack of central government support (moral and technical) for boosting local government revenue mobilization. More recently, the large increase in transfers from central to local government seems to have had a crowding-out effect, worsened by strong influence and interference from the top political layer. What the president says during the presidential election campaigns matters in local tax policy, and there is still a lack of a perceived link between tax payments and service delivery benefits. In a situation in which transfers constitute more than 85 percent of all local revenue sources, there have been limited incentives to focus on the smallest part.20 Experience also shows a need for concerted efforts—targeting the legislative framework, the capacity of local governments, awareness raising and links to citizens, and especially incentives in the grant system—to significantly increase local governments’ own-source revenues. This effort should be combined with a higher level of fairness and equity in the tax collection and legislative framework and with more efficient use of the resources collected. Local governments that are highly dependent on the central government are especially vulnerable to central government control. There is a risk of reduced ownership and efficiency in local government service provision if this process is not fundamentally reversed. The challenge is to launch technical measures supported by political guidance in a clever and sensible way,
