LOCAL REVENUE

GENERATION IN LOCAL
GOVERNMENTS
(UGANDA):

Bateisibwa Wilber
 Session Outline:
Concept of Local Revenue;
Rationale/importance of raising local revenue;
Types & Sources of local revenue;
Key stakeholders;
Irregularities/challenges in local revenue
mobilisation;
Local Revenue Enhancement Initiatives;
Best Practices & Recommendations
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 Historical Perspectives:
 Uganda was created in 1894 as British Protectorate
 This phenomenon introduced total supremacy of the
British government over Uganda in matters of
“....assessment & collection of taxes ....also the
disposal of the revenues.....”
 In 1920 the hut tax was reformed into the Poll Tax, a
head tax for every adult male;
 Poll Tax was reformed into a Graduated Tax, in 1954
for vertical equity;
 The tax was abolished in 2005 due to its regressive
regime -it was the largest revenue source
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 Local Government
Revenue: Meaning
LG revenue is income collected & received by
a Local Government;
Revenue represents an inflow of financial
resources into the Local Governments [LGs]
from communities, Donors & Central
Government

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 Legal Framework:
Article 152 of The Constitution –taxation
matters;
Articles 191-195 of The Constitution - powers
to levy & appropriate taxes; collection of taxes by
LGs; LGFC; Loans & Grants
Section 78 -85 of Local Government Act –
Revenue & financial accounting, financial
autonomy, powers to levy taxes, grants from the
government, borrowing powers, etc.;
The Local Government (Rating) Decree,
1979;
The Local Government (Rating) Act,
2005;The Act provides for levy of rates on 5
 Legal Framework:
 The Trade Licensing Act This Act regulates
businesses and indicates rates of licenses payable at
each level of governance by business type.
 The Public Health Act, The issuance of trading
licenses is subject to health & safety regulations &
inspections.
 LGST - Guidelines 2009. These require employers
to deduct at source & remit tax recoveries from
employees to the appropriate LGs.
 The Land Act, in respect to ground rent & premium.
 LGA Schedules
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Rationale for Revenue
Collection:
 GoU has a duty & obligation to provide services to
the population using all available resources at its
disposal;
 It is a constitutional duty to pay taxes at any level;
 Governments have to meet the costs of social &
infrastructure services;
 Changing population service demands have created
pressure for more & better quality services leading to
increased costs & service gaps;
 Revenues can only be adequate if there is a positive
relationship between revenue growth & the demands
made on it & in line with the cost trend. 7
 Importance of Revenue to LGs:
Financing administration costs e.g.
councilors’ emoluments);
Financing maintenance costs & thus
promoting ownership of projects;
Permits collection of localized revenues;
Guarantees sustainability of service delivery
& autonomy of LGs;
Regulates businesses & provides important
infrastructure & services;
Reduces pressure on Central Government &
reliance on donors.
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Types of Local Government
Revenues:
• Grants from Central Government &
Donors;
• Local Revenue;
• Donations /Charity funds;
• Loans if approved by the right authority
of government

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 Sources of Local Revenue:
Local Service Tax;
Property Tax;
Licences;
Fees;
Rents;
Other Charges.

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Key Stakeholders in Revenue
Mobilisation:

• The Chief Executive Officers (CAO);

• The Chief Finance Officers (CFO);
• Revenue collectors & cashiers;
• Executive Committees of Council;
• The Local Government Councils;
• The LG PAC;
• Local Government Finance Commission.
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 General Considerations in
Revenue Mobilisation:
These are important considerations to make
while coming up with a revenue source:
• Revenue adequacy;
• Equity;
• Administrative capacity;
• Political acceptability;
• Economic impact.

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 Main Activities in Local
Revenue Mobilisation:
 Local Revenue Mobilisation follows a systematic process
which includes ideally:

• Revenue source identification;

• Sensitisation & publicity;
• Registration;
• Enumeration;
• Assessment;
• Collection;
• Enforcement; &
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 Registration, Enumeration &
Sensitizing Stakeholders
• The process of revenue mobilisation starts
with identification of taxable issues,
registration, enumeration & sensitisation of
tax payers.
• Local Governments should maintain good
revenue databases. Revenue databases are
necessary for:
• Making accurate revenue forecasts;
• Tracing defaulters;
• Making accurate & reliable assessments.
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 Revenue Assessment:
• Revenue Assessment is done by a Tax Assessment
committee;

• The nature of tax payable determines the basis and

method of assessment;

• After assessment, the TAC issues out a certificate of

assessment to the tax payer;

• Assessors keep records;

• A person exempted from tax payment is issued a
certificate of exemption;

• A tax payer can appeal against a tax liability.

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 Revenue Collection:
The process of revenue collection involves:

• Provision of necessary collection

equipment;
• Receiving of revenue;
• Recording/ documentation of revenue;
• Recording in Revenue registers;
• Keeping Tax collection records;
• Custody & banking of revenue.
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 Donor Funds Mobilisation:
LGs receive donations in forms of actual cash or
physical assets from donors. Mobilising donors funds
may require:

• Allowing them to supervise the project

implementation;
• Following their good governance
procedures;
• Allowing them to provide technical
assistance;
• Allowing them to provide capacity building.
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 Mechanisms /Techniques of
Resource Mobilisation:
 Using Donors
 Meeting Potential Donors
 Using Former Donors
 Influential People
 Features Writing (Media)
 Hunting for Donors-Overseas Trips
 Mail Publications
 Use of Local Media-TV and Radio
 Shows/Fairs/Exhibitions
 Government Officials’ Visits 18
 Local Service Tax Revenue
Local Service Tax is a direct tax levied
annually on the wealth or income of an
individual;
Payment of LST tax collection is done on the
basis that:
It is paid in one’s area of residence.
Due on the first day of the financial year.
Paid within the first six months of the year.
The assessment is done by local
governments.
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 Trade Licences Revenue:
• The Trade (licensing) Act, 1969 provides the
legal framework for Trade Licence Revenue.
The main constraints include:
• Lack of relevant data;
• Unregistered businesses;
• Corruption in the process;
• Political interference,
• Embezzlement of funds
• Etc.

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 Property Tax Revenue:
Property refers to building of a commercial,
industrial or residential nature & land.
Property tax is defined as a tax levied on
immovable property within the area of
jurisdiction of a council.

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 Property Tax Assessment:
• Annual rental value of the property;
• Capital value of property.
Constraints:

• Lack of registers;
• Corruption.
Best practices:

• Sensitisation;
• Privatisation;
• Computerisation. 22
 Markets & other Sources:
Local governments collect substantial revenue from
markets in form of rent, permits, dues, cess tax, etc.

Constraints:

• Informal evening markets in unrecognized places;

• Unregistered traders.
Best practices:

• Fence off market areas;

• Privatisation of collection;
• Performance bonds;
• Data bank on revenue sources. 23
Irregularities in LR Collection?
Council employees and/or tax payers may engage in revenue
irregularities for a number of reasons some of which are:
• Greed: the desire of council employees or councillors to
become rich quickly.
• Tax Evasion: Taxpayers may collude with council staff to
pay a lower amount. This is normally done by the council
employee in return for a payment from the taxpayer.
• Low pay: Council employees often earn less than what is
required to meet their basic needs.
• Life style: Council staff or councillors may wish to lead
an extravagant lifestyle.
• Job insecurity: Employees or councillors may believe
their job tenure is coming to an end and may then wish to
embezzle funds to prepare themselves for the future. In
many cases such irregularities are perpetuated because of
lack of strong internal controls. 24
 Trading/Revenue
Irregularities:
• Manipulations of the revenue contracting
system;
• Collusion between employees & taxpayers to
conceal tax liability or to reduce the full
amount payable;
• Direct stealing of funds for revenue;
• Concealing taxpayers from registration records;
• Using the collected council revenue for
personal business;
• Creation of secret revenue collection bank
accounts. 25
 How to Detect
Irregularities:
• Messy revenue assessment & collection
documents like receipts, assessment forms,
etc. - erasures, crossing, wrong totalling, etc.;
• Extravagant lifestyle by revenue collectors;
• Public outcry about the behaviour of revenue
collectors;
• Unexplained delays in banking, recording
of accounting documents or forwarding of
cash receipts to the main cashier;
• Outrageous inconsistencies between
revenue collections & projections; 26
 How to Detect Irregularities
[2]:
• Unexplained delays in producing revenue collection reports;
• Unexplained filing procedures which make it difficult to retrieve
documents when needed;

• Non transparent contracting procedures for revenue

collection tenders;

• Rise or fall in revenue from a particular collection point

following the transfer of employees;

• Unexplained extremely cordial relationships between

revenue collectors & taxpayers;

• Inconsistent & irregular weekly/monthly collections from

particular revenue sources without plausible reasons; and

• Falling or static revenue collections despite improving

revenue base e.g. Where the businesses have increased or
expanded but collections do not increase likewise; 27
 Control of LR Irregularities:
• Regular checks by councillors on collection points;
• Gathering information from taxpayers about their
experience in paying council revenue;
• Rewarding good revenue performers;
• Penalising offenders;
• Setting revenue collection reporting deadlines;
• Regular rotation of revenue collectors;
• Computerised registers;
• Privatisation of collection; and
• Direct payments to council collection accounts.
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 Contracting out/Outsourcing
Revenue Collection:
Private sector participation in delivery of LG
services is widely recognised as a good practice
in effective service delivery. Drivers of
contracting out revenue collection:
Increased revenue collection;
Lower costs of collection;
Better services offered;
Better cash flows;
Creation of jobs.
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 Reasons for Outsourcing:
Reacting quickly & effectively to the market
needs;
Avoid the burden of legal responsibilities;
Access the state of art of technology;
Lack of internal expertise;
Save costs -reduce & control operating costs;
Avoidance of internal labor problems
Sharing risks.
Reduction of operating costs 30
 Challenges of Outsourcing:
Failure to understand the outsourcing concept
Inaccurate identification of core functions of the
organization
Poor planning
Poor monitoring and supervision of the
providers
Selection of poor providers
Lack of adequate capacity of private sector;
Dishonesty;
Political interference & Corruption 31
 Constraints in LR Mobilisation:
 Poor collection methods (unskilled)
 Narrow tax base
 Political interference;
 Corruption;
 Delays in collection;
 Insecurity;
 Lack of enough personnel;
 Distrust by tax payers.
 Lack of sensitization of tax payers
 Late releases
 Poor disbursement methods
 Donor conditionalities
 Lack of Resource mobilization strategies
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Revenue Enhancement Initiatives
[REI]:
 Developing a database of individual taxpayers ,
strengthen management information systems for
revenue administration and control;
 Instituting legal & cost effective revenue recovery
mechanisms to reduce on fraud & losses that undermine
budget performance;
 Introducing cost-effective mechanisms in revenue
mobilization to reduce administrative costs;
 Establishment of local revenue monitoring committees
at all levels-revenue taskforces ensure that at least 95%
revenue from all collectable sources is realized;
 Continuous capacity building in form of mentoring &
support to LG staff on good practices in revenue
mobilization, collection, monitoring & accountability. 33
REI [2]:
 Introduce a System of rewards & penalties for revenue
collectors to induce staff to collect more revenue;
 Linking tax payments to service delivery
 Effective & efficient contract management of contracted
out revenue sources;
 Conducting a revenue baseline study on current &
potential local revenue sources to widen LGs revenue bases;
 Provide required revenue collection stationery to LGs
such as receipts, accounting stationery to be delivered on or
before beginning of FY;
 Educating the population on the newly introduced
revenue from alternative sources that are capable of
yielding more revenue.
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 Planning
 The planning process at the local government
level is guided by the National Development
Plan (NDP) and involves the following key
elements:

• Local Government Planning Cycle: Local

governments (districts, municipalities, town
councils, and sub-counties) develop five-year
development plans aligned with the NDP.

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 Participatory Planning: Community
engagement is emphasized, with lower-level
administrative units (villages, parishes)
contributing to planning through participatory
budgeting meetings.
 District Technical Planning Committees (DTPCs):
These committees coordinate planning activities
and ensure integration with national
priorities.Sectoral Planning

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 Education, health, water, and infrastructure
sectors have specific plans within the local
government framework.
 2. Budgeting in Uganda’s Decentralized
System
 Local government budgeting follows a Medium-
Term Expenditure Framework (MTEF) and a
performance-based budgeting system. Key
aspects include:

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Revenue and Expenditure
Budgeting:
 Budgets are prepared based on projected
revenues (grants, local taxes, and donor
funding).Intergovernmental Transfers:
 The central government provides conditional,
unconditional, and equalization grants to local
governments.

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 Revenue and Expenditure
Budgeting
 Budget Approval Process: Local councils review
and approve budgets, ensuring alignment with
development priorities.
 Fiscal Discipline and Transparency: Local
governments are required to follow Public
Finance Management Act (2015) regulations to
enhance accountability.

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 Best Practices for LRE:
 Contracting out
 Tax payer convenience
 Accountability
 Direct banking of revenues
 Fair assessment & collection
 Fair enforcement

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 Best Practices:
Link payment of taxes to levels of service
delivery & show that more revenues will result
in better/more services -Downward
accountability & value for money;
A clear visibility of services that are
appreciated by Taxpayers may result in
increased willingness to pay more;
Publication of plans, implementation
framework. A public accountability. Where the
money went & where it came from
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 Recommendations :
 LGs should provide incentives to mobilize own
revenue, which ensures sustainability of LGs;
 Tax collection should be carried out early enough to
coincide with harvest periods;
 Monthly accountability to taxpayers through
publications;
 Proper bookkeeping is a prerequisite if revenue
mobilization is to improve;
 Adequate facilitation of monitoring departments
to fully participate in the monitoring exercise;
 Councils should meet monthly with the
mobilization teams to review the challenges & 42
 Recommendations:
 Positive & active involvement of politicians in revenue
enhancement, since politicians are directly
accountable to their communities;
 Continuous valuations & assessments of markets;
 Ensure tax payer convenience at payment &
assessment;
 Promote fairness in assessment of taxes and
utilization of funds;
 Transparent dealings, accountability & provision of
relevant Value for Money services.

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THANK YOU

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