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Policy Studies & Activities
Studies undertaken in the Commission:
The Commission has carried out a number of policy studies since its inception. The studies provide objective means of analysing issues and developing policy options in the areas of intergovernmental fiscal relations. The main studies undertaken include:
- A review of the allocation of conditional grants, 1998.
- The introduction of equalisation grants to districts and urban councils, 1999 & 2000.
- Revenue sharing studies, 2000 & 2001.
- A study on revenue enhancement, 2000.
- In addition, the Commission has established a fiscal databank that provides reliable, easily updateable data on revenues and expenditures of local governments.
The specific objectives and main findings of the studies are outlined below:
- Review of Conditional Grants
This Study was undertaken in 1998 and it formed the basis for the designing the methodology of the study on equalisation grant. Its objectives were:
- To study the existing grants in order to have a basis for introducing equalisation grant.
- To review the efficiency of conditional grants to ascertain whether they promote equity in service delivery.
- To examine the criteria used by Ministries in allocating conditional grants.
The study observed that conditional grants were in general being administered with little consultation of local governments by line ministries and that stringent conditions were hampering effective utilisation of the grants. However, it was concluded that the allocation systems being used for allocating the grants were in general not introducing new inequalities amongst local governments. - Introduction of Equalisation Grant
Unlike unconditional and conditional grants that were effective as early as 1993/94, equalisation grant was delayed until 1999/00 because there was initially no mechanism for identifying and allocating monies to beneficiary local governments.
The Commission undertook two studies that provided information that was used to negotiate for the introduction of equalisation grant; one for districts in 1999 and another for urban councils in 2000. The studies provided objective criteria for identifying least developed districts and the amounts to be given to each district as grant.
The main objectives of the studies were:
- To identify least developed local governments
- To propose the amount of money to be earmarked for equalisation grant
- To recommend to Government local governments that can be assisted using Equalisation Grant.
The reports and recommendations of the studies were widely discussed and Government implemented them by providing budget resources for equalisation grant in the National Budgets of 1999/2000, 2000/2001 and 2001/2002 financial years for districts and urban councils respectively.
As with the case with all transfers, the Commission, using the FDS, is currently reviewing and developing new formulae to improve the effectiveness of the grant. - Revenue Sharing Studies
The Commission undertook two studies to examine whether imbalance existed between service delivery assignments on the one hand and revenue generation possibilities, of local governments, on the other. The studies were carried out in two phases. Phase one examined sharing issues between the center and local governments and phase two looked at sharing issues amongst local governments. The objectives of the studies were to
- Clarify on the distribution/allocation of responsibilities between the Central Government and local governments on the one hand and among local governments and administrative units on the other.
- Clarify on the assignment of revenues to various levels of government including analysis of the legal framework and the revenue sharing in practice.
- Analyse and compare the cost of services at various levels of government.
- Establish the total revenue potential available to local governments.
- Review the extent to which the present system balances or whether there is a financial gap.
- Make recommendations to Government to address any imbalances identified.
- Improve the dialogue between the Central and Local Governments on the fiscal requirements.
The first phase of the study was completed in November 2000 and established that imbalances, represented by a fiscal gap of Shs 76 billion existed in providing services assigned to higher local governments. The recommendation on closing the gap was passed to Government for consideration. This financial year Government increased the recurrent transfers and it is likely that much of the fiscal gap has reduced. - Local Revenue Enhancement study
The performance of locally raised revenues has not been satisfactory from as early as early 1990. In 1996 ODA sponsored a study conducted by Crown Agents to enhance the performance of local revenues. A number of useful recommendations were made but not many of them were implemented.
In 2000, the Commission, using PriceWaterhouseCoopers, updated the recommendations of the 1996 ODA study and developed action plans for revenue enhancement.
The broad objective of the study was to consider ways and means of enhancing local revenues. Specifically the study was to review and update the 1996 recommendations, develop action plans to be implemented immediately by local governments and identify policy issues that the central government could pursue to enhance local revenues. The study confirmed that local governments are under exploiting the tax and revenue bases devolved to them. It noted that the performance of major taxes such as graduated tax and property tax could be increased by more than 40% if local governments were to improve on the procedures they employ in managing and administering taxes. However, it also reckoned that local governments are constrained by some policy and legal provisions that affect revenue mobilisation. The urgent ones identified were the property rating act that centralises the functions of valuation to the office of the chief government valuer; the graduated tax regulations that provides a tax schedule which is not progressive and sensitive to poverty.
Some of the action programme identified includes:
- Simplifying the enumeration and assessment procedures of graduated tax and put in place acceptable collection procedures.
- Reviewing property tax regulations and instituting easier assessment methods to reduce the costs of collection.
- Improving the licensing system for licenses and fees.
- Streamlining the system for user fees and charges to increase revenues to local governments.
- Undertaking comprehensive capacity building programme that covers new procedures and strategies for local revenues with particular reference to GPT and Property tax.
- Undertaking taxpayer and Councillors' Education programmes
- Undertaking revenue monitoring exercises to update regular information on local revenues by LGFC
- Carrying out an assessment of district revenue capacities with a view to identifying new sources.
- Implementation framework on Revenue Sharing and Enhancement
In order to facilitate the implementation of actions developed in the revenue enhancement and revenue sharing studies, the Commission has developed an implementation framework that specifically indicate when, by whom and how a particular activity should be implemented.
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