Local Government Revenues

Local Government Organization and Finance: Uganda 109

Budget Approval Local governments approve their own budgets without interference from the central government.However,a number ofchecks and balances ensure adherence to national priorities and targets,especially through the strong earmarking ofthe conditional grants,central government support to local government planning and budgeting in the form ofcapacity building and guidelines,and fiscal incentives in the development funding scheme to focus on the key poverty alleviation areas (education,health,roads,agriculture, and water and sanitation).

Local Government Revenues Composition ofLocal Government Own-Source Revenues Own-source revenue for rural local governments has decreased significantly from 1997/98 to 2001/02 in nominal and real terms,while urban authorities kept nearly to the status quo.The district councils and subcounties,including Kampala City Council,have in aggregate figures experienced a decline in local government revenue sources from U Sh 103.5 billion in 1997/98 (US$3 per capita) to U Sh 79.4 billion in 2001/02 (US$2 per capita) or 30.4 percent.9 In real figures,the decrease is 37 percent.IfKampala is excluded, the nominal decrease is from U Sh 89.7 billion in 1997/98 to U Sh 58.8 billion in 2001/02,equal to 34.4 percent in nominal figures and 45.9 percent in real terms.In 2001/02,the total own-source revenue oflocal governments, including municipalities and town councils,was estimated at US$2.40 per capita.

Table 3.2 shows the composition ofall local governments’own-source revenues.The G-tax is by far the most important source,especially for rural districts;however,a downward trend has been observed recently.10 The composition varies greatly across types oflocal government.In FY 2001/02,the G-tax contributed only 16 percent and 36 percent,respectively,ofthe municipal councils’and town councils’own-source revenues.The property tax is increasingly important in urban areas but is still insignificant in rural districts.

Studies ofthe reasons behind the observed decline in own-source revenues have shown that the problem is complex and that a number offactors interact:

Political interference from the center—especially competition to please voters during presidential election campaigns