Why Local Revenue collected by Local Government Structures should not be remitted to the Consolidated Fund

By: Brighten Abaho

In a bid to extend social services closer to the people, Government of Uganda in 1992 embraced the decentralization policy which recognizes Local Governments as frontline actors in delivering services to the citizenry.

The 1995 Constitution and the Local Government Act (CAP 243) provide for the decentralization policy. Both under Article 191 of the constitution and Section 80 of the Act require Local Governments to prepare their own development plans and budgets as well as mobilize revenues locally to facilitate funding for recurrent and development expenditure.

The 1995 Constitution and the Local Government Act (CAP 243) provide for the decentralization policy. Both under Article 191 of the constitution and Section 80 of the Act require Local Governments to prepare their own development plans and budgets as well as mobilize revenues locally to facilitate funding for recurrent and development expenditure.

However, despite the enormous service delivery task at hand, resources from the Central Government to the Local Governments to support decentralization have been limited.

Whereas the legal framework empowers Local Governments to levy, charge, collect and appropriate fees and taxes in their areas of jurisdiction, the collected revenue is remitted back to the consolidated fund for subsequent allocation to the respective Local Governments.

Local Governments ought to act as economic and social transformational tools for the Country, but this is not the case simply because of the way locally generated revenue is managed. The financial distress among local authorities has dire economic consequences that result into the failure and crippling of service delivery to the people.

Local Governments ought to act as economic and social transformational tools for the Country, but this is not the case simply because of the way locally generated revenue is managed. The financial distress among local authorities has dire economic consequences that result into the failure and crippling of service delivery to the people. With the enormous service delivery task at hand, resources from the Central Government to the Local Governments to support decentralization have been limited.

Whereas the legal framework empowers Local Governments to levy, charge, collect and appropriate fees and taxes in their areas of jurisdiction, the collected revenue is remitted back to the consolidated fund for subsequent allocation to the respective Local Governments.

Overtime there has been continuous recentralization of previously decentralized functions which has had a negative impact on service delivery, accountability, citizen empowerment and increasing financial dependency of Local Governments.

A number of policy reforms have been made by the center to address capacity gaps, incompetence and corruption in Local Governments but very little progress has been made.

Key among these reforms was the February 2020 directive by the Permanent Secretary and Secretary to Treasury, Ministry of Finance that all local government accounting officers ensure that all local revenue is remitted back to the Consolidated Fund.

Local Governments continue to grapple with issues of finances because of overdependence on grants from the Central Government, donors and development partners, but these grants have proven unsustainable because they came with strings attached and time frames.

Prior to the Financial Year 2016/2017, Local Government budgets funded by local revenue were approved by respective Local Governments and monies collected from local revenues would be spent from the General Fund Account maintained at the district.

Government argued that the directive requiring Local Governments to remit all local revenue to the consolidated fund would i) bring about the need to harmonize the budget approval period for all revenue sources of local governments; ii) lack of accountability and transparency for local revenue; and iii) delays in reporting and preparation of financial statements because of scattered information.

As a result, many local governments have been unsurped of their powers that are guaranteed under Article 176 of the Constitution that empower local governments to deliver on functions such as provision of medical and education services, waste management, construction, maintenance and rehabilitation of roads, among others and settle their liabilities.

In Kenya local revenues are collected and managed at the county government level rather than remitting it to the consolidated fund which facilitates handling of urgent issues such as collection of garbage.

In a motion moved by Wakiso District Woman MP, Ethel Naluyima on motion for a resolution of Parliament to urge Government to reverse the directive requiring Local Governments to remit all local revenues to the consolidated fund.

Lawmakers particularly former local government leaders noted that remitting funds to the Consolidated Fund affects service delivery at the local level especially urgent things like garbage collection, fixing of roads affected by heavy rains and others.

The legislators further noted that the policy of remitting all local government generated revenues to the Consolidated Fund is undermining the principle of decentralisation as provided for by Article 176(b) of the Constitution of the Republic of Uganda, the Local Government Act and the Public Finance Management Act.

Whereas it is true that revenue collected at local government level was associated with many shortcomings, the Ministry of Finance should have worked on how to address the issues of corruption, lack of accountability and transparency rather than taking away powers of the Local government to appropriate revenue collected locally.

This directive to remit locally collected revenue at the Local Government level to the consolidated fund does not only contradict the spirit of decentralization which the National Resistance Movement (NRM) Government adopted in 1986 as an indigenous African democracy in the country but has also proved counterproductive.

Recentralization of local revenue demoralizes local government leaders, renders them powerless to effect service delivery which makes people reluctant to pay local taxes, given they don’t feel the effect of the services they pay for.

The Ministry of Finance, Planning and Economic Development should consider the resolution passed by Parliament urging Government to reverse its directive on local revenue and allow local governments manage and spend the local revenue collected in their jurisdiction.

The Government through Ministry of Local Government and Ministry of Finance Planning and Economic Development should take initiatives to address the critical issues of revenue collection, leakages and spending in local government structures.