3.2 Local Government Aggregate Own-Source Revenues

110 Jesper Steffensen

Local politicians going for “quick wins”instead ofsustainable solutions The strong increase in transfers from the central government,leading to less incentive to collect local taxes Unfavorable local government tax legislation Weak local government tax administration and enforcement capacity Lack ofaccountability and conducive links between local governments and citizens (low awareness,lack oftrust) Increase in poverty in certain areas,although not a general trend.

The discouraging trend in local government revenues has led to a number ofrecent initiatives to boost revenue mobilization and to mitigate the challenges.Several studies have clarified the main problems and areas in need ofsupport.The Local Revenue Enhancement Coordinative Committee,with key players from central and local government levels,has been established to coordinate all initiatives on local government taxation.Inventories ofbest practices have been carried out,and the findings were widely disseminated to all district and city councils.Local governments are required to plan and budget for a revenue enhancement strategy,and the LGFC has generally played a more active role in supporting the local governments technically in the field ofrevenue mobilization.

Probably most important,stronger incentives to improve local government revenues have been elaborated under the LGDP-II development transfer scheme,with performance rewards for good tax efforts in addition to cofunding obligations.Initiatives are under way to improve the legal framework for local government taxation—first and foremost,the Rating Act of1979.LGDPII component 4 will assist in reforming some other taxassignments as well.

TABLE 3.2 Local Government Aggregate Own-Source Revenues (percent)

Property User fees Other Year G-tax tax and charges Licenses revenue Total

1997/98 67.4 6.9 12.7 2.0 11.0 100 1998/99 65.1 8.4 13.9 2.8 9.8 100 1999/2000 64.2 9.3 14.7 3.0 8.9 100 2000/01 62.2 6.0 10.8 1.8 19.2 100 2001/02 52.0 13.6 18.5 3.6 12.3 100

Source: Steffensen, Tidemand, and Ssewankambo 2004. Note: The data should be treated with due caution; final accounts are not available for all districts, and extrapolations have been made. Totals may not equal 100 because ofrounding.

Local Government Organization and Finance: Uganda 111

However,the effect ofthese initiatives will depend on support from the policy makers at the top—political commitment to mobilize local revenues. The initiative to abolish one ofthe most important local government taxes, the G-tax,may undermine all other initiatives.

Level ofLocal Government Autonomy over Own-Source Revenues The size ofown-source revenues and amount ofautonomy in local decision making depend on the abilities oflocal governments to adjust their ownsource revenues.Table 3.3 indicates the level oflocal government control of these taxes.

Local governments have certain autonomy to adjust their own-source revenues,within certain ceilings.Unlike in other countries,in Uganda budgets and revenue forecasts are not approved by the central government.However,the legal framework and the limited revenue assignments have generally not been favorable for local governments.

Composition ofIntergovernmental Fiscal Transfers Fiscal transfers are by far the most important local government revenue source.According to article 193 ofthe constitution,grants are typically classified as unconditional,conditional,and equalization grants:

Unconditional grant (UCG) is the minimum grant that shall be paid to local governments to run decentralised services and shall be calculated in a manner specific in Seventh Schedule to this Constitution.11 Conditional grants (CGrants) shall consist ofmoneys given to local governments to finance programmes agreed between the Government and the local governments,and shall be expended only for [the] purpose for which it was made and in accordance with the conditions agreed upon. Equalisation grant (EG) is money to be paid to local governments for giving subsidies or making special provisions for the least developed districts,and shall be based on the degree [to] which a local government unit is lagging behind the national average standards.

The intent ofarticle 193 was that the unconditional grants should finance the gap between the revenue and expenditure assignments and finance part ofthe general administrative functions,whereas the conditional grants should finance the sector-specific tasks to enable local governments to achieve national sector targets.Equalization grants were supposed to equalize imbalances caused by disparities in revenue potential and expenditure needs.