THE UNITED REPUBLIC OF TANZANIA
PRIME MINISTER’S OFFICE,
REGIONAL ADMINISTRATION AND LOCAL GOVERNMENT
Final Report
A Study on LGAs Own Source Revenue
Collection
Prepared by
PMO-RALG
P.O.BOX 1923
Dodoma
November, 2013
November, 2013
A Study on LGAs Own Source Revenue
Table of Contents
Table f Contents............................................................................................................................. i
List of Abbreviations and Acronyms ...................................................................................... vii
Preface.. ......................................................................................................................................... ix
Executive Summary .................................................................................................................... xi
CHAPTER ONE ........................................................................................................................... 1
1.0
Background of the Study .............................................................................................. 1
1.1
Introduction.................................................................................................................... 1
1.2
Statement of the Problem ............................................................................................. 2
1.3
Objectives of the study ................................................................................................. 3
1.3.1
The specific objectives of the study for each LGA are to ......................................... 3
1.4
Research Questions ....................................................................................................... 4
1.5
Significance of the Study .............................................................................................. 4
1.6
Scope and Delimitation ................................................................................................ 4
CHAPTER TWO ........................................................................................................................... 6
2.0
Literature Review .......................................................................................................... 6
2.1
Introduction.................................................................................................................... 6
2.2
Tanzania Social Economic Situation ........................................................................... 6
2.2.1
Population and Social factors performance ............................................................... 6
2.2.2
The GDP performance .................................................................................................. 7
2.3
Legislative Framework and Local Government Revenue Polices........................ 10
2.3.1
Constitutional of United Republic of Tanzania ...................................................... 10
2.3.2
Local Government Finance Act CAP 290 (RE 2002) ............................................... 10
2.3.3
Local Government (District Authorities) Act CAP 287 and Local
Government (Urban Authorities) Act CAP 288 (RE 2002) ....................................... 11
2.4
Local Government Revenue, Taxation and Their Implications ............................ 11
2.4.1
Characteristics of a good revenue source ................................................................ 11
2.4.2
Principles of a good revenue assignment to the local level .................................. 13
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A Study on LGAs Own Source Revenue
2.4.3
Local Revenue Structure for LGAs ........................................................................... 19
2.4.4
Poverty reduction and revenue assignment: the incidence of local taxes .......... 20
2.5
Assessment of Current Local Government Revenue System in Tanzania.......... 22
2.5.1
Local Government Revenue System ......................................................................... 22
2.5.2
Local Government By-laws ........................................................................................ 23
2.5.3
Resource Mobilization – Non Tax Revenue under Big Result Now .................... 25
2.5.4
Remarkable Challenges .............................................................................................. 25
2.5.5
CAG Reports and Recommendations ...................................................................... 26
2.5.6
Current Local Government Initiatives ..................................................................... 28
2.6
International perspective............................................................................................ 30
CHAPTER THREE ..................................................................................................................... 32
3.0
Research Methodology ............................................................................................... 32
3.1
Introduction.................................................................................................................. 32
3.2
Research Strategies ...................................................................................................... 32
3.3
The Sampling, sample size and Data collection...................................................... 33
3.3.0
Sampling and sample size .......................................................................................... 33
3.3.1
Data collection.............................................................................................................. 35
3.3.1.1 Field data collection .................................................................................................... 35
3.3.1.2 Documentary review .................................................................................................. 35
3.4
Data Processing, Analysis, Interpretation and Presentation................................ 35
CHAPTER FOUR ....................................................................................................................... 37
4.0
Data Analysis and Discussion ................................................................................... 37
4.1
Introduction.................................................................................................................. 37
4.1.1
Analysis of the existing major revenue sources, the collection
system/procedures and the existing rules and regulations. ................................... 37
4.2
The economic activities and revenue potentials ..................................................... 47
4.2.1
Challenges hindering own sources revenue collection to its potentials ............. 50
4.3
New sources of Revenue on available Districts Economic potentials ................. 60
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A Study on LGAs Own Source Revenue
Recommended methods to improve the revenue collection ................................ 69
CHAPTER FIVE ......................................................................................................................... 78
5.0
Conclusion and Recommendations .......................................................................... 78
5.1
Conclusion .................................................................................................................... 78
5.2
Recommendations ....................................................................................................... 79
5.3
Conclusion .................................................................................................................... 86
5.4
Issues for further research .......................................................................................... 86
ANNEXES ................................................................................................................................... 90
LIST OF QUESTIONNAIRES ................................................................................................... 91
A.
AT REGIONAL LEVEL ............................................................................................... 91
B.
LOCAL GOVERNMENT LEVEL .............................................................................. 91
C.
TAXPAYERS ................................................................................................................ 93
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List of Tables
Table 1 : The National structure of the population age and sex ............................... 7
Table 2: GDP Growth rate 2002-2013 Tanzania mainland ......................................... 9
Table 3: List of RS and LGAs visited by zones .......................................................... 34
Table 4: The Average collections of major revenue sources for the period of
2007/8 - 2011/12 in Tsh. Millions ................................................................................ 39
Table 5: The Average collection of major revenue sources for the period of 2007/8
- 2011/12 in Tsh. Millions (Without Ilala MC)........................................................... 41
Table 6: Analysis of collection procedures by Zones Name of the zone................ 43
Table 7: The analysis of performance for the most outsourced Source for the
councils using Council staff and those who outsourced) ........................................ 44
Table 8: Remittance procedures of revenues collected by Agents .......................... 45
Table 9: The analysis of Councils with the governing bylaws for revenue
collections ........................................................................................................................ 46
Table 10 : The main Economic activities as mentioned by Councils ...................... 48
Table 11: The proportionality between the rates charged against economic
potentials. ........................................................................................................................ 49
Table 12: Council who’s by - laws not updated timely ........................................... 51
Table 13: How political interference hampers the revenue enhancement by RS
and by Councils .............................................................................................................. 52
Table 14: Councils which do not conduct Research before outsourcing ............... 53
Table 15: Rural Councils Collected Property tax in 2011/12 ................................... 54
Table 16: Councils proposed reintroduction of Livestock Cess .............................. 56
Table 17: Status of tax payers on paying taxes voluntarily...................................... 57
Table 18: Weakness in contract management ........................................................... 58
Table 19: RS and LGAs Mentioned Climate change as the problem to Revenue
enhancement. .................................................................................................................. 59
Table 20: LGAs facing challenges in getting net turnover from TRA .................... 60
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Table 21: New revenue sources as suggested by RSs and LGAs in Lake Zone .... 62
Table 22: New revenue sources as suggested by RSs and LGAs in Southern Zone
........................................................................................................................................... 63
Table 23: New revenue sources as suggested by RSs and LGAs in Southern
Highland Zone ............................................................................................................... 64
Table 24: New revenue sources as suggested by RSs and LGAs in Coast and
Central Zone ................................................................................................................... 65
Table 25: New revenue sources as suggested by RSs and LGAs in Northern Zone
........................................................................................................................................... 66
Table 26: the Education, training and sensitization requirements per zone ......... 70
Table 27: Taxpayers who are eager to see improved social services ...................... 71
Table 28: Recommendation of establishment of taxpayer’s own source revenue
database ........................................................................................................................... 72
Table 29: Recommendation of to review bylaws on time ........................................ 73
Table 30: Recommendation of property tax to be charged at each LGA’s ........... 74
Table 31: Recommendation to harmonize local taxes .............................................. 74
Table 32: The stakeholders recommending the need of improving the M&E to
own source revenue collection ..................................................................................... 75
Table 33: The need to have studies of potential for each own source .................... 76
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List of Figures
Figure 1: Growth rate trend for the past 10 years ....................................................... 9
Figure 2: Comparison of the major revenue sources by zones (average of actual
collections for five years) .............................................................................................. 39
Figure 3: Comparison of the major revenue sources by zones (average of actual
collections for five years) without Ilala MC ............................................................... 41
Figure 4: Comparison of collection procedures (Outsourcing, Council Staff) by
Zones ................................................................................................................................ 43
Figure 5: Comparison of the councils with by-laws governing .............................. 46
Figure 6 : The Education, training and sensitization need as demonstrated by
Histogram........................................................................................................................ 71
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A Study on LGAs Own Source Revenue
List of Abbreviations and Acronyms
BoA:
Bank of Africa
CAG:
Controller and Auditor General
CIA:
Central Intelligence Agency
CC:
City Council
DC:
District Council
GDP:
Gross Domestic Product
GIS:
Geographical Information System
GIZ:
German Technical Cooperation
IMF:
International Monetary Fund
LAAC:
Local Authorities Accounting Committee
LGA:
Local Government Authorities
LGCDP:
Local Governance and Community Development Programme
LGRCS:
Local Government Revenue Collection System
LGRMS:
Local Government Revenue Mobilization System
LGFA:
Local Government Finances Act
MC:
Municipal Council
MoAFSC:
Ministry of Agriculture and Food Security
NBS:
National Bureau of Statistics
NEMC:
National Environmental Management Commission
OSHA:
Occupational Safety and Health Authority
PMO-RALG: Prime Minister’s Office, Regional Administration and Local
Government
PFMRP:
Public Finance Management Reform Programme
RS:
Regional Secretariat
TC:
Town Council
TCCIA:
Tanzania Chamber of Commerce and Industrial Association
TCRA:
Tanzania Communication Regulatory Authority
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TFDA:
Tanzania Food and Drugs Authority
TIN:
Taxpayer Identification Number
TSCP:
Tanzania Strategic Cities Project
TRA:
Tanzania Revenue Authority
SULGO:
Support to Local Governance
ULGSP:
Urban Local Government Strengthening Program
URT:
United Republic of Tanzania
USD:
United States of Dollar
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A Study on LGAs Own Source Revenue
Preface
Local Government finances are important and form an integral part of public
sector Finances of Mainland Tanzania. LGAs
have significant responsibility in
the public services delivery in primary and secondary education, water, road
repair and maintenance and basic health care. LGA are important agent for
resource mobilization as they collect 3-5 percent of all public sector revenues and
they are responsible for over 20 percent of public sector spending. LGAs suffer
from unpredictable fiscal transfers which results into poor service delivery. As
such, a sound framework for local government finance is an important factor in
assuring the public sector delivers quality public services and provides an
enabling environment for economic growth that pursues an aggressive agenda of
poverty reduction as well as strengthening good governance to the local
communities.
Local Governments are empowered with political and administrative control and
provided with the financial resources to assure the effective delivery of services
to the public. Since 1982, the Local Government Finances Act (LGFA) has
been periodically amended to reflect intermittent reform efforts. However, the
Act and its implementing regulations no longer provide a well-structured legal
and regulatory framework for guiding administration of Local Government
finances. Instead, the Act includes numerous unclear, duplicative, and in some
cases contradictory clauses.
In the other hand, the LGFA has never been
properly reviewed and aligned with the Public Finance Act of 2001 following
ever changing circumstances. Apart from legislative matters, there are other
reasons that can be associated with declining revenues in LGA’s in Tanzania,
including un-willingness to pay Taxes, poor planning before outsourcing,
political interference, poor Contract Management and absence of tax payers’
database.
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Under these circumstances, Local Authorities are facing challenges in the areas of
revenue administration, which includes revenue planning and strategies, internal
controls over revenue, accountability and transparency in the whole cycle of
revenue management. This study is an attempt to unveil the weaknesses in
revenue management system, improve or establish revenue data base which will
foster application of modern revenue planning and controls techniques so as to
increase LGAs own source revenues.
PMO-RALG through PFMRP IV has conducted a survey to “Evaluate LGAs
Own Source Revenue Collection”. The outcomes of the study validates the facts
that on one hand, LGAs revenue potential is not fully explored and in the other
the nature of the Local taxes have insignicant tax yield which are also difficult to
administer. The recommendations made herewith attempts to address the
situation. I hope the issues raised and recommendation made thereon if full
implemented will improve the revenue collection efforts in all Councils.
I extend my sincere appreciations to all those who participated into any part of
the assignment for their untiring efforts in accomplishing this important task. I
particularly recognize the unwavering cooperation that the research personnel
received from the 30 Councils and 16 Regional Secretariats through the process
of evaluation to the point of writing this report.
J. A. Sagini
Permanent Secretary
PMO-RALG
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A Study on LGAs Own Source Revenue
Executive Summary
The main objective of the assignment was to Evaluate LGA’s Own Source
Revenue Administration. The study was tailored to identify, assess and analyze
the existing LGAs major revenue sources and the collection system/procedures,
rules and regulations and recommend for improvement. Also the study related
revenue potential and respective LGA economic potential. This report further
discusses the role and challenges facing LGAs in tax and revenue collections.
From that fact, the study recommends improvements in the methods of and the
system of revenue collection or the tax administration to overcome tax evasion,
improve collection efficiency, enforcement, reporting and transparency.
Enhanced transparent and accountability will improve the ability to pay for extra
and better services and therefore encourage voluntary tax compliance.
The study has focused on thirty LGAs and sixteen RS which were visited. The
selected LGA were divided into zones. Data was collected through mixed
research approaches which were later analyzed. The study proposes various
measures to improve, efficient and effective process and systems for LGAs
revenue administration.
Key issues or findings arising from the study and recommendations for revenue
potential have been summarized as shown below: Total LGAs own source revenue accounts to about seven (7%) of the Total
Domestic Revenue and equally to an average of 7% of the total LGAs
expenditure. This implies LGAs over depend on Central Government
fiscal transfers.
 LGAs major revenue sources are Property taxes, Land Rent, Produce Cess,
Service Levy, Hotel Levy, Fees and charges and Licenses & Permits.
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 Visited Councils do not have a clear revenue data base leading to some of
them seldom use Tanzania Revenue Authority tax payers’ data and
information for service levy assessment.
 Produce Cess in most Councils is not systematically collected and
sometimes confuses as to who is to pay (where the farmer trades overseas
- unclear point of incidence and point of payment).

LGAs Outsourced revenues were not well and uniformly managed.
Methods of procurement of revenue Agents and remittance of revenues
also significantly differ.
 Performance of the LGA outsourced revenue depends on the nature of the
source. Market dues perform better by way of internal arrangements
while Bus stand fees are doing better when outsourced. Most of LGAs
(73%) revenues are governed by the principal legislation
instead of by-
laws.
 The study revealed that 24% of respondents of the visited councils
indicated that the rates charged on various economic activities are
proportional to the council economic potentials, 43% showed that there is
no proportional and 33% reflected that the rates charged to some of the
revenue sources are proportional while other sources are not proportional
to economic activities.
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Based on the Findings, the study recommends the following:S/N
Observations
1
Lack of Revenue Database
2
Outdated By Laws
3
Inadequate compliance
promotion strategy through
awareness raising
Recommendations
LGAs
have
to
establish
a
computerised Taxpayer database in
order to enhance efficiency and
minimize human error and incidences
of corruption. This will enable LGAs
to have realistic revenue projection,
budget estimate, collection and
spending. However, LGAs and
Tanzania Revenue Authority (TRA)
have to share and exchange tax and
taxpayers’
related
data
and
information to reduce collection costs.
MoF and PMORALG must find
possible ways to enable different
revenue systems such as Taxpayer
Identification Number (TIN) that can
be used and shared between one LGA
and a corresponding TRA Region
Office.
LGAs By-laws are not regularly
revised. It is recommended that
Government through PMORALG
have to issue guidelines that will help
LGAs in the process of reviewing
their by-laws. The guidelines have to
provide the time frame for the process
of reviewing By-laws. This will not
only allow the by-laws to be
reviewed, but also will show the areas
that need improvement, pertinent
stakeholders, their responsibilities
and resources required.
Tax compliance promotion strategy
refers to activities designed to
encourage voluntary compliance with
the requirements of revenue laws and
by-laws. Such a strategy forms an
integral part of any effective
compliance
strategy, the other
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S/N
4
5
6
A Study on LGAs Own Source Revenue
Observations
Recommendations
component being an enforcement
strategy.
LGAs have to determine the most
effective compliance promotion and
enforcement response. The key
elements
of
an
effective
tax
compliance promotion strategy that
may be considered are; providing
education and technical assistance to
taxpayers, building public support,
publicizing success stories.
Lack of established Indicative
Established Indicative Market Prices
Market Prices.
is the preliminary estimate of the
bidding and offer price provided by
market makers. It have been urged
that all LGAs should conduct an
Independent survey to identify
Indicative Market Prices for LGAs
Investment Properties. (Survey to be
conducted in 2 years’ time)
Lack of Legal and Disciplinary
LGAs need to have both legal and
Actions
disciplinary
mechanism
against
revenue officials being accused of
misconduct and doing other illegal
practice which in turns create a big
loss of revenue to the Councils.
Corrective measures to reprimand
Councils Director who fails to meet
the minimum threshold of own source
revenue collection established.
Education/Training/Sensitization Political leaders need be educated on
their related responsibilities to assist
the council in terms of revenue
collection;
Council revenue officials need
training on the following grounds:
Capacity building on revenue matters
to be able to provide education to
taxpayers;
Capacity building for the sake of
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S/N
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A Study on LGAs Own Source Revenue
Observations
Recommendations
sensitization of taxpayers on their
importance of paying taxes;
Training
on
different
revenue
databases systems;
Taxpayer themselves need awareness
on their significance importance to
pay tax for the benefits of their
wellbeing but the council should also
demonstrate how people benefits
from these taxes.
Both the Central government and
LGAs
need
to
dialogue
on
Reintroducing some of the abolished
sources.
LGAs are eligible to benefit from the
natural resource that are available in
their area of jurisdiction.However
MoF and PMORALG should work on
how best to allocate service levy that
is collected from the business done in
different LGAs,usage of airtime as
against sales of airtime in calculating
service levy due.
Local Government Finance Act to be
revised to accommodate Hotel (Guest
House) Levy as revenue source for
LGAs.
Livestock Cess, Livestock Movement
Permit have to be reintroduced
LGAs need to look on possibility of
introducing
motorcycle
fees,
Telecommunication
Towers
Fee
property tax in rural areas (semi
urban).
Reintroducing some of the
abolished sources and
introduction of new sources
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S/N
A Study on LGAs Own Source Revenue
Observations
Recommendations
8
Weakness in Contract
Management
PMO- RALG in collaboration with
PPRA needs to issue a guideline to
strengthen and ensure a good and
proper guidance for outsourcing
revenue collection. This will minimize
potential loss of revenue that could
occur due to improper contract
management as well as losses due to
LGAs’ failure to honor their contracts.
9
Political Support
10
Establishment of commercial
courts
11
Revision of tax rates
12
Remittance and Payment
Methods
13
Establishments of Task forces
Political leaders should be involved in
revenue collection system. The
mechanism
of
holding
them
responsible for any failure to collect
own source revenue at their area of
jurisdiction to be made.
Experience shows that, there is a great
delay of business cases in normal
courts at LGAs level and in turn
hinder the collection of revenue from
own source and sometimes create a
big loss to the councils when ending
up in paying compensation if the
court rule the case in favor of the
other part.
LGAs are urged to revise the rates of
taxes, fees and charges in a regular
interval considering inflation rate and
market prices which is an indicator
that easily portrait the current
economic potential of that particular
area.
Payment of taxes and levies to be
done through banks, and other noncash methods like M-pesa, Tigo pesa,
Airtel money and the like to reduce
corruption and other frauds.
To establish councils own source
revenue task force that will be formed
by councils officials in collaboration
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S/N
A Study on LGAs Own Source Revenue
Observations
Recommendations
with
some
finance
committee
councilors to regularly monitor the
collection of own source revenue.
14
Non-studies on each revenue
Appropriate and relevant study on
sources
each revenue sources should be
conducted to explore individual
revenue source tax yield potential.
15
Property Tax to be charged at
Revision of the rules and guidance
each LGA’s
relating to property tax to allow every
LGA to access and charge on it
16
Un Improved Social Services and The improvement of social services is
poor customer care in public
one of the important factor considered
service point (LLG)
to accelerate the growth of own
source revenue in our Local
Authorities.
17
Political Interference
Political Interference was mentioned
as one of the critical major factors
hindering revenue collection in LGAs.
Political leaders should be prohibited
from doing any kind of business
within their area of jurisdiction to
avoid impairment of their respective
decisions.
Detailed discussion on issues/observations and recommendations are contained
in chapter four and five of this report.
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Layout of the report
This research has six chapters as follows:Chapter one: this chapter focuses on the background information’s relating to
LGAs own source revenue, the problem statement that has driven the study to be
conducted as well as the scope of the study.
Chapter Two: this chapter deals with issues relating to literature of own source
revenue on legal frame in managing local Government both political and
financial administration and other relates literatures on the Local Government
finance.
Chapter Three: This chapter presents Research Methodology on how the research
was conducted. It illustrates research design, sample and sampling techniques,
data collection, processing, analysis and presentation.
Chapter Four: This chapter presents the Major Findings of the study. It links the
findings and the research objectives and questions.
Chapter Five: This chapter on Discussion of the matters relates the findings, the
literature review and observations of the researcher. It establishes theoretical
linkages between the findings and the theory.
Chapter Six: This chapter presents major Conclusion and Recommendations
drawn by the researcher based on the research findings.
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CHAPTER ONE
1.0
Background of the Study
1.1 Introduction
Many countries including Tanzania have embarked on decentralization
programmes. The reason for this decentralization varies depending on political,
economic and social development. In developing countries, the reasons centre
on the need to establish working local governments which can deliver quality
services to the people in a participative, effective and transparent way, where
local authorities are directly accountable to the local people. Local authorities are
the primary level government that provides basic services to the people. They are
an important and an integral part of public services in Tanzania. To have a fully
devolved system of local government it is essential that the LGAs have robust
system of planning and control over their own revenue sources that will finance
and improve local service delivery and encourage accountability to the people
they serve. A sound revenue system for local governments is an essential precondition for the success of fiscal decentralization as well as the strategic stance
to foster political and administrative accountability by democratic empowered
communities.
Many African local governments are facing a governance crisis and poor service
delivery capability. Failure to ensure existence of sound and stable of revenue
sources for local government implies that LGAs rely solely on Central
Government grant transfers, and this effectively de-links local leaders from their
electorate, weakens accountability and concern for cost-effectiveness. It is
estimated that today local government authorities collect 3-5 percent of all public
sector revenues (PMO-RALG, 2006).
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A Study on LGAs Own Source Revenue
The Local Governments in Tanzania have been authorized to collect their
revenue in very specific terms so as to support their own expenditure
(Kakwesigabo, 2010). A sound revenue system is essential and serves as a crucial
tool for the successful running of local government (Oluwu and Wunsch 2003).
The existing framework permits the Authorities to identify and design ways of
raising finances through taxes, licenses, fees and charges. Section 6, 7, and 8 of
Local Government Finance Act Cap 290 of 1982 provides for an extensive
framework of LG revenue sources. Own source revenue is assumed as the main
source of internal generating LGAs financing. Other sources are Local
Government grants and Local Government borrowing.
In this regard, PMORALG under PFMRP IV is at the forefront in providing
support for the enhancement of a more effective, efficient and equitable system
to collect revenue from own-sources. This has evolved to conduct a study aimed
at enhancing local revenue mobilization for LGAs in Tanzania. It is expected that
the outcome of this study will form the basis for systematic improvements of
revenue collection systems at LGAs in the country.
1.2
Statement of the Problem
The Local Government Authorities for many years have been facing problems of
not performing well in revenues collected from their own sources while the cost
of service delivery and infrastructure has been increasing year after year. This is
a problem which faces many LGA’S in Tanzania and it’s not attributed to some
of them. There are many reasons that can be associated with inefficiency of
revenues collections in LGA’s in Tanzania. The Government of Tanzania through
TSCP project has identified the un-willingness to Pay Taxes as one of the Main
contributing factor in LGA’s finance problems. On the other hand, the Councils
have not been able to bridge financial gaps that exist between revenue budget
and actual revenue collections.
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A Study on LGAs Own Source Revenue
The analysis on Revenue collected from own sources by LGAs for the past 5
years have shown the parabolic trend of declining revenue compared to the
actual revenue projections. This indicates that there is high level of tax evasion
and low level of tax compliance. The question of unwillingness to pay may be
one of the factors, but also the poor and inadequate services provided by these
LGAs to the public may be another contributing factor. Demographics, politics,
gender, negligence, technology, capacity and customer care also might be
leading into this problem.
In order to address this gap, the PMO-RALG has decided to conduct a study on,
“LGAs Own Source Revenue Collection” under the Public Financial
Management Reform (PFMRP IV).
1.3
Objectives of the study
The main objective of the study is to Evaluate LGA’s Own Source Revenue
Collection.
1.3.1
a)
The specific objectives of the study for each LGA are to:
Asses and analyze the existing major revenue sources and the collection
system/procedures rules and regulations available (the ease or difficulty
of collecting revenues) in order to identify gaps and options for
improvements;
b)
To find out the potential of each selected source.
c)
Investigate factors that could have hindered LGAs from collecting taxes
and levies from the said sources;
d)
Identify new sources of revenue on available District economic potentials;
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November, 2013
e)
A Study on LGAs Own Source Revenue
Recommend improvements methods in the revenue collection system or
the tax administration to overcome tax evasion, collection efficiency,
enforcement and therefore voluntary tax compliance.
1.4
Research Questions
The specific questions for the study were as follows;
i. What are the major existing own source revenue in LGAs?
ii. What are the collection procedures?
iii. Are there any rules and regulations governing revenue collection?
iv. What are the potentials of each selected source?
v. What re the factors that hinder LGAs from collecting taxes and levies from
the said sources?
vi. What are the new sources of revenue on available Council economic
potentials?
vii. What are recommended methods to improve the revenue collection system
in LGAs?
1.5
Significance of the Study
The findings of this study will help the LGAs in Tanzania Mainland to identify
the problems associated with poor revenue collections and revenue generation in
general. It will also enhance LGAs’ capacity to generate more revenues which
will enable LGAs to, expand and develop their revenue potential.
1.6
Scope and Delimitation
Generally, this study focused on the extent and cause of poor revenue generation
and how it affects development of the Local Government Authorities in
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A Study on LGAs Own Source Revenue
particular. The study concentrated on the “Evaluation of LGA’s Own Source
Revenue Collection” of a respective 30 Districts Councils and it covered the trend
of revenue collection for the period of five years i.e. 2007/08, 2008/09, 2009/10,
2010/11 and 2011/12.
Furthermore, the study evaluated LGAs methods of collecting taxes and levies,
and it related people’s response on service delivery satisfaction and their
willingness to pay. Again it suggested on ways that can be used to create
conducive environment to the taxpayers of the LGAs for sustainable and
significant increase in revenue collections.
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CHAPTER TWO
2.0 Literature Review
2.1 Introduction
This chapter explained and analyzed the current issues involving the Local
Government revenue in Tanzania. It has also built the platform for analyzing the
findings as well as the study recommendations.
2.2 Tanzania Social Economic Situation
2.2.1
Population and Social factors performance
Tanzania mainland has an area of 945,203 km2 with 62,000km2 covered by water,
3,350km2 covered by woodland and forest. It has been endowed with Natural
resources such as minerals, arable land, and large population that contribute
large internal market (URT MoAFSC, 2009).
According to the 2012 Households census of Tanzania, the Tanzanian Mainland
population is 43.6 million with the age structure of 0-14 years 21.98% male and
21.97% female, 15 – 64 years 24.87% male and 27.29% female and 65 years and
above 1.84% male and 2.06% female Table 2.1. This structure provides the
population age and sex structure which provide insights about political and
social stability, as well as economic development.
As it can be seen from this demographic structure the work force/dependence
ration is 1:09 (Assuming that the majority of the population in years of 15 after
completion of their standard seven joins the work force). Growth in population
reflects expansion in private consumption hence is one of the drivers for the
economic growth that is GDG growth. (Table 1) presents The National structure
of the population age and sex
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Table 1 : The National structure of the population age and sex
Age
Total
Male
Female
0-14
15-24
25-54
55-64
65+
Total
% of Total
19,171,107
8,297,772
12,955,808
1,500,542
1,700,125
43,625,354
100.00
9,586,897
3,909,204
6,193,262
748,441
801,509
21,239,313
48.69
9,584,210
4,388,568
6,762,546
752,101
898,616
22,386,041
51.31
Age/sex as % of total/Age
Male
Female
50.01
49.99
47.11
52.89
47.80
52.20
49.88
50.12
47.14
52.86
48.69
51.31
Source: 2012 population and housing census, Vol. II.
Health sector, Tanzania showed a decline in infant mortality rate from 58 deaths
per 100 live births in 2007 to 51 in 2009/10, under five mortality rates from 91
deaths per 1000 live births 2007/08 to 81, maternal mortality from 578 to 454
deaths per 100,000 live births. Under education sector Tanzania show that one
quarter of adult has no education, 32.5% of women and 16.9% of men are
illiterate. Net school enrolment has increased from 59% in 2000 to 95.4% in 2010
and secondary net enrolment reached 27.8 in 2009 from 23% in 2007.These
figures portraits highly increasing productive population.
Labor force and employment: The labor force according to the County strategy
paper 2011-2015 BoA, in 2006, it was estimated labor force about 19 million with
over all participation rate of 89.6%, unemployment estimated at 4.3 and youth
unemployment (age of 15-24) stand at 14.9%.However from the current census
(2012) the labor force population in nearly 22.75 million (age of 15 – 64 years).
The country has achieved impressive economic growth since the mid-1990s with
reasonably low inflation.
2.2.2
The GDP performance
Tanzanian’s economy depends on agriculture, which accounts for more than
one-quarter of GDP, provides 85% of exports, and employs about 80% of the
work force and the government has increased spending on agriculture to 7% of
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its budget (CIA World Fact book). The crop subsectors contributes 35% of GDP
and grows at the rate of 3.8%. Food crop contributes 65% of Agriculture GDP
(URT MoAFSC, 2009). For the years 2011 the GDP growth rate recorded to be 6.7
which is slightly lower when compared to 7.2 for the same period in 2010,
however the average GDP growth in 2002-12 is respectable 6.5% per year due to
high gold prices and increased production (CIA World Fact book), Quarterly
NBS 2011).
Regardless to the fact that agriculture dominates the economy, it face a number
of challenges such as low productivity and high costs of production, various
price and export controls in the sector risk undermining market condition and
jeopardizing the long term sustainability. This sector needs to be integrated to
various interventions with the value chain addition so as to increase productivity
and revenue generation.
Other sector which is currently fast growing and contributes in GDP is growth
based on gold production and tourism. Since 2000 the mining sector has attracted
a bulk of foreign direct investment contributing to its rapid growth. Never the
less the contribution to GDP growth remains 2.3, partly because it is import
dependent and is not linked to other sectors of the economy. Service sector grow
rapidly in recent years accounting for approximately 47% and are expected to
continue dominating in the foreseeable future. Industrial sector dominated by
construction sub sector accounts for 23% of the GDP. Table 2 presents GDP
growth in ten years, starting from 2012 to 2013.
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Table 2: GDP Growth rate 2002-2013 Tanzania mainland
Year
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Average
Source: Quarterly NBS, 2011 Tanzania GDP per capita
GDP Growth rate
5.8
6.3
6.2
7.7
8.9
5.8
7.1
3.8
7.2
6.7
6.55
Figure 1 below depicts the GDP trend as per table above for the period of ten
consecutive years.
Figure 1: Growth rate trend for the past 10 years
GDP Growth rate
5.8
6.3
6.2
7.7
GDP Growth rate
8.9
5.8
7.2
7.1
6.7
6.55
3.8
Year
Source: Quarterly NBS, 2011 Tanzania GDP per capita
The Gross Domestic Product per capita in Tanzania was last recorded at 483.48
US dollars in 2012. The GDP per Capita in Tanzania is equivalent to 4 percent of
the world's average. GDP per capita in Tanzania as reported by the World Bank,
from 1988 until 2012, Tanzania GDP per capita averaged to 341.7 USD reaching
highest value reached 483.5 USD in December of 2012 and a record low of 278.4
USD in December of 1994. The GDP per capita is obtained by dividing the
country’s gross domestic product, adjusted by inflation, by the total population.
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Tanzania has potentials to provide transport and logistics services, it has
endowed with rich natural resources including land, water bodies, forest
reserves, wild life and minerals. Tourism sector offers various employments
direct like jobs and indirect. Under this sector there is still more room for growth
through strengthening regulatory and support policy framework, marketing of
the sector’s key attractions ensuring that sustainable utilization of wildlife, and
other natural resources and incentivizing private sector investors to improve
infrastructures.
2.3
Legislative Framework and Local Government Revenue Polices
2.3.1
Constitutional of United Republic of Tanzania
Article 146(1) of the Constitution of the United Republic of Tanzania provides
that the purpose of having Local Government Authorities is “to transfer
authority to the people”. Local Government Authorities have been given power
to participate and to involve the people in the planning and implementation of
development
programmes
within
their
respective
areas.
Every
Local
Government Authority has a constitutional mandate and obligation;
i.
to perform the functions of Local Government in its area;
ii.
to ensure the enforcement of law and public safety of the people; and
iii.
to consolidate democracy within its area and to apply it to accelerate
development of the people.
2.3.2
Local Government Finance Act CAP 290 (RE 2002)
Section 6, 7, and 8 of Local Government Finance Act Cap 290 (RE 2002) provides
for an extensive framework of LGA revenue sources. However, the actual yearly
collections from this source have been erratic due to various factors which need
to be identified and develop proper strategies to make the Act support
enhancement of local revenues.
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Local Government (District Authorities) Act CAP 287 and Local
Government (Urban Authorities) Act CAP 288 (RE 2002)
The above two Acts provide for the establishment of the Rural and Urban
Authorities respectively as autonomous organizations and they have an
important powers to carry out those functions established under the relevant
acts. The basic functions of the LGA are: i.
To maintain and facilitate the maintenance of peace, order and good
governance within its area of jurisdiction;
ii.
To promote the social welfare and economic well-being of all persons
within its area of jurisdiction
iii.
Plan for rural and urban development and further the social and economic
development of its area of jurisdiction.
iv.
To effectively perform the above functions, LGAs ought to have sound
revenue base. One of the main sources of revenue for the LGA is transfers
from the Central Government and is provided under section 10 (1) and (2)
of the Local Government Finance Act Cap 290 (RE 2002). However this
practice dilutes the autonomy of the LGAs as stipulated by the
Constitutional.
2.4
Local Government Revenue, Taxation and Their Implications
2.4.1
Characteristics of a good revenue source
Characteristics of a good revenue source are very intuitive and have been known
for many centuries. In 1776 Adam Smith, a classic economist, formulated some of
these principles in his seminal the Wealth of Nationwide certainty, simplicity,
fairness, and equity.
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A good revenue source should minimize the costs of compliance by taxpayers as
the latter represent a pure waste to the society being a loss of time and efforts for
the taxpayer without any associated gains for the National budget. In addition to
the Smith canons, the modern public finance literature generally recognizes the
following principles as commonly acknowledged characteristics of a good
revenue source:
Adequate revenue yield: The revenue yielded by local taxes should be adequate.
Among others, revenue adequacy should be considered relative to the funding
needs of the Local Government level and relative to the size of the economic base
of the local community.
Revenue buoyancy: Overall, revenues should change roughly in proportion to the
economic base. This does not mean that Government revenue should follow
short-term
economic
fluctuations.
Rather,
as
the
long-term
economic
development makes taxpayers demand a wider range and a better quality of
services from the Government, this trend should be matched by increasing yield
of the tax system applied to the growing economy.
Equity: Good revenue sources are "'fair" or equitable. Economists consider two
dimensions to fairness in a fiscal system:
1. The notion of horizontal equity suggests that taxpayers in similar
circumstances should be treated similarly by the tax system. The tax should
be fair not only in terms of definition but also application. Thus, for instance,
tax assessments should be uniform and comprehensive. A perception of the
tax as being "fair" is believed to contribute to the probability of voluntary
compliance.
2. In addition to horizontal equity, the tax system should also display vertical
equity, or fairness between taxpayers at different rungs on the income ladder.
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The determination of what is "fair" is subjective, but at a minimum, most
people believe that wealthier tax payers should pay more in taxes. As noted
earlier, this principle is known as the "ability to pay" principle. The other
notion of vertical equity often considered (particularly at the local level) is the
benefits principles. As discussed above, the benefits principle suggests that
taxpayers should pay taxes in (approximate) proportion to the benefits
received from public services.
Efficiency: An efficient revenue source minimizes administration and compliance
cost, and in particular generates an amount of revenues well above these costs.
Good taxes should not give taxpayers incentives to change their behaviors and
discourage productive activities in the economy, good taxes should be difficult to
avoid and evade.
Politically acceptable: A good revenue source is politically acceptable and sensitive
to the historical and institutional framework in a country.
2.4.2
Principles of a good revenue assignment to the local level
Besides satisfying the outlined above criteria of being sound revenue instrument,
a revenue source needs to meet some additional conditions to be a good local
revenue source.
First some taxes while satisfying the criteria of sound revenue instruments when
applied at the national scale may not be so when levied by individual Local
Governments. For example, payroll taxes collected "at source" (at the firm's
location) might satisfy the benefit principle when levied at the national scale, in
the sense that such a tax is borne by workers who benefit from the central
government's healthcare and unemployment programs that would be funded
with such revenue. However, the benefit Principle would be violated if
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commuting workers had to pay such a tax in the locality where they work while
consuming Local Government services in the locality where they reside.
Second, is the dual role of taxes as both the sources of revenue and tools of
Government policy, that the Local Governments are responsible for policies
different from that of the Central Government hence, they might need different
tools. Musgrave's (1956) "three-role" classification of Government activities is not
only useful in considering the assignment of expenditure responsibilities, but can
also be used to guide the assignment of revenue sources across different
Government levels. It has been argued by many experts (e.g., Oates, 1972;
McLure, 2000) that macroeconomic stabilization and income redistribution
should for the most part be a central-level responsibility. Hence, tax instruments
that
can
significantly
affect
macroeconomic
stabilization
and
income
redistribution should be assigned to the Central Government.
For instance, most economists would argue that progressive income taxes should
generally be assigned to the Central Government level, owing to its
redistributive nature as well as to the economic stabilization that results from
applying higher rates on growing income. However, the same reasoning does
not apply to flat-rate surcharges on the national income tax. By the same token,
in order to pool the cyclical fluctuations in revenues, revenue sources that are
highly sensitive to general economic conditions should be assigned to the Central
Government. If Local Government revenues (and therefore expenditures) follow
closely the fluctuations of local economy, this pro-cyclical Local Government
spending would exacerbate economic fluctuations by cutting public works in the
time of recessions. Thus, sub National Governments should turn to more stable
tax bases such as property taxes and consumption taxes. In addition to helping
survive economic downturns, stable sources of revenue are also important for
budgetary and financial planning (Frank, 1991)
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Local Governments are mostly prescribed to engage in activities ensuring a more
efficient allocation of public resources; they should be assigned revenue sources
for which it is easier to establish a link with the benefits received by residents
from local government spending (Bird 1999). The most obvious example of a
revenue source satisfying this "benefit principle" is charging for specific services
provided by local governments (the cost of issuing driver's licenses, and so on)
and for goods and services provided by public enterprises (utility charges,
museum admission, and so on). Besides generating revenue for Local
Governments, user charges also have a great economic value of providing
demand information to public sector supplier. This ensures that publicly
provided goods are valued by citizens at least what it costs to produce them.
Local Governments should rely on user fees to raise revenues for the delivery of
a local service.
Unlike user fees paid based on a free consumer choice, benefit taxes are
compulsory contributions to local governments that are nonetheless related in
some manner to benefits received by the taxpayer. As such, for benefit taxes
there is either a specific or general link between the amount of taxation and the
benefits from a specific Government service. For example, the size or value of a
residential property relates quite closely to an individual taxpayer's benefits
received from street improvements on which the property is located. By contrast,
general benefit taxes can be exemplified by charges levied on motor vehicles and
motor fuels, whose revenues can be used for the construction and maintenance
of roads and highways and thus benefiting road users as a class. Likewise,
property taxes are often considered a good benefit tax to finance local collective
public goods.
Unlike user charges, benefit taxes do not give a choice to local residents and thus
do not provide Local Governments with information whether Local Government
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services are demanded by the citizens and valued at least at what it costs to
produce them. Nevertheless, relating taxes to the benefits of public spending has
the major advantage of helping increase the accountability of Sub National
Governments to their own constituencies. In jurisdictions where the level of
taxation exceeds the value of the benefits of public spending, high-income
individuals and investors could threaten to leave or never to come or invest
there.
Besides neutrality with respect to income distribution, economic fluctuations and
adherence to the benefits principle, public finance theory and practical policy
wisdom provide other desirable characteristics for Local Government taxes.
Some of these characteristics are just corollaries of the principle stated above.
Correspondence: A sound local tax should establish a, link between the jurisdiction
in which a tax is levied and the area in which the benefits are received from the
local services funded with that revenue source. Thus, the tax base should be
readily
identifiable
with the
local authority
area.
Adherence
to
the
correspondence principle gives Local Governments the right incentives to fund
an optimal amount of locally provided goods (where marginal costs equal
marginal benefits).
Geographic neutrality: taxes assigned to Local Governments should not interfere
with internal commerce nor distort the location of economic activity. Thus Local
Governments should not levy production-related sales taxes or source-related
income taxes, except where justified by benefits provided to businesses and
commuters.
Visibility: Local taxation should be clearly perceived by local residents. That is,
local taxpayers should be aware they are paying the tax, of its amount, and
whom its payable and for what purpose. This enables local residents to evaluate
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the efficiency of Local Government services as to how much value they get for
the money they pay.
Fiscal autonomy: Local Governments that lack some control over (at least the rate
of) one or more significant sources of revenue can never truly enjoy fiscal
autonomy. They cannot be responsive to the demands of their constituency as
they cannot expand services when there is higher demand and cutback
otherwise. Neither do Local Governments have flexibility for fiscal adjustment in
response to rising costs.
Local tax administration: Certain revenues are inherently better administered at
the local level (e.g. property taxes), while Local Governments have a relative
disadvantage in collecting others taxes (e.g., corporate profits tax). Local
Governments should be assigned taxes for which there are information and
enforcement advantages at the local level. For example, it is commonly argued
that in the case of property taxes a more decentralized tax administration may
have superior knowledge of local circumstances and ability to tailor procedures
to local conditions and therefore be more effective in tax enforcement. The
capacity to administer taxes is an important factor in the assignment of taxing
powers to lower levels of Government and should explicitly to be taken into
consideration.
Vertical fiscal balance: Vertical fiscal balance exists when there is a broad
correspondence between the expenditure responsibilities assigned to each level
of Government and the fiscal resources available to each Government level to
carry out those responsibilities.
Horizontal fiscal balance: Horizontal fiscal balance refers to the existence of balance
in fiscal needs and resources between different governments units at the same
level of Government. Horizontal fiscal balance can be achieved through
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intergovernmental transfers (equalization grants), thus, good local revenue
sources have a tax base that is relatively evenly distributed across jurisdictions.
Sometimes it is argued that local revenue sources should have an immobile base,
so that local taxpayers are not able to move to avoid the local tax. However, in
reality this is only a requirement if the local tax system fails to satisfy some of the
principles for a sound local revenue assignment. For instance, if the benefit
principle is preserved in assigning local taxes, the potential mobility of taxpayers
would not necessarily bring about economic distortions, since taxpayers would
be receiving local benefits in accordance with local taxes paid. Meanwhile, the
potential mobility of taxpayers and tax bases can actually increase efficiency in
the delivery of Local Government services by forcing local officials to provide a
balanced basket of sub national services and sub national taxes.
However, if non-benefit taxes are applied to mobile bases, inefficiencies can arise
from tax avoidance costs, as taxpayers could try to reduce their sub national tax
liability by moving between sub national jurisdictions without affecting the
benefits received from publicly provided goods and services. Equally distorting,
and therefore to be avoided, are local taxes that can be "exported" to taxpayers in
other jurisdictions. Such local "tax exporting" is a practice that violates the
correspondence principle. It is not only unfair but also encourages overexpansion of public services. Although clearly tempting and attractive to
individual Local Governments, the assignment to Local Governments of taxes
that can be exported lead to inefficient and irresponsible behavior of local
governments at a national scale.
In summary, the characteristics required from a good local revenue source follow
logically from the goal of decentralization and the role that Local Governments
are expected to play. To the extent that economic rationale for decentralization is
to improve efficiency, the benefit principle is pursued to link the costs of public
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services to the benefits delivered to local residents. Similarly, horizontal or
political accountability of sub national officials requires the ability of Local
Governments to affect at the margin the level of their revenues by choosing tax
rates for some of the most important taxes assigned to them. Limited sub
national taxing authority and dependence on the revenue decisions of the upperlevel government (including decisions concerning revenue sharing and most
other forms of transfers) undermines the accountability of Local Governments to
their residents. Inadequate revenue autonomy offers an easy "scapegoat" for poor
local performance ("we do not get enough resources from the Central
Government") and by generally weakening local taxpayer awareness of taxes and
interest on the quality and level of local services delivered.
A number of recent studies (Ter-Minassian 1997; Ebel and Yilmaz 2002) suggest
that outcomes of decentralized spending depend on the form of financing used
for these expenditures, with a crucial aspect being the extent of control that Local
Governments can exercise over the sources of their revenue. Revenue autonomy
is important for Local Governments for higher accountability of public officials
and efficiency of expenditures, or for the ability to mobilize revenues and expand
or contract the budgets at the margin; in addition, a healthful degree of revenue
autonomy at all levels of Government is the only certain way to address vertical
fiscal imbalance.
2.4.3
Local Revenue Structure for LGAs
Local Government revenue consists of own-source revenue, grants from Central
Government, Aids and borrowing. The Local Governments set rates, fees and
charges to be collected in a given year taking into account planned expenditure,
projection of grants from the Central Government, Aids from Development
Partners and Loans from various sources.
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Own-source revenue represents part of total revenue, aggregated at the national
level. Together, Produce Cess, Service levy, property rates, fees and charges
account for most of own-source revenue. However, their combined share to the
National aggregates has remained insignificant over time. Total LGAs own
source revenue amounts to seven percent (7%) of the total LGAs annual revenue.
Source: CFR reports 2011/2012. Significant LGAs own source revenue will
definitely reduce the budget deficit and enhance decentralization policy.
Fjeldstad, 2007 as quoted in Kakwesigabo, 2010 conducted a study on challenges
for Local Government revenue enhancement: he found that before the
rationalization of local government taxes in Tanzania, most district council
generated only 10-20 percent of their total revenue from own sources, of which
development levy was the major source. 80-90 percent of total revenue in many
rural types of council was conditional grants transferred from central
government. Hence, fiscal autonomy in most local authorities was limited both
with respect to revenues and expenditures. However, the rationalization had
reduced the limited local autonomy even further. The study revealed the
immediate consequences of the rationalization some council activities were
scaled down or postponed. This provided room for further revenue reforms in
LGA so as to increase their autonomy. On this, Fjeldstad (ibid) found out one
major administrative problem today for many council is their inability to collect
fully the revenue due to them. The study revealed the huge gaps between
reported and projected revenues. This undoubtedly provided room for further
study why LGA fails to raise enough revenues and how their budget
implementations
are
affected
especially
particular
district
authorities
(Kakwesigabo, 2010)
2.4.4
Poverty reduction and revenue assignment: the incidence of local taxes
An important policy issue related to local taxation is its impact on inequality
and poverty reduction. In some African countries local taxation is found to be
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regressive in the sense that these taxes require lower-income taxpayers to pay a
greater percentage of their income in tax than upper-income taxpayers (see
Bahiigwa et al, 2004, on Uganda). Although a recent study in Tanzania found
that wealthier taxpayers pay a substantial larger amount in local revenues, it is
unclear from the preliminary results whether local revenues in Tanzania are
actually progressive, proportional or regressive. However, we argue that the
impact of taxes on poverty should not be viewed in isolation from the entire tax
system of the country, the impact of services provided with these funds, and
other benefits of local taxation.
In fact, fifty years of economics literature (from Musgrave, Buchanan and
Oates, to McClure, and Bird) suggests that local governments have a very
limited role indeed in income redistribution, as this is a functional
responsibility that should be generally assigned to the national level. As a
result, we should not expect local taxes to be collected on a progressive basis in
order to pursue the objective of income redistribution; instead, the benefit
principle should be the main guidance in assigning revenue sources to the local
level of Government. Thus, if local taxes meet this criterion, then the amount of
money paid in local taxes by a local resident should be proportional to the
benefits received by this taxpayer from Local Government services. In this case,
the relationship between the amount of taxes paid and the income (or wealth)
of this taxpayer would depend on the distribution of benefits from Local
Government services across different income groups. For instance, police and
fire protection is likely to provide greater benefit to owners of larger properties
and, if financed with a benefit tax, would require wealthier households to pay
more.
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Thus, the primary determinant of the incidence (the progressivity or
progressivity) of benefit taxation at the local level is the benefit incidence of the
services provided by Local Governments.
Furthermore, despite their apparent regressively, local taxes are important
especially when some Local Government services would not be available in a
particular community without these funds. For instance, although user fees are
generally regressive, residents regardless of income would be better off in a
community with safe public water sources funded by user fees when compared
to a community where no safe drinking water is available, and all households
would have to rely on more expensive private provision of potable water.
2.5 Assessment of Current Local Government Revenue System in Tanzania
2.5.1
Local Government Revenue System
The capacity of local governments to mobilize revenue is important to their
financial sustainability and their ability to promote the well-being of their local
communities. The current Local Government revenue system in Tanzania is
mainly originated from the rationalization of own sources revenue in the year
2003. Many local revenue sources were abolished, and nuisance of those taxes
was one of the reasons cited for the abolishment. Major abolished sources
included development levy and livestock cess. Thus there is no single LGA
revenue source that is linked to the general population. Again, in 2004, in what
had been regarded as attempt to create favorable environment for business, the
Government abolished business licenses fees which also contributed much of
the local revenue. Business licenses fees was re-introduced in 2012/13 and have
started into operation in this financial year 2013/14. According to the CFR
reports, 2008 as cited in Mzenzi (2013), the result of these pronouncements,
total local revenue dropped by nearly 16.2% from TZS 57.7 billion in 2002 to
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TZS 48.3 billion in 2003, and dropped further to TZS 43.8 Billion which is 11.3%
in 2004.
To compensate for abolishment of the development levy and other nuisance
taxes, the Local Government compensation grant was introduced in the
financial year 2003/04. Later it was referred as General Purpose Grant (GPG)
after being combined with the local administration grant (ibid).
2.5.2 Local Government By-laws
The local government Authorities has powers to formulate their own By-Laws
within their area of jurisdiction. These powers are guaranteed by Local
Government (District Authorities) Act CAP 287 and Local Government (Urban
Authorities) Act CAP 288 (RE 2002). These acts provides the procedures under
which district councils and Urban Authorities can make by- laws.
•
Under the local government (District Authorities) Act No. 7 of 1982, the
procedure to make by - laws is provided under section 150(1), (2), (3), (4) and
(5) of the law. Under section 150 (1) it is provided that, where a district
council proposes to make any by laws, it shall give notice to the inhabitants of
the area of its intention, in such manner as may most probably ensure that the
notice shall come to the notice of all persons likely to be affected by the by
laws proposed, and calling upon all interested person within the areas to
lodge any objections or representations in writing with the council within
such time as may be prescribed.
• Section 150(3) provides that, after the by-laws have been made by the district
council, they shall be lodged to the Regional commissioner in the region in
which the council is situated for comment by him; and the Regional
Commissioner shall as soon as practicable comment upon the by-laws and
then submit the by-laws to the Minister for is approval.
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• Section 150(4) provides that, the Minister may consent, or give or withhold
his consent on such conditions as he may specify, to any bylaws submitted to
him and may, upon the date of giving his consent , fix the date for the coming
into the operation of those by laws.,
•
Section 150(5) provides further that, the minister may, before approving any
by law which affects a reserve or specific area or any other enacted law
consult the Minister responsible for the relevant law or matter as the case
may be.
•
Section 81 of the local government (Urban authorities ) Act No 8 of 1982,
provides that, subject to the following provisions of this section where urban
authority proposes to make any by laws, it shall at least two weeks before the
meeting of the authority, at which it is proposed to consider the bylaws, give
notice to its inhabitants of the area of its jurisdiction of its intention to, in such
manner as may most probably bring the notice to the attention of all persons
likely to be affected by the by laws indicating the precise purport of the
bylaws proposed, and calling upon all interested persons within the area to
lodge any objections or representation in writing with the authority within
such time as may be prescribed.
•
Section 81 (3) states that, after any by law, or by laws has or have been made
or amended by the authority, the by law, by laws or amendment shall be
submitted for approval of the minister Responsible for Local Government.
•
Section 81(4) provides that, where any objection has been lodged and has not
been withdrawn, the Minister may approve, alter or reject any by law, by
laws or amendment and consent to the bylaws or amendment so submitted to
him/her
It should be noted that, once the bylaws is consented or approved by the
Minister, it has to be forwarded to the Chief Parliamentary Draftsman for
vetting. The vetted by law will therefore be taken to the government printer for
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A Study on LGAs Own Source Revenue
printing in the government gazette where it will be fixed with a Government
Notice ready for use.
2.5.3
Resource Mobilization – Non Tax Revenue under Big Result Now
Local Government Authority: Simplified guidelines for collection of property
values and land data will enable every local council to easily value and hence tax
properties and land. Local government authority own-source revenue is
expected to increase by TZS 53 billion by 2015/16 with the implementation of
this initiative. (Source: BRN Lab Report)
Natural Resources: Forestry harvesting lots and wildlife hunting blocks will be
auctioned for market forces to determine the best value of Tanzania’s natural
resources. This initiative is expected to increase revenue by TZS 114 billion by
2015/16 (Source: BRN Lab Report)
Mass Property Valuation for Dar es Salaam and 7 TSCP LGAs
TZS 8,434.5 million is not captured due to inadequate coverage valued properties
in Dar es Salaam and 7 TSCP LGA & TZS. 7,048.0 million is not captured from
lack of land management database and large un surveyed land. (Source: BRN
Lab Report)
2.5.4 Remarkable Challenges
Local Government Authorities have reformed their tax collection systems in
order to increase their revenue from time to time. Different measures have been
implemented, yet still there are challenges in attaining their targets as well as
collect to their full potential. The following are the challenges identified in
different studies:
i. Low collection rates; Mzenzi (2013) found out that, collection rates
charged by the Tanzania LGAs in various sources are generally low and
are regarded as unrealistic. Rates are supposed to be revised regularly
depending on different circumstances like change in economy, but the
25
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A Study on LGAs Own Source Revenue
actual operationalization is constrained by the number of factors, prime
amongst is the bureaucratic nature of the Government system. This in turn
led to number of rates to be outdated.
ii. Revenue Outsourcing Challenges: Despite the fact that Government tried
to involve private sector in order to decrease revenue administrative costs,
this has turn out to become a challenge. Mzenzi (2013) and CAG (2013)
both found out that revenue has declined and collecting agents are
benefiting more than the councils.
Majority of the collecting agents
normally fail to remit the collected amount to the council. Poor planning
before outsourcing and inadequate monitoring of performance of contract
were also addressed by CAG as revenue outsourcing challenges.
iii. Low Awareness of Local Tax Payers: Again, Mzenzi (2013) found out that
local
tax
payers
lack
sufficient
product/businesses
are
subject
to
knowledge
local
on
taxes
what
and
the
type
of
overall
administration of the taxes concerned. Moreover, in some cases he found
local tax payers are not aware about the payment procedures, timing for
payment and even the amount to be paid.
2.5.5
•
CAG Reports and Recommendations
LGA Revenue Outsourcing
According to various reforms including the Local Government Reform, LGAs are
encouraged to involve Private sector to perform none core functions including
collection of revenues on their behalf to increase efficiency. In implementing
these policies it was found that, there is poor planning before outsourcing
decision and Procedures to procure private collectors are not efficiently done. In
the first place, it shows that LGAs do not conduct feasibility studies in order to
make sure the outsourcing of revenue realize value for money. This includes
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A Study on LGAs Own Source Revenue
carrying out revenue potential assessment of how much the agent should remit
to the Council (CAG report, 2012).
LGAs were recommended to conduct a proper planning before outsourcing
considering the proper market condition, assessment of revenue potential, merits
of outsourcing and development of a risk management plan (CAG report, 2012).
•
Revenue Management
Proper management of revenue collection from internal sources of LGAs is still a
challenge due to weaknecess icluding, missing of revenue earning receipt books.
A total 2990 books from 36 Councils were and therefore not availed for audit
verification during 2011/2012 audit. 56 Councils were noted to have a sum of
Shs. 4,466,028,478 being revenue from collecting agents not remitted to Councils.
Weaknesses in internal control and monitoring of revenue collection resulting in
non collection of own sources revenue amounting to Shs.8,008,669,844 in respect
of the 30 Councils from various tax payers. Property taxes of Shs.4,345,570,497
equivalent to 38% of the budgeted amount of Shs. 11,405,440,517were not
collected by 17 LGAs. Produce cess amounting to Shs.1,797,972,949 equivalent to
4% of the budgeted amount of Shs. 45,312,189,317 were not collected by 14 LGAs
although there is laxity in establishing own source revenue budget (CAG report,
2012).
•
LGAs’ Own Source Revenue Trend against Approved Budgets
In the year under review, 134 LGAs budgeted to collect revenue of Shs.297,
383,435,946 from their own sources. However, the actual collection was Shs.236,
716,345,736 indicating that, there was under collection of own source revenue of
Shs.60, 667,090,210 equivalent to 20%, (CAG report, 2012).
27
October, 2013
•
A Study on LGAs Own Source Revenue
CAG overview on LGA’s Own Source Revenue Collection Trend
against Recurrent Expenditure
Recurrent expenditure refers mainly to expenditure on operations, wages and
salaries, purchases of goods and services which are financed by recurrent grants
and
subsidies.
LGAs’
collected
own
source
revenue
amounting
to
Shs.236,716,345,736 and incurred expenditure of Shs. 2,277,035,217,362 on
recurrent operations. However, a comparison between actual own source
revenue collected and expenditure incurred for recurrent operations by LGAs
revealed that, LGAs are capable of funding their recurrent operations without
depending on the Central Government and Donors by only 10.4%.
However, there were Councils which had higher capacity to finance their
recurrent operations without depending largely on the Central Government and
Donors. These included Masasi Town Council collected own source revenue
amounting to Shs. 276,414,826 compared to actual recurrent grant spent of Shs.
240,410,227 which is equivalent 115%. Then Dar es Salaam City Council with
78.4%, followed by Temeke Municipal Council with 57.8%. However,the council
which lagery depends on grants from central Government and donors is
Mwanga DC which its level of independency is only 1.5%.
( CAG Report, 2011/2012)
2.5.6
Current Local Government Initiatives
There are different local revenue initiatives currently are undertaken in LGAs
and National levels. The major programs and projects working on the
improvement of revenue administration are TSCP and GIZ where by various
efforts for individual LGAs have been noted.
28
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•
A Study on LGAs Own Source Revenue
Tanzania Strategic Cities Project (TSCP)
This project has an objective of improving the quality of and access to basic
urban services in participating LGAs. Under this project the participating LGAs
is intended to improve their revenue collection from potential sources
including but not limited to property tax, city service levy, fees and charges...
One of the proposed initiatives to achieve the above objective is to establish the
Local Government Revenue Collection System (LGRCS) which is linked to the
Geographical Information System (GIS) developed specifically for revenue
collection. With time it has been is expected to be rolled out to all urban
Councils.
•
Urban Local Government Strengthening Program (ULGSP)
On the other hand, this project plans to deliver a range of improvements in
urban services, including construction of small bridges, installation of street
lights, and improved waste management among others. The project also under
capacity-building component is expected to support urban planning, revenue
mobilization,
strengthening
of
procurement
practices
and
improved
management of human resources.
•
Germany Technical Cooperation (GIZ)
GIZ through its continued support to LG (SULGO) has contracted GFA
Consulting Group GmbH, Hamburg, and Germany to customize a tailored iTAX solution for LGAs which is also linked to Geographical Information
System (GIS). iTAX is a computerized computing and accounting system for all
local rates (levies, taxes) which stores all relevant (credit/ debit) data of the
project in individual accounts and a relational data bank and thus helps to
monitor/ control all tax transactions by its citizens and tax payers. iTAX aims
to improve tax collection by sending out tax reminders and demanding action
29
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A Study on LGAs Own Source Revenue
from the taxpayers. It is a convenient and efficient way of tax collection and
reduces administration and collection cost.
The strength of iTAX is its capacity to assess tax, bill and enforce. The most
significant benefit of iTAX is that it will help to increase the revenue in the
LGA’s. It is efficient in revenue projections in the year, and how much they
owe, and the exact size of property taxpayers own The system was expected to
run from January 2013 in five pilot Councils which are Mtwara MC, Mtwara
DC, Tanga CC, Bunda DC and Kinondoni MC (for property rates only).
The LGAs covered under GIZ, TSCP and ULGSP projects are not enough since they
are only 30 out of available 133 Councils (22.5%), so there is still a need to consider the
unsupported LGAs.
2.6 International perspective
According to Fosu and Ashiagbor (2012), in Ghana, property rates and business
licenses constitute a substantial part of the total revenue for any Local
Government is underutilized. This reduces the capacity of many local
assemblies to develop and to provide services to its citizens. The billing and
collection effort by many Assemblies have not lived up to expectation. The
revenue collection rate is very low even though some local assemblies have
employed private partners for the collection. This may be due to the following;
Inadequate data on all economic activities in the district e.g. hairdressers,
seamstresses, traders, barter, lotto kiosk etc, misclassification of properties and
Business and Inappropriate tax assessment basis, lack of realistic means of
accessing the revenue potentials due to lack of accurate data. Other reasons are
revenue collectors not paying to the Assembly all monies collected and the
absence of tracking mechanisms, property owners avoiding the payment of
property rates, some individuals and small-scale enterprises engaged in
economic activities avoid the payment of taxes to the Assembly and laborious
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A Study on LGAs Own Source Revenue
and time consuming business licensing and permit acquisitions therefore deter
small scale business operators.
In addressing the challenges, Ghana introduced the Local Government
Revenue Mobilization System (LGRMS). It is an integrated Geographic
Information System (GIS) and Revenue Mobilization tool that provides realistic
information on the revenue potential of an assembly and automates the
revenue mobilization processes.
The same system could be initiated in
Tanzania as it experiences most of the challenges in own sources management.
Studies have indicated that district councils can collect revenues. The study
conducted in Nepal in 2010 revealed that the available records shows that
Himalayan DDCs generate revenue from various sources as per the authority
provisioned by the Local Self Government Act and its Regulations. The yield
from those various sources is very low compared to Terai and Hilly regions.
Some of the revenue sources are not utilized yet due to economic
unavailability, i.e. absence of market and insignificant volume of transaction in
the district (LGCDP, 2010). The revenue performance in Nepal is similar in
Tanzania; revenue yield from various sources differs from different zones,
therefore necessitates the need to conduct revenue studies from time to time
especially in changing Tanzanian economy.
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A Study on LGAs Own Source Revenue
CHAPTER THREE
3.0 Research Methodology
3.1 Introduction
This part outlined the methodology used by the team to conduct the study. It
elaborates the research strategy used, survey populations and the location where
the actual research were conducted. The chapter entails the kind of data needed,
variables used, data collection methods as well as data analysis. The exercise was
conducted for the maximum of 30 days in each Zone. The taskforce team for the
assignment comprised 4 Officers per zone (2 from PMO –RALG, 1 MOF and 1
from each RS).
3.2
Research Strategies
The research strategy that was used to undertake this study was descriptive type
which is suitable when the problem is well known and it follows precise rules
and procedures. The study employed the mixed methods such as a combination
of qualitative and quantitative approaches. They were combined because are
situations more appropriate for qualitative research, while other situations are
more appropriate for quantitative research. To reduce weakness in each method
as the weakness of one approach was complemented by the strengths of the
other.
This research evaluates and describes the LGAs major source revenue by looking
at the major sources, the collection procedures and identifies potential sources,
strengths and weakness for each source. The strategy had an assumption that all
LGAs are homogenous and for that reason the findings of this research is a
replica of the all 133 LGAs in Tanzania. Descriptive strategy enabled the
preparation of the detailed plan with regard to sampling and interview plans
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A Study on LGAs Own Source Revenue
3.3
The Sampling, sample size and Data collection
3.3.0
Sampling and sample size
Cluster sampling were used to sample 16 regions and five zones namely
Southern, Northern, Lake, Southern Highlands and Central and Coast Zones for
this study. Form the zones regions respondents to represent the regional
secretariats was used. The LGAs were randomly selected through the table of
random numbers. `
In order to ensure that the sample of LGAs selected for field mission is
representative of the entire LGAs population and to adequately address the
study’s objectives, the sample for 30 LGAs for field visit was derived from the
main set of 133 LGAs by using the following criteria
•
LGAs which have higher collections. In this stratum, through the initial
literature we selected fifteen (15) LGAs considering their geographical in
terms of rural and urban; and
•
LGAs which have small revenue collection. In this stratum, we have chosen
fifteen (15) LGAs taking into account their geographic proximity, rural and
urban.
The respondents from each Council were categorized into levels; The Regional
Secretariat, Council Management Team, Councilors, Lower Level Leaders
(Village/Mtaa/Ward Executive Officers and Chairpersons) and Tax payers. At
the Council Management it was intended to have The Council director, Council
treasurer, Council Planning Officer, Council legal Officer, Council Human
Resource Officer, Revenue Accountants, for the Councilors is was indented to
interview at least two Councilors who are members of the Finance Committee
and for at least three tax payers (Large, Medium and small), together with the
leaders of the LLGAs at least the Village/Mitaa Executive Officers and
Chairperson.
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A Study on LGAs Own Source Revenue
In the regional secretariat, respondents selected are the one responsible
supervision of LGAs in areas of finance. During the exercise in some area more
interviewees attended especially for the Council Management team, councilors
and leaders at the lower level hence, a total of 585 respondents were interviewed.
The exercise was conducted for the maximum of 30 days in each Zone. The
taskforce team for the assignment comprised 4 Officers per zone from PMO
RALG, MoF, LGTI and RS. (Table 3) presents summary of RS, LGAs that were
involved in the study.
Table 3: List of RS and LGAs visited by zones
S/No
Zone
RS
Shinyanga
1
Lake zone
Tabora
Mwanza
Mara
Mtwara
2
Southern Zone
Lindi
Ruvuma
3
Southern Highland Zone
Mbeya
Iringa
Dar es Salaam
4
Coast & Central Zone
Coast Region
Dodoma
Morogoro
Arusha
5
Northern Zone
Kilimanjaro
Tanga
Source: Research Findings
34
LGA
Shinyanga
Kahama
Tabora
Urambo
Magu
Bunda
Mtwara
Mtwara
Newala
Lindi
Nachingwea
Ruangwa
Songea
Mbinga
Mbeya
Mbarali
Iringa
Mufindi
Ilala
Kibaha
Bagamoyo
Mpwapwa
Morogoro
Mvomero
Arusha
Monduli
Moshi
Siha
Korogwe
Muheza
CC/MC/TC/DC
MC
DC
MC
DC
DC
DC
MC
DC
DC
MC
DC
DC
MC
DC
CC
DC
MC
DC
MC
TC
DC
DC
MC
DC
CC
DC
MC
DC
TC
DC
October, 2013
3.3.1
A Study on LGAs Own Source Revenue
Data collection
Both primary and secondary data were collected. Primary data were collected
3.3.1.1 Field data collection
The primary data were collected from 585.respondents through Semi Structured
questionnaire prepared and administered by the team. The main respondents
included Regional Secretariat (Local Government Section), Council Management
Team (Council Director, Procurement, Finance, Planning, Agriculture, Legal, and
Works). Councilors who are members of Planning and Finance Committee, Ward
and Village/Mitaa Executive Officers and tax payers Questionnaires generated
were distributed earlier to sampled LGAs and their respective Regions for
preparation before the arrival of the team.
3.3.1.2 Documentary review
Relevant documents were reviewed in the context of the study. The documents
includes: budgetary reports, revenue performance reports, Finance and
administration committee reports, Council by-laws, and relevant Acts relating to
revenue collection in LGAs like Local Government Finances CAP 290, Local
Government CAP 287and 288 for Rural and Urban Council respectively and
Local Government (Urban Rating Act) CAP 289. Other studies reviewed were LG
revenue administration reports, Reports on introduction of Private Sectors in
enhancing revenue collection, CAG findings and recommendation and LAAC
(Local Authorities Accounting Committee) Reports.
3.4 Data
Processing, Analysis, Interpretation and Presentation
Qualitative data were processed and themes were developed for categorization.
Related themes were combined and comparing with the research objectives. Data
collected through interview were analyzed as they are collected; only relevant
data that answers objectives were recorded.
35
Data from questionnaires were
October, 2013
A Study on LGAs Own Source Revenue
grouped based on the questions for all respondents. The tables and themes were
developed; Data collected through documentary review were grouped into
themes as they were collected by using documentary review check list. All
collected data were compared themselves, and by means in which they were
collected for analysis and interpretation with regard to the research objectives.
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October, 2013
A Study on LGAs Own Source Revenue
CHAPTER FOUR
4.0
Data Analysis and Discussion
4.1 Introduction
This chapter presents a detailed discussion and analysis of findings of the study
with particular reference to the responses received, findings of the study, tables
and figures and other related charts that are useful to the study. It presents
discussions on the detailed profile of respondents. It presents the findings of the
study as guided by research objectives. Data collected for the study were
quantitatively and qualitatively analyzed. The findings, analysis and discussion
relevant to each question have been presented accordingly with a view to
evaluate LGAs own source revenue collection.
4.1.1
Analysis of the existing major revenue sources, the collection
system/procedures and the existing rules and regulations.
This part examines in details major existing revenue sources in LGAs, the
collection procedures of revenues in LGAs, procedures for remitting revenue
collection by Agents and Rules and Regulations Governing Revenue Collection
•
Major existing revenue sources in Local Government Authorities
Respondents were asked to state the major existing revenues sources within
their areas. The question was asked in three levels, the Regional Secretariat,
Council Management and to the Councilors. This question was also covered
from the review of the documents whereby it was revealed that, the major
revenue sources are Property taxes, Land Rent, Produce Cess, Service Levy,
Hotel Levy, Fees and charges, Licenses & Permits, and other sources 1 (Table 4).
Among the mentioned major sources of revenues, its rank differs from one
1
Other Sources comprises a number of small revenues sources as per attachment ………….
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A Study on LGAs Own Source Revenue
Council to another and across zones. East and Central zone is leading in own
source collection by 40% of the total average own source collected in the five
zones. Service levy dominates as a major source followed by other revenues 2,
whereby Produce cess dominates in the Lake zone followed by fees and
permits while Northern zones obtain most of revenues from Fees and charges,
service levy, licenses and permits. Southern Highlands obtain most of the own
source revenues from fees and charges, produce cess, other revenues, and
service levy while the Southern zone is the last earning most of its own source
revenues from produce cess and other revenues.
2
Combines collections from other sources mention by individual LGAs but is report because of there are
multiplicity
38
October, 2013
A Study on LGAs Own Source Revenue
Table 4: The Average collections of major revenue sources for the period of 2007/8 - 2011/12 in Tsh. Millions
Name of the
Zone
Central Zone
Lake Zone
Nothern Zone
Southern
Highlands
Zone
Southern Zone
Total
Propery
taxes
Land
Rent
Produce
Cess
Service
Levy
Hotel
Levy
3,244
194
589
125
688
3,654
5,425
872
466
310
940
698
212
1,668
150
471
97
1,992
641
134
148
188
1,561
239
103
4,997
1,698
8,107
8,846
1,163
permits/lic
enses
2,825
618
1,486
918
123
5,970
Fees
Other
2,883
1,326
5,304
1,097
21,423
8,197
2,387
1,362
8,903
2,227
4,365
10,846
245
1,558
4,165
9,068
13,685
53,534
Source Council Financial Reports – 2007/08 – 2011/12
Figure 2: Comparison of the major revenue sources by zones (average of actual collections for five years)
Source: Council Financial Reports (CFR) www.pmoralg.go.tz – 2007/08 – 2011/12
39
Total
% of
the
total
40
15
17
20
8
100
October, 2013
A Study on LGAs Own Source Revenue
The Eastern and Central zone’s result is highly influenced by the revenue
sources and performance of Ilala Municipal Council. The analysis of the same
information without Ilala Municipal Council changes the result to the highly
performing zone being the Southern Highlands (28%) followed by the
Northern zone (23%) and Lake zone (22%) (Table 5 and Figure 2) The leading
source being produce cess in three zones, the Lake, Southern Highlands and
Southern zones, while fees and charges is the next dominating in the Northern,
Southern, Lake and somehow in central zone. This might be the result of the
service levy act that requires companies to pay their taxes at source and there
are many complaints on this that, most companies do work/conduct their
activities in up countries and the benefits are accrued in other councils
especially the urban councils where many companies open their head offices,
and the marginal councils remains the victims of the negative impacts from
those activities.
40
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A Study on LGAs Own Source Revenue
Table 5: The Average collection of major revenue sources for the period of 2007/8 - 2011/12 in Tsh. Millions (Without Ilala MC)
Property
taxes
Land
Rent
Produce
Cess
Service
Levy
Hotel
Levy
Licences
&
Permits
Fees
and
charges
Other
revenues
Total
own
revenues
Central Zone
392
77
503
422
248
720
1,034
2,602
5,998
%
of
the
total
16
Lake Zone
194
125
3,654
872
310
618
1,326
1,097
8,197
22
Nothern Zone
940
698
212
1,668
150
1,486
2,387
1,362
8,903
23
Southern Highlands Zone
471
97
1,992
641
134
918
2,227
4,365
10,846
28
Southern Zone
148
188
1,561
239
103
123
245
1,558
4,165
11
2,145
1,186
7,922
3,843
945
3,865
7,220
10,984
38,109
100
Name of the Zone
Total
Source Council Financial Reports (CFR) www.pmoralg.go.tz – 2007/08 – 2011/12
Figure 3: Comparison of the major revenue sources by zones (average of actual collections for five years) without Ilala MC
5,000
Property taxes
4,000
Land Rent
3,000
Produce Cess
2,000
Service Levy
1,000
-
Hotel Levy
Central Lake Zone Nothern Southern Southern
Zone
Zone Highlands Zone
Zone
Licences & Permits
Fees and charges
Source Council Financial Reports (CFR) www.pmoralg.go.tz – 2007/08 – 2011/
41
October, 2013
•
A Study on LGAs Own Source Revenue
The collection procedures of revenues in LGAs
Section 29 (l) of the Local Government Finance Act, Cap 290 RE: 2002,
give powers to Local Government Authority to
appoint a
person
(particularly its employee) to be a rate or revenue collector. While section 31
(l) of the same Act,
gives power to the Local Government authority t o
appoint a person or persons as an Agent of collecting rates or revenues
imposed by such an authority (outsourcing).
The study revealed that, the councils use three procedures to collect revenues
from their sources, that is using council staff, using an agent (outsourcing) or
they use both methods i.e. outsourcing some of the sources while collecting the
others by using Council staffs. From the data collected it was observed that
only 7% of the council’s revenue from Southern zone (Mtwara DC and Newala
DC) is collected by council staff while, the Councils in the remaining zones
(93%) of the collections is done by both procedures that is councils staff for
some sources and the others collected by agents (Table 6)
For the sources collected by agents the procedures for procuring an agent is by
way of tender as prescribed in the local government tender regulations of 2007.
The main observed challenge is that, there is a weakness in the regulation as
the collector can opt to remit either before or after collection, this necessitates
the need for review the system of procuring these collectors.
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October, 2013
A Study on LGAs Own Source Revenue
Table 6: Analysis of collection procedures by Zones Name of the zone
Zone
Central zone
Lake zone
Nothern Zone
Sothern Zone
Southern Highlands Zone
Total
Percentage (%)
Revenue Collected by Council
Staff
Both Agents and
Council Staff
0
0
0
2
0
2
7
6
6
6
4
6
28
93
Source: Field findings
Figure 4: Comparison of collection procedures (Outsourcing, Council Staff) by Zones
6
5
Central zone
4
Lake zone
3
Nothern Zone
Sothern Zone
2
Southern Highlands Zone
1
0
Revenue Collected by
Council Staff
Both Agents and
Council Staff
Source: Field findings
The analysis of the performance 3 which was calculated by taking the total of
actual collections of revenue from that source (bus stand/market dues) from
the respective council (Outsourced/collected by Council staff) divide by the
total planned budget from the respective councils times 100%. The performance
of the market dues and the bus stand shows that, the performance of the bus
Budget and actual collection figures are those of 2011/12 since there was no information of when the respective source
was outsourced, hence used the most current information
3
43
October, 2013
A Study on LGAs Own Source Revenue
stand fee collection collected by an agents was 95% (actual collection total
763,124,986) of the plan (799,486,000) compared to the performance of total
revenue from the bus stand collected by using Council staff which was 89% of
the total amount planned to be collected (actual collection was 1,199,336,148
and the planned budget was 1,340,573,000), for the Market dues, the total
revenues from councils whereby the staff are used to collect performed better
(91%) (total actual collection was 468,368,200 and planned was 427,913,632)
than where the market dues has been outsourced (52%) (total actual collection
was 1,145,803,876 and planned was 2,183,100,000), (Table 7). The main
observed challenge on the source like the market dues collected by agents, the
estimated budget is too high compared to that planned to be collected by the
Council staffs which implies unrealistic planning of estimates. This could
probably cause problems as raised by CAG’s in chapter two.
Table 7: The analysis of performance for the most outsourced Source for the councils using
Council staff and those who outsourced)
Name of the Source/Collection
Bus stand fee,
Collected by Council Staff
Outsourced
Market Dues
Collected by Council Staff
Outsourced
Total Councils
Budget
Actual
%4
12
18
1,340,573,000
799,486,000
1,199,336,148
763,124,986
89
95
11
19
468,368,200
2,183,100,000
427,913,632
1,145,803,876
91
52
Source: Revenue study 2013
•
Procedures for remitting revenues collected by agents
Procedure for remitting revenues collected by agents differs from one council
to another and across zones. The study revealed that revenue collected by
agent can be remitted to the councils in four ways namely; remittance in
monthly and in advance, remittance in monthly after collection, remittance in
4
The percentage of the actual collection against planned budget
44
October, 2013
A Study on LGAs Own Source Revenue
three Months and in advance and remittance in three months after collection.
The result shows that, the most favorite procedure used by councils is
remittance in monthly bases and in advance since in the five zones visited 50%
receive remittance in Monthly basis and in advance (Table 8). Most council
mentioned the fixed dates for remittance of revenues collected is on 20th to 30th
of the respective Months as per their contracts. In some cases where the
remittance is after collection, the Councils staff are engaged in collection in all
sources that is 100% collected by the Council staff. The main observed
challenge is non-compliance to the remittance schedule/contracts by some of
the agents and sometimes leads to defaults; this challenge was also observed by
CAG report of 2011.
Table 8: Remittance procedures of revenues collected by Agents
Name of the zone
Monthly in
advance
Monthly
after
collection
Three
Months in
advance
Three Months
after Collection
4
2
0
0
0
4
2
0
Northern Zone
5
1
0
0
Sothern Zone
3
3
0
0
Southern
Zone
Total
3
1
1
1
15
11
3
1
50
37
10
3
Coast and
zone
Lake zone
Central
Highlands
Percentage (%)
Source: Field findings
•
Rules and regulations governing revenue collection
In the five (5) zones visited, respondents were asked to elucidate whether there
are any Council by-laws governing the Revenue Collections. The study shows
that 27% of councils interviewed have by-laws for revenue sources compared
to 73 % of councils that do not have revenue sources by – laws for some sources
45
October, 2013
A Study on LGAs Own Source Revenue
of revenue, which implied that, there some sources of revenues which are
governed by only the principal legislation (Table 9).
Table 9: The analysis of Councils with the governing bylaws for revenue collections
Zone
Yes
Yes/No 5
Central zone
Lake zone
3
3
3
3
Northern Zone
2
4
Sothern Zone
0
6
Southern Highlands Zone
Total
0
8
6
22
Percentage (%)
27
73
Source: Field Findings
Figure 5: Comparison of the councils with by-laws governing
Source: Field Findings
The respondents expressed their concern that, it is difficult to collect revenues
governed by principal legislation than those governed by council bylaws since,
principal legislation provide general conditions without stating the procedure
to be used to collect that sources of revenue. There were no strong reasons
Yes/No means there some sources with governing bylaws and other without governing council
bylaws.
5
46
October, 2013
A Study on LGAs Own Source Revenue
provided by the councils on why they didn’t prepare bylaws for some of the
sources than just ignorance. Most of the sources which has principal
registration they thought that they can apply the way they are. This was mostly
observed from the service levy, business licenses fee and Hotel levy.
4.2 The economic activities and revenue potentials
This section provides the economic activities and the analysis that reflect
economic potentials of a respective council. Further, it provides the analysis of
whether the rates charged by councils from each economic activity reflect
economic potentials of the respective activity.
•
The economic activities
Respondents were asked to mention the main economic activities in their areas
of jurisdiction as well as whether the rates charged by the council reflect the
economic potentials. The mentioned economic activities have been categorized
into eleven main groups namely Agriculture, Mining, Business, Fishing,
Transport, Tourism, Industry, Hunting, Beekeeping and Livestock.
The study revealed that agriculture, Business, mining, transport and livestock
are
the
main
economic
activities
dominating
in
most
councils
by
97%,100%,87%, 100% and 96% of the visited councils respectively (Table 10). .
The remained economic activities are distributed across zones depending on
the geographical nature favoring such kind of economic activities such as bee keeping, hunting, fishing, tourism, etc. The
Agriculture activities includes
both Food and Cash Crops; the crops grown are Cashew nuts, Maize, Ground
nuts, Sunflowers, Cassava, Beans, Fruits, Vegetables, Coffee, Sisal, Cotton,
Tobacco, Rice, Coconuts and Tea. Business is another economic activity which
comprises Large, Medium and Small enterprises. The Livestock involves
47
October, 2013
A Study on LGAs Own Source Revenue
animal husbandry such as cows, goats, pigs and chickens. The industrial sector
is categorized into Large, Medium and Small Industries, while the transport
activities include both passengers and cargo vessels. The mining activities
includes extracting of minerals such as Gold, Diamond, Tanzanite, Copper,
Iron and other small minerals in nature like salt, sands, gravel, limestone,
marble and stones.
Table 10 : The main Economic activities as mentioned by Councils
No.
1
2
3
4
5
6
7
8
9
10
11
Economic Potential
Agriculture
Mining
Business
Fishing
Transport
Tourism
Industries
Bee keeping
Livestock
Forests harvesting
Hunting
No. of councils
29
26
30
12
30
8
14
12
29
26
8
%
97
87
100
40
100
25
47
40
96
87
27
Source: Field data
•
Revenue potentials
The 24%of respondents of the visited councils revealed that the rates charged
on various economic activities are proportional to the council economic
potentials, 43% revealed non proportional and 33% revealed that the rates
charged to some of the revenue sources are proportional while are not to some
of them Table 11
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A Study on LGAs Own Source Revenue
Table 11: The proportionality between the rates charged against economic potentials.
Zone
Proportion
Not Proportion
Proportional/not
Lake Zone
Southern Zone
0
4
6
0
0
2
Southern Highland Zone
1
0
5
Coast & Central Zone
0
6
0
Northern Zone
Total
2
7
1
13
3
10
Percentage
24
43
33
6
Source: Field data
The respondents provided factors to why the taxes charged were not
proportional to the council economic potentials as follows; some of the by-laws
used have not been reviewed for long time. For instance Lindi MC, all by-laws
were lastly reviewed in 2007, Monduli DC Tourist bedding fee was reviewed in
1995, Kibaha TC their bylaws reviewed lastly in 2008. The reasons provided for
them not reviewing their bylaws was the availability of legal personnel. The
Council has only one legal officer who is in long course training since 2011.
Other general reasons provided by councils were, the valuations of some
properties have not yet being updated and other properties were not valued at
all, hence councils use flat rate technique to charge property tax.
Other
councils such as Korogwe TC does not charge property tax at all; likewise in
other councils like Mvomero and Mbinga although they are having minerals
such as copper and iron, they are not benefitting from those minerals, Lack of
tax registers and poor database hence some councils to lose their revenue.
Proportional/not means the rates charged are proportional to some of the revenue sources and
are not proportional to others
6
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A Study on LGAs Own Source Revenue
Challenges hindering own sources revenue collection to its potentials
As it has been revealed in the above analysis that councils are not collecting
their revenue to their full potentials, this section provides detailed analysis of
the challenges that councils encounter in the process of revenue collection.
•
Council by - laws not reviewed on timely basis.
Sections 147-154 of the Local Government (District Authorities) Act No.7 of
1982, and sections 80-88 Local Government (Urban Authorities) Act No.8 of
1982 explains legislative power of Local Government Authorities and
procedures of making by- laws. To ensure uniformity in making bylaws, the
Acts above vested power to the Ministry responsible for Local Government to
approve council by-law before coming into operations.
Respondents were asked to state the challenges LGAs face in revenue
collection. The results indicate that out of 16RS, 13 RSs equivalent to 87% and
out of 30LGAs, 21 equivalent to70%, some of their by-laws have not been
reviewed at the right time (Table 12). The data collected in the Lake zone show
that all visited councils are facing this challenge while in the remaining zones
the magnitude differ from one zone to another. The Lindi Regional Secretariat
mentioned that some council has not updated their by-laws for 10-15 years.
Examples of council with some by-laws not reviewed for more than 10 years
include; Lindi MC are still using all by-laws reviewed in 2007 which were
made by the then Lindi Town Council, Mtwara Municipal Council all the 25
by-laws have not been reviewed since year 2009 and Tourist bedding fee have
not been reviewed since 1995 in Monduli DC. Reasons mentioned for not
updating by-laws timely are categorized into three; Councils themselves, tax
payers and Ministry;
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October, 2013
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A Study on LGAs Own Source Revenue
Council themselves; the procedure for reviewing by-laws is too
bureaucratic and sometimes is just negligence by the councils;
ii.
Reluctance of tax payers to accept the proposed changes of rates in the bylaws and sometimes due to political condition;
iii.
Delay of approval of the by-laws due to long process including comments
from the Regional Commissioner, scrutinization by PMO-RALG before
the approval by the Minister responsible for LGAs, vetting by the Chief
parliamentary draftsman, before publication in the government gazette.
Table 12: Council who’s by - laws not updated timely
Zone
Northern
South Higher land
Lake
South
East and Central
TOTAL
Institution
RS
3
1
4
2
3
13
Percentages
LGAs
5
3
6
5
3
21
RS
100%
33%
100%
100%
75%
87%
LGAs
83%
50%
100%
83%
50%
70%
Source: study findings 2013
•
Political interference.
Respondents mentioned political interference as one of the major factors
influencing revenue collection in LGAs. RSs in Lindi, Mtwara, Tanga , Tabora
Songea MC, Ruangwa DC and Korogwe TC clarified that some councilors and
other political leader are accused of been involved in business issues with
council and the result is impairment of their decisions regarding improvement
on local revenue collections. Mtwara MC, Lindi MC, Ruangwa DC, Mufindi
DC, Magu DC, Bunda DC explained that councilors are not willing to sensitize
community in their areas to pay taxes for the fear of losing votes. While
Mtwara DC, Bunda DC, Urambo DC, Mtwara MC and Mbeya CC cited lack of
political commitment in revenue collection, they argued that some councilors
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October, 2013
A Study on LGAs Own Source Revenue
are unwilling to abide in the councils’ resolutions regarding tax collection
enhancement, and Lindi MC, Arusha CC and Iringa MC pointed out that some
councilors mobilize community to act against councils’ resolutions. The data
above shows that 14 out of 16 RSs equivalent to 88% and 23 out of 30LGAs
equivalent to 77% mentioned political interference as one of the factors causing
poor revenue collection in LGAs. On the other hand, councilors (33%) out of 45
councilors responded to this question mentioned political interference as a one
of the factor interfering the revenue collection or compliance to the by-laws
(Table 13).
Table 13: How political interference hampers the revenue enhancement by RS and by
Councils
Zone
North
Southern Highland
Lake
South
East and Central
TOTAL
RS
2
3
3
2
4
14
Institution
CMT
Council
5
1
5
2
5
4
4
1
4
2
23
10
RS
67%
100%
75%
100%
100%
88%
Percentages
CMT
Council
83%
17%
83%
33%
83%
67%
67%
17%
67%
33%
77%
33%
Source: Field Data 2013
•
Poor Revenue forecast and planning
Planning and budgeting process involves councils to estimate own source
revenue collection. The best estimate depends on how much information at
hand to each respective source hence, requires extensive study by exploring
potentials, challenges and trend of the revenue source.
During this study
respondents were asked if they conduct research before estimating budget
figures and the base line information before outsourcing. The results show that
14 out of 16 RSs equivalent to 87% and 13 out of 30 LGAs equivalent to 43%
don’t conduct baseline study to some revenue sources before outsourcing
(Table 14). For those councils conducting research before outsourcing do not
52
October, 2013
A Study on LGAs Own Source Revenue
carry out a comprehensive study enough to produce reliable information for
estimating budget figures. The impact of failure to conduct research by council
is that, council plan and budget do not reflect the reality of potentials hence,
either under charging – underestimating or over estimating. Mufindi DCfurther commended that despite that it is cost to conduct research, its benefits
supersedes the costs as it provides information that are helpful in controlling
unfaithful revenue collecting agents.
Table 14: Councils which do not conduct Research before outsourcing
Zone
North
Southern Highland
Lake
South
East and Central
TOTAL
Institution
RS
3
2
4
1
4
14
LGAs
2
1
1
4
5
13
Percentages
RS
LGAs
100%
33%
67%
17%
100%
17%
50%
67%
100%
83%
87%
43%
Source: study findings 2013
•
Contradiction and disparity of laws, regulations and guidelines
The decentralization policy of 1998 spells out government’s objective of
devolving powers and responsibilities to autonomous local authorities. The
policy provides discretionary power to LGAs to levy taxes and pass their own
budget based on local priorities but within broad national policies. During the
study respondents argued that some existing laws, guideline, regulations,
circulars issued by Central Government hinder the LGAs initiatives in revenue
enhancement. They further emphasized that Central Government has taken all
sources of revenue which are giant and simple to collect and leave to LGAs
sources which are marginal and hard to collect (Korogwe TC, Lindi MC,
Nachingwea DC, Ruangwa DC, Mtwara MC, Mpwapwa DC, and Kahama DC)
53
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A Study on LGAs Own Source Revenue
Some councils like Mbinga DC, Mbarali DC, Mufindi DC, Iringa MC,
Nachingwea DC, RuangwaDC, Mtwara DC, Newala DC, Mtwara MC further
argued that the central government should allow LGAs to access the Telephone
towers cess. The respondents also suggested central government to amend the
Local government (District Authorities) Act Cap 287 (No.7 of 1982) to give
power to the District council to collect property tax since District councils are
not ratting authority under the Urban authority (rating) Act Cap 289, but they
have modern houses and investments which have the same value like those
invested in urban councils, example of those councils are Meru DC, Siha DC,
Muheza DC, Magu DC by the way, through documentary review, the team
observed that there are 42 rural councils collected property tax in the absence
of governing rule in 2011/2012 where by a total of 1.4 billion was collected
(Table 15).
Table 15: Rural Councils Collected Property tax in 2011/12
SN
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
Council Name
Tunduru District Council
Ukerewe District Council
Chunya District Council
Siha District Council
Iramba District Council
Urambo District Council
Karatu District Council
Ileje District Council
Mtwara District Council
Moshi District Council
Mpwapwa District Council
Magu District Council
Mbeya District Council
Geita District Council
Kilolo District Council
Kondoa District Council
Rombo District Council
Bunda District Council
Tarime District Council
54
Property taxes
300,000.00
600,000.00
1,500,000.00
2,000,000.00
2,000,000.00
2,500,000.00
3,000,000.00
3,000,000.00
3,000,000.00
4,000,000.00
4,700,000.00
7,100,000.00
7,600,000.00
8,000,000.00
8,300,000.00
8,500,000.00
10,000,000.00
10,000,000.00
10,000,000.00
October, 2013
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
SN
A Study on LGAs Own Source Revenue
Council Name
Mbozi District Council
Kibaha District Council
Maswa District Council
Rorya District Council
Kahama District Council
Same District Council
Njombe District Council
Bariadi District Council
Makete District Council
Ngorongoro District Council
Kasulu District Council
Mbinga District Council
Kyela District Council
Korogwe Town Council
Meatu District Council
Nachingwea District Council
Liwale District Council
Kishapu District Council
Misenyi District Council
Nzega District Council
Mufindi District Council
Rungwe District Council
Sikonge District Council
TOTAL
Property taxes
10,000,000.00
11,400,000.00
12,000,000.00
12,600,000.00
15,100,000.00
18,300,000.00
20,000,000.00
20,500,000.00
21,600,000.00
26,300,000.00
29,700,000.00
30,000,000.00
31,900,000.00
34,000,000.00
35,500,000.00
40,900,000.00
70,000,000.00
84,700,000.00
86,500,000.00
108,500,000.00
131,300,000.00
139,700,000.00
305,000,000.00
1,391,600,000.00
Source: Council Financial reports www.pmoralg.go.tz
The Mining Act vested powers to central government to collect taxes from
Large, medium and small miners extracting minerals in LGAs, to the
respondents’ opinion this Act create imbalance between Central and Local
government revenue collection. They further argued that the Act restricts
councils to bear directly fruits from the natural resources available in their
localities -Mbinga DC, Mbeya RS, Arusha MC, Siha DC, Ruangwa DC,
Nachingwea DC, Mtwara DC, and Mtwara MC. They further also questioned
why loyalty from large scale mining is not reviewed since 2000 -Lindi MC,
Kahama DC while other factors within the economy are changing. There is no
solution to this issue other than taking it as a reason LGAs to have low
collection from this source of revenue.
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Furthermore LGAs complained on the existing practices on Forest cess which
are collected at LGAs levels but central government (Ministry of Natural
resources) gains 95% of the total collection and leaves only 5% to the respective
LGA (Mtwara MC, Mtwara D. Nachingwea) This is a policy issue as it is seen
in Land rent which is collected by LGAs but retains only 20 - 30% and the rest
70- 80% goes to Ministry of land. They argued that, it is high time for LGAs
through PMO-RALG to demand for the increase of the percentage from 5% to
at least 30%
The imbalance also was revealed in Land Act which favors Central government
where by Some of the councils were
complained on the similar practice on
land rent where 70% of total land rent collected by LGAs belongs to central
government leaving only 30%to the councils which incurs cost in land
management i.e. human, financial and time resources.
Respondents also pointed out on the Tourism Act that it hampers the council
initiatives in improving revenue collection. They insisted that it contradict with
Hotel/ guest house levy collected by councils. The local government laws refer
to Hotel’s law which was repelled by Tourism Act. The other concern raised by
the respondents was the abolishment of the so called nuisance taxes. Councils
also said that some of the so called nuisance taxes were potential tax base to
many councils like the livestock cess whereby 11 councils equivalent to 37%
mentioned that they prefer livestock cess to be among their local revenue cess
(Table 16).
Table 16: Councils proposed reintroduction of Livestock Cess
Zones
Northern
Southern Highlands
Institution
RS
0
0
LGAs
1
1
56
Percentages
RS
LGAs
0
17%
0
17%
October, 2013
A Study on LGAs Own Source Revenue
Lake
Southern
East &Central
Total Zones
2
0
0
2
5
1
4
12
50%
0
0
13%
83%
17%
67%
40%
Source: Study findings, 2013
•
Un-willingness to pay
The main challenge facing councils in local revenue collection is to encourage
taxpayers to pay legal taxes voluntarily. The study observed that for the tax
payers who were asked to explain whether they pay tax voluntarily responded
as follows, out of the 42 taxpayers who responded this question, 57%
responded yes, 25% responded No and 18% they pay voluntary to some of
the taxes but not all (Table 17).
Table 17: Status of tax payers on paying taxes voluntarily
Name of Zone
Central zone
Lake zone
Northern Zone
Sothern Zone
Southern Highlands Zone
Total
Percentage (%)
Yes
1
6
6
2
8
23
58
No
4
0
1
2
3
10
25
Yes/No
1
1
0
1
4
7
18
Source: Study findings, 2013
For those who answered “NO” were asked to explain the reasons to why they
are not paying voluntarily and responses were as follows, Lack of education on
taxpayers, the estimates are not realistic in such a way that sometimes it
becomes a burden to tax payers, sometimes they feel that they are double taxed
by LGAs and Central Government (TRA, OSHA, NEMC, SERVICE LEVY,
TFDA, FIRE BRIGADE) and in most cases they are not satisfied with the
services provided to them, like the local roads, cleanliness in areas such as the
market places.
They have to pay to access some services provided at the
Village and Ward offices such as approving documents for them to access other
services like banking, registering mobile lines etc but in those ward/Village
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October, 2013
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offices are either required to pay cash or to buy stationeries like the papers to
access those services. They also offered some ways to improve the situation
whereby
the focus was on education to taxpayers, regular and strategic
meetings between council and taxpayers introducing taxpayer’s data base that
will enable all council tax payers to be registered.
•
Weakness in contract management
Contract management is the management of contracts made with customers,
vendors, partners, or employees for revenue collection with the council.
Contract management includes negotiating the terms and conditions in
contracts and ensuring compliance with the terms and conditions, as well as
documenting and agreeing on any changes or amendments that may arise
during its implementation or execution. During the research it has been
revealed that most Councils and agents do not abide to what have been agreed
on the collection procedures of the respective source that they have been signed
for implementation. The main problem was the compliance on remittance
procedures of the revenues, other agents do not remit as agreed as a result lead
to defaults. It was found that in the northern zone that 33% of the RS raised it
as an issue that need to be handled with care and 33% of LGAs respectively.
The southern highlands raised the problem in all the three RS and in 83% of
LGAs nothing has been observed in the northern zone (Table 18).
Table 18: Weakness in contract management
Zones
Northern
Southern Highlands
Lake
Southern
East &Central
Total For Zones
Institution
RS
LGAs
1
2
3
5
0
0
1
0
0
6
5
13
Source: Study findings, 2013
58
RS
33%
100%
0
50%
0
31%
Percentages
LGAs
33%
83%
0
0
100%
43%
October, 2013
•
A Study on LGAs Own Source Revenue
Climate change
Climate patterns play a fundamental role in shaping natural ecosystems, and
the human economies and cultures and conservation of environment attracts
more rainfall that accelerates production of both cash and food crops. The
study points out that all RS making 100% in the northern zone their council’s
revenue have been affected by the climate change which has affected the
availability and production of both cash and food crops. 50% of the LGAs
mentioned that the climate change affected their agricultural production hence
affected their collection from produces cess. In the southern highlands 50% of
the LGAs had the similar problem and in the Lake zone, 83%and in the
Southern zone all LGAs suffered from the problem (table 19). The negative
climate change has also contributed by Livestock in the lake zone than any
other parts of the country.
Table 19: RS and LGAs Mentioned Climate change as the problem to Revenue enhancement.
Zones
Northern
Southern Highlands
Lake
Southern
East &Central
Total For Zones
Source: Study findings, 2013
•
RS
3
0
1
1
0
5
Institution
LGAs
3
3
5
6
0
17
RS
100%
0
25%
50%
0
31%
Percentages
LGAs
50%
50%
83%
100%
0
57%
Cooperation with various stakeholders to enhance revenue collection in
LGAs
In order to enhance local revenue collection, the councils need support from
other government and non-government institutions to improve estimates, to
enforce compliance to the by-laws etc, examples of the Institutions include, the
TRA, TCRA, TCCIA, Police and Judiciary. The study revealed that 17% of
LGAs in the Northern zone, 50% in the Southern zone, 67% in the Lake zone
50% and 83% in the Southern and East and Central zones respectively had
experienced the challenge of getting net turnovers from TRA (Table 20).
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Table 20: LGAs facing challenges in getting net turnover from TRA
Zones
Northern
Southern
i hl d
Lake
Southern
East &Central
Total For Zones
Institution
RS
0
0
0
1
1
2
Percentages
RS
0%
0%
0%
50%
25%
13%
LGAs
1
3
4
3
5
16
LGAs
17%
50%
67%
50%
83%
53%
Source Study findings, 2013
The major challenge facing almost all councils with exceptional of Mbeya CC
with respect to property tax is the issue of valuation of properties and the main
reason mentioned was that conducting the exercise is too expensive for
councils to afford.
4.3
New sources of Revenue on available Districts Economic potentials
The local government sector had become increasingly concerned regarding its
financial challenges. Local governments’ roles and responsibilities had
broadened over time and the sector perceived that other spheres of government
were ‘cost-shifting’ onto local government (Comrie, 2013). Looking on the
current revenue performances of the LGAs whereby 93% of the Local
government finances depend on subventions and grants from the central
government (PMO-RALG, 2008) it is imperative also to look at new sources of
revenue that might exist on the current growing country’s economy see
economic performance indicators.
This study reveals some new sources of revenue that are not charged under
Local Finances Act CAP 290 and other related Acts. This is due to change in
economic situation, that is, by then the economic condition were not in favor of
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October, 2013
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those new sources revealed by this study. Further, other new sources revealed
were supposed to be charged under the Act but were repelled by other related
Acts and others were seen to be nuisance by then by the Central Government.
In all areas that the study was conducted, respondents were asked to propose
new sources of revenue that currently are not charged in their localities. They
proposed many sources, but many of them were provided under the current
Acts (Local Government Finance Act CAP 290 and other related Acts which
allow/show chargeable sources), but due to various circumstances they are not
charged. One of the reasons for not charging includes unavailability of by-laws
to support the charging procedures and the detailed reasons for this challenge
are discussed in the sub section of challenges facing revenue collection in
LGAs. Below is the analysis of the new sources proposed in various country
zones visited.
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October, 2013
•
A Study on LGAs Own Source Revenue
Lake Zone
Table 21: New revenue sources as suggested by RSs and LGAs in Lake Zone
LGAs
4
URAMBO DC
Property Tax District Councils
Telecommunication
Towers
Fees
TABORA MC
3
MAGU DC
SHINYANGA
DC
Mining Cess
KAHAMA DC
2
√
BUNDA DC
Hotel Levy (Guest House Levy)
TABORA
1
SHINYANGA
New sources
MWANZA
N
a
MARA
RSs
√
√
√
√
√
√
√
√
√
√
√
√
√
√
Source: Study Finding, 2013
Basing on the above tables, in the lake zone, the study revealed four new
sources of revenue which were proposed to be introduced/re-introduced,
namely, Hotel (Guest House) Levy, Mining Cess, Property taxes for District Councils
and Telecommunication Towers fees. Hotel levy and Telecommunication towers
were proposed by 5 LGAs and 1 RS out of 6 LGAs and 4 RS respectively.
However,
loyalty from Mining activities is collected by Kahama District
Council; it that royalty to be considered as a new source because it has no
legal backing to collect it, it has been collected using circular provided by
Government in the year 2000; whereas 200,000 US Dollar is provided each year
since then. Property tax was also proposed by Regional Secretariat in Tabora
due to increase in number of houses in the District Councils that can be ratable.
•
Southern Zone
Study revealed three proposed new revenue sources; namely Levy on Fuel
Stations, Gas Cess and Telecommunication Towers as shown in the table 22.
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Table 22: New revenue sources as suggested by RSs and LGAs in Southern Zone
1
Levy on Fuel Stations
√
2
Gas Cess
√
3
Telecommunication Towers Fees
√
√
NEWALA DC
NACHINGWEA DC
MTWARA MC
RUANGWA DC
LINDI MC
MTWARA
LINDI
No.
New sources
MTWARA DC
LGAs
RSs
√
√
√
√
Source: study findings, 2013
It should be noted that gas was the main issue that raised more attention in
southern region especially in Regional and Council levels. The availability of
gas and possibility of oil in the region became the main potential source of
revenue in the region. This source is unique from other Regions that the study
was conducted. Telecommunication towers were proposed by both RS in the
zone and 3 LGAs out of 6, while Levy on Fuel Stations was proposed by
Mtwara Regional Secretariat only.
•
Southern Highlands Zone
This zone suggested telecommunication Towers and property tax to District
Councils as their new revenue sources. RSs and LGAs that proposed these
sources are shown in the table 23
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Table 23: New revenue sources as suggested by RSs and LGAs in Southern Highland Zone
1
Livestock Cess
2
Mining Cess
3
Property Tax in District Councils
4
Telecommunication Towers Fees
SONGEA MC
MUFINDI DC
MBINGA DC
MBARALI DC
IRINGA MC
RUVUMA
MBEYA
New sources
IRINGA
Na
MBEYA CC
LGAs
RSs
√
√
√
√
√
√
√
√
√
√
Source: study findings, 2013
During the study, respondents at Mbarali District Council strongly proposed
property tax to be levied to district councils. The Urban Authorities (Rating)
Act of 1983, empower only Urban Authorities to charge/collect property tax,
excluding the district authorities save for township authorities, hence the need
for the urban authorities rating Act to be amended to make the District
Authorities become the rating Authorities. Mining Cess was proposed by
Ruvuma RS, Mbinga DC and Songea MC due to availability of minerals and
many mineral dealers’ offices at Ruvuma and despite having different minerals
like Uranium and Charcoal, respective LGAs do not benefit from those
minerals. Telecommunication towers were suggested by all RS in the zone and
two LGAs out of six, while Livestock cess and Property tax to District Council
were proposed by Mbarali District Council only due large number of livestock
and houses developments in the District.
•
Coast and Central Zone
Apart from new revenue sources proposed by other zones, this zone proposed
new sources that were charged/ levied before, but were repelled. These
proposed sources include Hotel (guest House) levy, livestock fees, Livestock
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movement permit fees and Motorcycle (Bodaboda) Registration fees. Below is a
table 24 showing new sources proposed in this zone.
Table 24: New revenue sources as suggested by RSs and LGAs in Coast and Central Zone
MVOMERO DC
MOROGORO MC
MPWAPWA DC
KIBAHA TC
ILALA MC
BAGAMOYO DC
PWANI
LGAs
MOROGORO
New sources
DAR ES SALAAM
N
a
DODOMA
RSs
√
1
Levy on Fuel Stations
2
Hotel Levy (Guest House Levy)
3
Livestock Cess
√
√
√
√
4
Livestock Movement Permit Fee
Motorcycle
(Boda
boda
registration fees
√
√
√
√
5
6
√
√
√
√
)
7
Mineral Cess
Property Tax charged to Rural
LGAs
8
Telecommunication Towers Fees
√
√
√
√
√
√
√
√
√
√
Source: Study Finding, 2013
Ilala MC, Morogoro MC, Mpwapwa and Mvomero DCs proposed both
Livestock cess and Livestock movement permits due to availability of livestock
business as well as nature of economic activities. In Mpwapwa and Mvomero
District councils, livestock keeping is one of their main economic activities. By
re-introducing livestock cess and livestock movement permit to councils, not
only will create more income but also will contribute to environmental
protection. Ilala also proposed the revenue from Pugu livestock auction market
to be taken by Ilala and not Ministry of Livestock as it is the one which
provides different services to Pugu auction market. Levy on Fuel stations and
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Motorcycle registration fee were proposed only by Ilala and Morogoro
Municipal Councils respectively. Mineral cess was suggested by LGAs and RS
that have minerals in their areas, while 3 RS out of 4 and 2 LGAs out of 6
proposed also Telecommunication tower fees.
•
Northern Zone
The study revealed new sources which were also proposed in other zones
where the study was conducted Table 25. The reasons provided were the same
as other zone which proposed these new sources.
Table 25: New revenue sources as suggested by RSs and LGAs in Northern Zone
Property Tax charged to Rural
5
LGAs
Telecommunication and Towers
6
Fees
MOSHI MC
MONDULI DC
KOROGWE TC
ARUSHA CC
SIHA DC
Livestock Cess
MUHEZA DC
4
LGAs
TANGA
New sources
KILIMANJARO
Na
ARUSHA
RSs
√
√
√
√
√
Source: Field Data, 2013
From the five zones above visited by the study teams, the following are the
new recommended sources of revenue from the proposed sources:
i.
Levy on Fuel Stations: This proposed source is not a new source; there
are other revenue that is related to this source, namely fuel levy,
property tax and service levy. Fuel Stations consist of buildings which
are charged property taxes under Urban Authorities (Rating) Act of
1983. Looking at the fuels that are sold at those stations are subjected to
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fuel levy under Road and Fuel Tolls Act, CAP 220 which is collected by
Central Government and remitted to LGA as Road toll funds. Further,
these stations are also subject to Service Levy under Local Government
Finance Act, Cap 290 RE 2002. Therefore, this source is not suitable to be
considered as a new source.
ii.
Gas Cess: This source was proposed in the southern zone in Mtwara
Region, mainly because gas discovery in the area and the LGAs in the
area look it as their main potential of revenue. Currently there are no
available laws that govern the revenue from this source in Tanzania.
This could be a good contributing source of revenue for the LGAs
especially those located in areas where the gas is found.
iii.
Hotel (Guest House) Levy: Local Government Finance Act, Cap 290 RE
2002 allows this source to be levied under section 6 (1) (q) which says
“all moneys payable under the Hotels Act, by the proprietor of guest houses
within the boundaries of the urban area”. But after enactment of Tourism
Act of 2008, the powers to collect hotel levy under the hotel act were
therefore removed. This was one of the main source of revenue of urban
authorities, for instance Morogoro Municipal has 672 Guest Houses
which could have contributed to more revenue to the council. There is a
need to review the section of Local Government Finance Act and create a
new section which will allow the LGAs to collect dues/levy from guest
houses which do not fall under the Tourist Act.
iv.
Livestock Cess: This source was proposed by councils and regions that
have large numbers of Livestock. This source was abolished in 2003 7
after the system of local taxation in Tanzania was
significantly
reformed by proclamation of the Minister of Finance during the Budget.
7
Local Government Finances Act (Schedule), as adopted in 2003.
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This source used to generate more revenue to the councils. If it will be
introduced, it will not only increase council’s revenue but also will
provide good mechanism of environmental protection.
v.
Livestock Movement Permit: This source was also abolished under
nuisance revenue sources in LGA, but it is currently collected by Central
Government under ministry of Livestock Development. The councils
that proposed this source, proposed for the same reasons as Livestock
cess.
vi.
Mineral Cess: This source was suggested in the areas that have minerals
and the Councils in those areas do not benefit from mineral extracted
from their areas. This study found out that there is no legal backing for
LGA to collect tax from companies that extract minerals or conduct
related business in their areas. Taxes that come from Mining companies
or related businesses are collected by the Central Government and they
are legally bonded by Mining Act of 2010. The study team understands
that, there are some council (examples are Kahama and Geita) receive
royalty from mining companies through government circular; the use of
government circular limit the LGAs to collect more revenue as this does
not legally bind hence, payment of taxes is more discretional rather than
mandatory.
Property tax on Rural District LGAs: Property tax is charged in Urban
LGAs under Urban Authorities (Rating) Act of 1983, the act does not
permit property tax to be charged in District LGAs. The reason for this
source to be proposed was due to existence and establishment of many
modern buildings in rural areas. The good examples of rural areas
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having these kinds of buildings are Meru DC, Mvomero DC and Arusha
DC.
vii.
Motorcycles (Bodaboda) Registration Fee: This was proposed so as to
regulate the business of running motorcycles carrying passengers in
LGAs. This source, apart from increasing revenue to LGAs will also be
used as crime control mechanism.
viii.
Telecommunication Towers Fee/Tax: This source was proposed in all
areas where the study was conducted. This was proposed
due to
increase in number of Telecommunication Towers for transmitting
network of large Telecommunication companies in Tanzania while
nothing is remitted to respective LGA; these companies include
Vodacom, Airtel, Zantel, Tigo and TTCL. The laws that govern the
operation of LGAs are silent on this source. Telecommunication towers,
due to their nature they could be charged as service levy or as property
tax. But the definitions of rate able property do not favor them to be
treated as rate able properties. According to Urban Authorities (Rating)
Act of 1983 "rate able property" means all houses within the jurisdiction
of an authority which are in actual occupation and all improvements on,
in or under any such houses. Again, when looking at Service Levy, no
clear
guideline
/
systematic
way
of
receiving
revenue
from
Telecommunication companies although they are operating in LGAs.
4.4 Recommended methods to improve the revenue collection
There are several recommendations which were suggested by respondents
during the study. The following are the analysis of those recommendations.
•
Education/Training/Sensitization
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All councils visited have significantly stipulated the need of education, training
and sensitization in variety manners:
Political leaders need be educated on their related responsibilities to assist the
council in terms of revenue collection;
Council revenue officials need training on the following grounds:
Capacity building on revenue matters to be able to provide education to
taxpayers;
Capacity building for the sake of sensitization of taxpayers on their importance
of paying taxes;
Training on different revenue databases systems;
Taxpayer themselves need awareness on their significance importance to pay tax
for the benefits of their well being but the council should also demonstrate how
people benefits from these taxes.
The findings revealed that Education/Training/Sensitization is one of the
respondent key important aspect to be successful in own source revenue
collection as shown by the table below
Table 26: the Education, training and sensitization requirements per zone
Zones
RSs
LGAs
Councilors
Taxpayers
Per cent
Central
25%
100%
33%
83%
Lake
100%
100%
100%
100%
Northern
67%
83%
83%
83%
Southern Highland
33%
100%
83%
100%
Southern
0%
67%
83%
100%
Source: Study findings 2013
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Figure 6 : The Education, training and sensitization need as demonstrated by Histogram
Based on the above finding, there is great demand of education, training and
sensitization at LGAs as well as Councilors and taxpayers levels and slight
demand of it at RS level.
•
The Need of Improve Social Services
It is argued, individuals are likely to be willing to pay local taxes where the
amounts they contribute can be related more directly to services received
(Livingstone and Charlton, 1998; Westergaard and Alam, 1995).
The improvement of social services is one of the important factor considered to
accelerate the growth of own source revenue in our Local Authorities. See table
below
Table 27: Taxpayers who are eager to see improved social services
Zones
Taxpayers
Percentage
67%
100%
67%
67%
50%
Central
Lake
Northern
Southern Highland
Southern
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Source: Study findings 2013
The analysis reveals that, beneficiaries (taxpayers) are highly uncomfortable with
the services provided by the Councils. The priority of the revenue collected
should be converted to what is visible by the societies who are paying the taxes.
•
Establishment of taxpayer’s own source revenue database
Taxpayer database is one of the important tools for Council to establish a base for
planning and budgeting. Most of the Councils visited do not maintain the
taxpayer register/database which could help them to have clear defined goals
prior to planning and budget. The study revealed that; the average of 50% of all
LGAs visited recommend the need of establishment of clear revenue database
followed by RS with an average of 27% and lastly, LGAs Councilors‘ with an
average of 13% of all interviewed shows the need of establishment of own source
revenue database since the database do not exist at all. See table 28 below.
Table 28: Recommendation of establishment of taxpayer’s own source revenue database
Zones
Central
Lake
Northern
Southern Highland
Southern
Average
RSs
Percentage
75%
25%
67%
75%
50%
27%
LGAs
Councilors
100%
83%
67%
33%
67%
50%
17%
0
33%
0
17%
13%
Source: Study findings 2013
There is a system in place known as Local Government Management Database
(LGMD). During field data collection process, it have been observed that, the
system is underutilized of which it can be modified to accommodate revenue
data as well as other information as may be required.
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Revision of Council’s bylaws on Time
It have been observed during study that, most of the Councils bylaws for some of
the LGAs own source revenue have not been reviewed for more than a decade
and the process of its revision is too long and bureaucratic in nature which
entails that, the councils does not exhausts their potentials efficiently and
effective. See table 29 below
Table 29: Recommendation of to review bylaws on time
Zones
Central
Lake
Northern
Southern Highland
Southern
Average
RSs
Percentage
25%
100%
67%
33%
50%
55%
LGAs
67%
100%
83%
83%
83%
83.2%
Councilors
67%
100%
50%
67%
83%
73.4%
Source: Study findings 2013
Recommendations arises based on revision of bylaws from all five zones visited
shows an average of 55%, 83.2% and 73.4% of respondents from RSs, LGAs and
Councilors indicates the great need for bylaws to be reviewed on time and the
procedures involved in the revision process to be shorten in order to allow the
use of them on time and more effectively.
•
Property Tax to be charged at each LGA’s
Local Governments, by contrast, require relatively stable sources of revenue.
Thus, lower-level Governments should tax revenue bases with low mobility
between jurisdictions. Property tax is therefore often labeled as the ‘ideal’ local
tax. The study reveals that, there is a need to every LGA to be granted a
mandated to charge property tax.
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Table 30: Recommendation of property tax to be charged at each LGA’s
Zones
RSs
Central
Lake
Northern
Southern Highland
Southern
Average
75%
75%
33%
67%
50%
60%
LGAs
Percentage
83%
67%
100%
50%
67%
73.4%
Councilors
83%
50%
50%
17%
0
40%
Source: Study findings 2013
The analysis above is the clear evidence indicating an average of 60%, 73.4% and
40% of RSs, LGAs and Councilors recommended property tax to be charged at
each LGA rather than currently charged by only Urban Councils.
•
Harmonization of Local Taxes
There was some recommendation to harmonize some of the local taxes to reduce
its multiplicity as well as administration costs. The table below shows the
analysis of the recommendation offered by RSs officials, LGAs officials and
Councilors with LGAs much emphasize on the need to harmonize some of the
council’s taxes. See table 31 below.
Table 31: Recommendation to harmonize local taxes
Zones
Central
Lake
Northern
Southern Highland
Southern
RSs
LGAs
Percentage
67%
50%
33%
83%
33%
75%
75%
67%
33%
50%
Source: Study findings 2013
74
Councilors
0
0
33%
17%
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•
A Study on LGAs Own Source Revenue
Administration and follow up
Strict administration and follow up of own source revenue collection is the key
indicator for good performance of the LGAs in revenue collection. The analysis
below shows the recommendations from various RSs, LGAs, Councilors and
Taxpayer levels recommending the need of improving the administration and
follow up system at LGAs in order to improve own source revenue collection.
See table 32 below.
Table 32: The stakeholders recommending the need of improving the M&E to own source
revenue collection
Zones
Central
Northern
Southern Highland
Average
Source: Study findings 2013
RSs
LGAs
Councilors
Percentage
50%
0
50%
33%
17%
17%
39%
17%
0
33%
67%
33%
Taxpayers
0
33%
0
11%
The study data above shows that, an average of 33% of the RS, 39% of the LGAs,
17% of the Councilors and 11% of the Taxpayers from the three zones
recommended to have an established administration and follow up measures
which are strict to enhance maximum revenue collections.
•
Studies
It was strongly recommended to have a relevant and reliable source of
information before planning and budgeting for every organization that will help
them to have a clear defined objective. The study found that, most of the visited
LGAs have never conducted any study of its own source revenue that will help
them to make the right decisions especially in deciding how much an agent
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should remit if the Council decides to outsource the collector. The table 33 below
summarizes the study data.
Table 33: The need to have studies of potential for each own source
Zones
Central & Coast
Lake
Northern
Southern Highland
Southern
Average
Source: Study findings 2013
•
RSs
75%
50%
67%
83%
50
65%
LGAs
Percentage
100%
67%
83%
33%
67%
70%
Councilors
50%
33%
33%
17%
33%
33%
Establishments of Task forces
There was recommendations to establish councils own source revenue task force
that will be formed by councils officials in collaboration with some finance
committee councilors to regularly monitor the collection of own source revenue.
This idea has been practiced in Eastern and Central zone and the Southern
highlands by 50% and 17% of Councils visited respectively.
•
Establishment of Investment/business centre’s
The study reveals that, some Council recommends having an identified
investment centers likes that of Machinga Complexes in order to easy tax
collections as well as keep the environment clean. Others were advised the
councils to prepare a conducive places/center/market with facilities for specific
products like timber and produce. This was raised from Mufindi and Mbinga so
as to ease tax collection.
•
Payment centers
One of the important aspects in revenue enhancement phenomena is the
simplification of tax payment system to be a user friend system. Some of the
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taxpayers are discouraged with the payment methods hence avoid paying taxes.
It was revealed that 17% of the tax payers form East and Central and Northern
zones recommended to have payment centers close to tax payers to make the
whole exercise of tax payment more efficient
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CHAPTER FIVE
5.0
Conclusion and Recommendations
5.1
Conclusion
The study indicates that the current Local Government structure in Tanzania
provides an adequate basis for moving forward, as District and Urban Councils
are generally of an adequate size and have sufficient administrative capacity
to operate as Local Government jurisdictions and are generally able to assure
the delivery of the range of public services assigned to them. The facilitative role
of the Regional Administrative Secretaries (as opposed to their previous more
hierarchical role) is appropriate and is seemingly allowing local authorities
greater control over their own affairs, while still maintaining their oversight and
supervisory responsibilities.
The study sought to evaluate LGAs own sources revenue collection. In the
findings and analysis, seven research questions were investigated. These were on
the major existing own source revenue in LGAs, the collection procedures, rules
and regulations governing revenue collection, the potentials of each selected
source (i.e. to establish statistics for revenue data collection), factors that hinder
LGAs from collecting taxes and levies from the said sources, the new sources of
revenue on available Council economic potentials and recommended methods to
improve the revenue collection system in LGAs.
The study further concludes that the overall policy direction of the Government
on local government finance has been prudent and is consistent with
overall sound principles for decentralization reforms. In general, the legislative
framework provides appropriate guidance, although the relevant laws should
be
revised
to
eliminate outdated, duplicative or contradictory clauses.
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Substantial progress has been made in recent years on transforming the
previously highly discretionary transfer system into a more objective,
transparent, stable and pro-poor funding mechanism for local governments. In
contrast, the strengthening of the local government revenue system and the local
borrowing framework are expected to take place in coming years.
5.2
Recommendations
The discussions and analysis clearly reflects that the data and information for indepth analysis of own source revenue of the LGAs is not only inadequate but
also highly erratic for in depth recommendations to enhance revenues. Hence, a
detailed study is required for in- depth analysis of specific Council.
Basing on the result of this study, the study team wishes to recommend the
following, which, if well implemented, will improve and enhance LGAs own
sources revenue collection. The given recommendations may probably be of
importance to similar LGAs in Tanzania.
•
Establishment of Taxpayer database
In order to enhance efficiency and minimize human error and corruption
opportunities, a simple computerized revenue management system would be
feasible. There is a need of establishment of revenue database to assist Councils
to be more precisely in revenue budget estimate, collection and spending. LGMD
database can be retransformed to incorporate the revenue issues since the system
is currently seems as underutilized. However, LGAs are argued to have a special
dialog with Tanzania Revenue Authority (TRA) to discuss on proper ways they
can use the existing taxpayer systems such as Taxpayer Identification Number
(TIN) as the primary base in the process of establishment of the their own
taxpayer database.
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A Study on LGAs Own Source Revenue
Timely revision of By-laws
As discussed in chapter four above that the by-laws are not reviewed on time.
The study recommends the Government should provide guideline that will
guide LGAs in the process of reviewing their by-laws. The guide line should
provide the time frame for the process of review. This will not only allow the bylaws to be reviewed, but will also show the areas, institutions as well as
personnel delaying the process.
•
Compliance promotion strategy through awareness raising
Tax compliance promotion strategy refers to activities designed to encourage
voluntary compliance with the requirements of revenue laws and by-laws. Such
a strategy forms an integral part of any effective compliance strategy, the other
component being an enforcement strategy. LGAs will have to determine the most
effective mix of compliance promotion and enforcement response. Enforcement
is important to create a climate in which taxpayers will have clear incentives to
make use of the opportunities and resources provided by promotion. . The
enforcement strategy would come as a result of streamlining revenue
administration. The key elements of an effective tax compliance promotion
strategy include:
i.
Providing education and technical assistance to taxpayers
ii.
Building public support
iii.
Publicizing success stories
•
Legal and Disciplinary Actions
In some areas where council’s revenue officials being accused of improper
misconduct by being involved in corruption and other illegal practice which in
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turns create a big loss of revenue, proper disciplinary and legal actions should be
taken to mitigate the problem. The same has to be applied to tax payers/revenue
collectors/agents not complying with the agreed terms mode of payments. It was
also strongly argued for higher authorities to take corrective measures to
reprimand Councils Director should be established their weakness in
deliverance especially on supervision and collection of own source revenue.
•
Reintroduction of abolished and Introduction of new sources
In the year 2003, the Government abolished some of the Local revenue sources.
By then these abolished sources appeared to be nuisance taxes. Following this
study, it is recommended some those abolished sources be reintroduces as well
as introduction of new other sources. These proposed sources are as follows:
i.
Gas cess: This is the potential source of revenue for LGAs that are located in
areas where natural gas is found. The team which conducted this study is
aware that the Government of Tanzania is in the process of preparing “Oil
and Gas Policy”. Therefore the study recommends Oil and Gas Policy to
consider revenue for respective LGAs. This will facilitate enactment of laws
that will allow LGAs to benefit from oil and gas available in their areas. This
will also remove complaints coming for citizens of those LGA as they will be
benefited from oil and gas extracted from their areas.
ii.
Hotel (Guest House) Levy: The study recommends the Local Government
Finance Act to be revised to accommodate this source. On this, it is
recommended that the rate should considerate to hotel owners; there should
be mutual agreement between hotel owners and LGAs on rates that should be
charged, this will not only reduce burden to hotel owners but also will
facilitate voluntary payment of taxes.
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A Study on LGAs Own Source Revenue
Livestock Cess: The study recommends this study to be re-introduced back to
LGA. The amount that should be charged should not undermine/damage
livestock keepers. Also, the study recommends 50% of revenue from this
source should be used by Department of Agriculture and Livestock to finance
operations of this department. Recommendation of this is also supported by
Fjeldstad and Semboja, 2000, that before abolishment of this source, it was
contributing 22% of own sources revenue together with crop cess.
iv.
Livestock Movement Permit: It is recommend that this source be reintroduced back to LGA level.
v.
Mineral Cess: The study recommends enactment of new law that will
empower LGAs to collect revenue from minerals extracted from their areas or
related business conducted in those areas.
vi.
Property tax on Rural LGAs: Property tax is one of the sources that provide
high revenue for Urban LGAs. The study recommends this source to be
introduced to rural LGAs basing on the performance it has made in urban
LGAs. Apart from recommending the introduction of this source, differences
between urban and rural LGAs should also be considered in terms of
property ratings and factors that could be of importance.
vii.
Motorcycles (Bodaboda/Bajaj) Registration Fee: For control and regulation
purpose, it is recommended the Government to put in place law that will
enable LGA to collect revenue from this source specifically from the owners
of motorcycles. The team which conducted this study is aware of abolishment
of motorcycles registration fee from the central government.
viii.
Telecommunication Towers Fee/Tax: The study recommends this as new
source of revenue for LGA. The laws that govern the operation of LGAs are
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silent on this source. This could be charged as property tax, but the definition
of rate able property does not favor it to be treated as rate able property.
According to Urban Authorities (Rating) Act of 1983 "rate able property"
means all houses within the jurisdiction of an authority which are in actual
occupation and all improvements on, in or under any such houses. Again,
when looking at Service Levy, no clear formula/ systematic way of receiving
revenue from this source from Telecommunication companies although they
are operating in LGAs. Therefore, it is recommended that laws that govern
property taxes be revised or enactment of a new law that will enable LGAs to
collect revenue from Telecommunication Towers.
•
Strengthen Contract Management
It is recommended that PMO- RALG in collaboration with PPRA to issue a
guideline to strengthen and ensure a good and proper guidance for outsourcing
revenue collection. This will minimize potential loss of revenue that could occur
due to improper contract management as well as losses due LGAs’ failure to
honor their contracts.
•
Cooperation among revenue institutions
The cooperation among various stakeholders is an important element in
enhancing own source revenue collection in LGAs. In order to enhance local
revenue collection, the councils needs support from other government
institutions to improve estimates, to enforce compliance to the by-laws etc for
example, TRA, TCRA, TCCIA, Police and Judiciary. The study therefore
recommends the Government to enact law that will enable LGAs to have
information from other instructions so as facilitate them to perform their
functions
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•
A Study on LGAs Own Source Revenue
Payment Methods
In order to reduce corruption and other illegal practices that can be committed
by LGAs revenue collectors, it is recommended payment of taxes and levies to be
done through banks, and other non- cash methods like M-pesa, Tigo pesa, Airtel
money and the like. This will not only reduce corruption but also will eases
revenue collection for LGAs as well as taxes and levies remittance for the payers
and harassments from tax collectors. This was also strongly suggested by one of
the tax payers in Mbeya City Council.
•
Partnership and Collaboration
Every LGA has potential to raise revenue from some of the sources available in
the district. But the cost of administering them might be high compared to their
yield. In such a situation outsourcing to an individual or contractor on benefit
sharing basis may generate some income.
•
Revise tax rates
The existing tax rate does not reflect the real potentials of the visited Councils
and in turn, the collection ending facilitate the recurrent expenditure only.
LGAs need to revise the rates of tax, fee and charges in a regular interval
considering inflation rate and market prices which is an indicator that easily
portrait the current economic potential of that particular area.
•
Inter-ministerial Coordination
There are number of problems associated with weak coordination among
ministries concerned with revenue sharing. Unfair revenue sharing (revenue
from forest cess, royalty of USD 200,000 from mining areas since year 2000,
livestock auction fee charged by Ministry of Livestock while provision of service
is done by Ilala MC) are some of the unresolved issues need to be addressed to
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A Study on LGAs Own Source Revenue
LGAs
revenue.
Hence
a
strong
coordination
among
ministries/departments with LGAs is essential.
•
Political Support
People with considerable property wealth usually have considerable political
power and use that power to thwart taxes that aim directly at their holdings. The
team suggest to involve political leaders in revenue collection and a mechanism
of holding them responsible for any failure in own source revenue collection at
their area of jurisdiction to be made.
•
Tax expenditures
Identifying, quantifying and publicising tax expenditures— the revenue cost of
preferential tax treatments — is widely recognised as a key element of fiscal
transparency and, as such, a potentially powerful tool in enhancing tax
compliance.
•
Establishment of commercial courts
Commercial courts are the courts responsible for business cases. Experience
shows that, there is a great delay of business cases in normal courts at LGAs level
and in turn hinder the collection of revenue from own source and sometimes
create a big loss to the councils when ending up in paying compensation if the
court rule the case in favor of the other part. The suggestion was provided by
Morogoro MC Councilors who experienced some business cases against their
Municipal which takes much time to be decided and end up paying much
compensation when ruling goes against them.
•
Land Survey and Mass Valuation strategy
LGAs has to conduct mass valuation, speed-up land surveys, and register
surveyed plots as proposed by Big Result now in order to enhance more own
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A Study on LGAs Own Source Revenue
source revenue administration by maintaining useful revenue databases and
save relative expensive property valuation costs .
5.3
Conclusion
A large dependence on financial transfers from the Central level by our LGA
distorts the major aim of establishing them as well as undermines their fiscal
autonomy and the Government Constitution used to establish them. It is the high
time for Government to establish a clear mechanism to let the Local Authorities
to have a full autonomy. Relevant to the above discussion, it is argued that,
PMO-RALG should undertake a comprehensive review of the existing local
revenue system to ensure that it assists the respective LGAs to raise sufficient
local revenues. LGAs should enact bylaws for all sources of own source revenue;
this will ensure that there is legal backing for collection and follow up on
compliance and defaulters. Councils must monitor compliance with the contracts
entered with outsourced revenue collection agents. Political leaders must be
educated and frequently reminded of their supportive role in local revenue
collection.
5.4
Issues for further research
Based on the knowledge gaps identified in this study, we suggest areas for
further research on Local Government Taxation. Research on the technical
administrative framework for local taxation has the potential to identify
constraints and practices that can guide policy work and be used as benchmarks
to assess actual policy implementation. Financial transfers from the central level
are typically important components of Local Government revenues. How does
this impact on local government fiscal autonomy, which typically is formulated
as a key objective of local tax reforms? It was believed that through outsourcing
revenue collection would increase efficiency in revenue collections in the sense
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that, an independent person/agent will involve and invest in revenue collection
so as to exceed the targets and make profit while the Councils will remain with
the task of setting the targets, monitoring and supervising the collection
procedures.
From this study it was revealed that instead of outsourcing, the councils is now
going back for the councils themselves to involve in tax collection, administration
and spending. Hence there is a need to conduct a comprehensive study to
identify the efficiency of outsourcing revenue collection or being collected by
council themselves. A series of research questions related to reform is therefore
suggested for further research:
•
How potential of each source proposed impact the real economy of the
LGAs?
•
How should effective revenue raising systems for LGAs be designed and
implemented?
•
Is there a connection between local tax payment and service delivery?
•
Are there good practices from private tax collection (outsourcing)
concerning taxpayer education, accountability and revenue rising?
•
Which revenue bases are outsourced and why these?
•
What are the efficiencies for outsourcing revenue collections or being
collected by councils themselves?
•
Which allowances and incentive systems exist for private collectors?
•
What are the revenue trends from different sources after outsourcing
compared to the preoutsourcing period?
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REFERENCES
Comrie, J (2013): IN OUR HANDS, Strengthening Local Government Revenue
for
21st
Century, Australian Centre
for
Excellence
of Local
Government, University of Technology, Sidney.
Controller and Auditor General (CAG) (2012): Management of Outsourced
Revenue Collection Function by Local Governments, A Report of The
Controller and Auditor General of The United Republic Of Tanzania,
Dar es salaam.
Fjeldstad, O and Semboja, J (2000): Dilemma of Fiscal Decentralization: A study
of Local Government Taxation in Tanzania’, CMI report 1:2000, Bergen:
Chr. Michelsen Institute.
Fjeldstad O and Heggstad K (2012): Local government revenue mobilization in
Anglophone Africa CMI Working Paper, CHR – Michelsen Institute
Frank R. H (1991): Micro Economic Behavior, Cornell University
Fosu and Ashiagbor (2012): GIS Application for Local Government Revenue
Mobilization, Kwame Nkrumah University of Science and Technology,
Kumasi
Kakwesigabo, L. P (2010): The Relationship between Revenue Collection and
Expenditure in Tabora District Council, Unpublished MBA Thesis,
Mwanza
LGCDP (2010): A study to Identify Sources of Revenue, Revenue Mobilization
Capacity and Expenditure Needs in Mountainous (Himali) Districts,
CMI (P) Ltd, Kathmandu.
LGCDP (2010): Report on A Study to Identify Sources of Revenue, Revenue
Mobilization Capacity and Expenditure Needs in Mountainous
(Himali) Districts. Communication and Management Institute (P.) Ltd,
Maharajgunj, Kathmandu
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A Study on LGAs Own Source Revenue
Masasi District Council (2011): Revenue Potential Study for Masasi District
Council.
Mzenzi I. S (2013): Revenue Mobilization Issues in the Tanzanian LGAs, CLKnet
Policy Brief No. 7:2013
Olowu D., and J. S. Wunsch (2003). Local Governance in Africa: The Challenges
of Democratic Decentralization. Boulder: Lynne Rienner
PMO-RALG (2008): Intergovernmental Fund Flows and Local Budget Execution
in Tanzania, Dodoma
REPOA (2008), Outsourcing Revenue Collection: Experiences from Local
Government Authorities in Tanzania
The IMF, OECD, UN and WORLD BANK 2011: Supporting the Development of
More Effective Tax Systems, A Report to the G-20 Development
Working Group 2011,
United Republic of Tanzania (1982): Local Government Finance Act, Cap 290 RE
2002, Government Printer, Dar es Salaam
United Republic of Tanzania (1983): Urban Authorities (Rating) Act, Government
Printer, Dar es Salaam
United Republic of Tanzania (2008): Tourism Act, Government Printer, Dar es
Salaam
Big Result Now (2012): Resource Mobilization – Non Tax Revenue, World Class
Lab Report
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A Study on LGAs Own Source Revenue
Annex 01:
ANNEXES
Tanzania mainland population by age and sex, 2012 census
Total
43,625,354
21,239,313
22,386,041
30,924,116
15,119,036
15,805,080
12,701,238
6,120,277
6,580,961
0-4
7,069,895
3,535,673
3,534,222
5,392,159
2,695,697
2,696,462
1,677,736
839,976
837,760
5-9
6,475,364
3,242,111
3,233,253
4,979,659
2,503,450
2,476,209
1,495,705
738,661
757,044
10-14
5,625,848
2,809,113
2,816,735
4,210,158
2,130,863
2,079,295
1,415,690
678,250
737,440
15 - 19
4,466,674
2,171,355
2,295,319
2,991,709
1,513,002
1,478,707
1,474,965
658,353
816,612
20 - 24
3,831,098
1,737,849
2,093,249
2,388,099
1,092,683
1,295,416
1,442,999
645,166
797,833
25 - 29
3,292,866
1,503,841
1,789,025
2,041,241
924,065
1,117,176
1,251,625
579,776
671,849
30 - 34
2,827,482
1,342,110
1,485,372
1,787,650
834,325
953,325
1,039,832
507,785
532,047
35 - 39
2,369,100
1,149,418
1,219,682
1,555,790
739,045
816,745
813,310
410,373
402,937
40 - 44
1,840,336
916,020
924,316
1,254,331
609,813
644,518
586,005
306,207
279,798
45 - 49
1,453,465
694,318
759,147
1,011,926
478,928
532,998
441,539
215,390
226,149
50 - 54
1,172,559
587,555
585,004
845,834
414,583
431,251
326,725
172,972
153,753
55 - 59
751,410
379,627
371,783
542,847
268,485
274,362
208,563
111,142
97,421
60 - 64
749,132
368,814
380,318
564,826
272,695
292,131
184,306
96,119
88,187
65 - 69
481,271
232,811
248,460
374,198
178,110
196,088
107,073
54,701
52,372
70 - 74
466,077
220,651
245,426
371,855
176,235
195,620
94,222
44,416
49,806
75 - 79
287,096
141,974
145,122
231,772
115,334
116,438
55,324
26,640
28,684
80+
465,681
206,073
259,608
380,062
171,723
208,339
85,619
34,350
51,269
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A Study on LGAs Own Source Revenue
LIST OF QUESTIONNAIRES
A.
1.
AT REGIONAL LEVEL
What are the main economic activities in your region/selected LGAs? Does
the taxes levied by the LGAs match with the economic capacity of the
District or Council?
2.
What are the roles and responsibilities of the RS in relation to LG own
source revenue? How do the RS perform those roles and responsibilities
3.
What challenges face LGAs with respect to own source revenue i.e. from
planning, budgeting, collection and in expenditure?
4.
What should be done to overcome the challenges?
5.
On your views; what do you thinks are the major sources of revenue in each
LGA in your Region? Excluding the well-known major sources.
6.
B.
Any other valuable comment?
LOCAL GOVERNMENT LEVEL
1.
What are the main economic activities in your district/council?
2.
Do you have any financial plan or policy? If yes, please explain briefly? Is
the plan or policy incorporated in your Council Strategic Plan?
3.
What are your views on the capacity of your Councilors and how they
manage the Council’s revenue?
4.
Does the Council use Local Government Management Database (LGMD) in
preparing your plans and budget?
5.
How many sources of LG own source revenue do you have? Please List.
Does each source have its own by-law?
6.
What are the major sources of revenue in your LGA?
7.
For each source, how do you come up with the budget figure?
8.
Do the budget figures relate to LGMD data?
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October, 2013
9.
A Study on LGAs Own Source Revenue
For each source, how do you collect revenue? Briefly explain your revenue
collection system?
10.
For each source, what was the planned budget and actual revenue collection
for the past five years? (2008/09 - 2012/13)
11.
What is the amount (and in percentage) of own source revenue contribution
to development projects annually? Provide data for budget and actual
amounts for the past five years.
12.
Does the Council recognize community contribution as own source
revenue? What is the trend?
13.
Do you collect and recognize revenue from sources like CHF and Secondary
Education?
14.
What are the challenges faced in revenue collection? What should be done?
15.
Do you use Revenue agents (outsourcing facility) in revenue collection?
16.
If yes, which sources have been outsourced?
17.
What criteria used to select revenue agents?
18.
Did you conduct a feasibility study before deciding to outsource on the
value of outsourcing and your capacity to manage outsourced activities so
that value for money can be achieved?
19.
Before outsourcing, did you prepare risk management plan to make sure
that the outsourced activity poses low risk on the part of Council?
20.
For each source how did you arrive at the margin given to the revenue
agent to collect?
21.
Who are involved in the preparation of the contracts for outsourcing
activity?
22.
How do you monitor or follow up the performance of revenue collection
agents?
23.
Is there any specific person assigned to supervise the collection agents?
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October, 2013
24.
A Study on LGAs Own Source Revenue
Do you request the Revenue agents to submit monthly financial and
operational reports to the Council in order to observe revenue collection
trend?
25.
Do you conduct routine based inspections so as to identify weaknesses and
problems on agent’s performances?
26.
Who is (are) responsible to monitor the Council own source revenue
collection including agents collection? What is (are) their qualifications? Are
they trained on revenue management?
27.
What are the challenges faced in regard to outsourcing revenue? What
should be done?
28.
What are the Councils’ incentives to the community to enable them pay tax
voluntarily?
C.
1.
TAXPAYERS
What do you understand by the term Taxes? Do you pay Taxes? If YES
what and how many types of taxes do you pay? And if NO, Why?
2.
What is your Monthly/Annual Income?
3.
Can you say something why are you paying taxes? Are you paying taxes
voluntarily or you just pay after being forced?
4.
On your opinion how the Council /Government contributes on the
development or improvement of services offered? As a Taxpayer are you
satisfied with the services offered by your council? If NO, Why?
5.
5. What can you say about those taxes charged by TRA and those charged
by the LGAs? Are you comfortable with the rates charged as compared to
what you earn as your income?
6.
On your opinion what taxes you think do not suit and what you think is
proper to be charged?
7.
Any other comments?
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