MOZAMBIQUE- LOCAL TAXATION UNDER FISCAL STRESS- WHAT OPTIONS, WHAT IMPLICATIONS?

Transcription

1 MOZAMBIQUE- LOCAL TAXATION UNDER FISCAL STRESS- WHAT OPTIONS, WHAT IMPLICATIONS? BERNHARD WEIMER 5TH INTERNATIONAL WORKSHOP ON DOMESTIC REVENUE MOBILISATION FOR IMPLEMENTING THE 2030 AGENDA: THE ROLE OF SUBNATIONAL TAXATION GDI / DIE, BONN, SEPTEMBER, 2016

2 POLITICAL ECONOMY Structure Extractive, export oriented economy High poverty rates predominant foundational party since Independence (1975) Neopatrimonial-clientilist system with rent seeking national and local elites monopolistic, inefficient SOEs Limited Access Order (LAO), - > periodic conflicts, conflictual political settlement Current Crisis Low intensity war, partial agreement (2014) failing, ongoing peace negotiations, incl on autonomous provinces Unfavourable global economic environment and markets Unsustainable public debt caused by surge of illicit Non concessional credits ( 2,3 bln USD) Risk of defaulting Budget support (500 million USD ; 2016) and IMF standby credit (286 million USD) frozen Budget deficit increase (approx. 500 Million USD, 2016)) Decline of FOREX reserves, Decline of FDI Dramatic devaluation of currency (50% of value since 2014), rising inflation Decline of growth rate, from 8% (2013) to 4% (2016) Closure of businesses, increasing unemployment

3 FISCAL DECENTRALIZATION Structure of Territorial Admin Features Provinces / Districts: No autonomy, no OSR Budgets : part of national budget allocation Management: national PFM system Deconcentrated management (recurrent expenditure) Provincial net fiscal resource: Stark regional inequalities Maputo (city and province) collects 81% of national fiscal revenue Municipalities: Financial autonomy OSR ( taxes, fees, etc.) Intergovernmental Fiscal Transfer System: Block grant = FCA Investment grant (FIIA) Poverty Reduction Grant (PERPU) other conditioned grants (Roads Fund) other transfers

4 % OF TOTAL EXPENDITURE TOTAL EXPENDITURE BY LEVEL OF PUBLIC ADMINISTRATION, 2008 AND 2014 (IN %) CENTRAL PROVINCIAL DISTRICT MUNICIPAL LEVEL OF PUBLIC ADMINISTRATION Source: author, based on Govt Data

5 MUNICIPAL REVENUE- SOURCES Transfers to municipalities as % of National Fiscal Revenue, FCA as Percentage of Total National Fiscal Revenue FCA+FIIL as Percentage of Total National Fiscal Revenue PERPU as % of Total National Fiscal Revenue OSR ( Law 1/2008) Municipal Poll (/Head) Tax (Imposto Pessoal Autárquico - IPA); Municipal Property Tax (Imposto Prédial Autárquico - IPRA); Municipal Vehicle Tax (Imposto Autárquico sobre Veículos - IAV) Municipal Property Transaction Tax (Imposto Autárquico da Sisa - IASISA); Area improvement levy (Contribuição de Melhorias); Non-fiscal revenue sources such as licencing fees, the Fees on Economic Activity (Taxas por Actividade Económica - TAE). The municipal fee (taxa) for the DUAT license and the annual fee paid for land use, the foro or foral. User fees for municipal services (e.g. markets and fairs, water and solid waste collection fees). NB: Informal sector tax (income+vat in one): ISPC (Imposto Simplificado para Pequenos Contribuintes) is NOT a municipal tax Source: author, based on Govt Data

6 DIAGNOSTIC ASSESSMENT MUNICIPAL REVENUE- AVERAGE OSR POTENTIAL, 2009 (SAMPLE 6 MUNICIPALITIES) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 92% 8% 99% 1% 95% 5% 53.0% 47% 77.9% 22% 64.2% 36% 51.3% 49% Potencial Esforço (ET) Assessment criteria: Coverage ratio Application ratio Compliance ratio Source: Boex et al. 2011; Kelly, 200o Sources: Boex et al 2011; Weimer, 2012

7 RESOURCE MOBILIZATION AND FISCAL SUSTAINABILITY: INDUSTRIAL CITY ( INHAB) Matola: OSR, transfers, (US$) Matola: fiscal sustainability (%) 30,000, ,000, ,000,000 15,000,000 10,000,000 Total OSR Transfers (FCA+FIIL) Donations Total Revenue OSR / Recurrent Expenditure OSR+FCA / Recurrent Expenditure ,000, Source: Author, PPIAF-SNTA

8 RESOURCE MOBILIZATION AND FISCAL SUSTAINABILITY: RURAL TOWN ( INHAB) Manhiça: OSR, transfers, (US$) Manhiça: fiscal sustainability (%) 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 Total OSR Transfers (FCA+FIIL) Donations Total Revenue OSR / Recurrent Expenditure OSR+FCA / Recurrent Expenditure 5,000, Source: Author, PPIAF-SNTA

9 DIAGNOSTIC: MAIN CONCLUSIONS 1. Average unused tax reserve (sample, 2009) equivalent to: 150% of average OSR collection 50% of overall average revenue (OSR+Transfers) 400% of average capital expenditure 2. Least used sources: taxes on Property and property transaction, poll tax 3. Most used sources: market fees, vehicle tax 4. Major variations between sample Municipalities (tax registers, tax compliance, leadership) 5. Limited capacity for Investment in Infrastructure and services 2009 (2014): 32% (40%) of total expenditure 6. Municipalities (large, small) hardly fiscally sustainable without major mobilization effort 7. Donor municipal budget / project support makes difference

10 REVENUE MOBILIZATION STRATEGIES- OPTIONS 1. TA for Capacity Building (Institutional, HR) with focus on: Untapped sources with high potential and buoyancy Invest in cadastres, register and mgt tools, municipal financial management strategy Taxation value chains for Property related revenue (land, building, transaction) Strengthen internal control and audit Earmark incremental revenue for capital expenditure / public service delivery (incentive for tax payer) Fiscal education and social contract 2. Outsourcing taxation (PPP) New experience (Matola, Pemba) Private partner receives (?) % share of additional revenue collected Little transparency (share for private profit, procurement) 3. Intensified collaboration Municipalities - National Tax Authority Sharing of registers Joint HR training and fiscal education programmes Transfer ISPC to Municipalities

11 REVENUE MOBILIZATION STRATEGIES- OPTIONS, CONT 4. Review of allocation criteria in transfer system (WB) Include potential, tax effort / performance as allocation criteria Incentives / disincentives Option 1: to link allocating grants with the rate of growth of OSR Option 2: matching principle, where revenues collected by a municipality are matched by the central government through a co-financing grant 5. Review sharing of natural- resource based revenue 2013: 2.75 % of the royalties generated by mining and natural gas sectors to seven localities 20% of profit of large scale agricultural and forestry projects to communities Allocation criteria and procedures lack transparency 6. Combination of 1-5 requires reform of intergovernmental transfer system

12 MAIN OBSTACLES TO REVENUE MOBILIZATION 1. Capacity Building (Option 1): has been mainstreamed in municipal support projects, with little overall success (with variations). Causes: Clientilist rent seeking and tax evasion practises by local elites and SOE Decentralized Corruption (sub-valorization of properties) Lack of incentives for performance (HR, leadership ) Property tax: too complex, not commensurate with economic capacity Absence of internal control, external audits of municipal accounts Lack of citizens engagement and social control 2. Macroeconomic and fiscal crisis at national level produces Shrinking local economic and taxation base, transfers Declining purchasing power and availability of income Risk of double taxation (ISPC->national Tax Authority; local Business fee-> municipal tax department) Resistance to (local and national) taxation > tax evasion Informalization of economy 3. Political crises implies Declining confidence in Government and ruling party Uncertainties, human and economic cost of war Potentially: Review of intergovernmental transfer system impacting on municipal revenue base and transfers

13 CONCLUDING QUESTIONS Under what conditions can local revenue mobilization work in a LAO State, which Dos not deliver basic public goods and services with sufficient quality and coverage; Produces economic and fiscal crises not conducive to inclusive human, social and economic development, trust in government; Shows biased taxation favouring elite and big business to the detriment of ordinary citizens; Shows high rates of Taxation by Corruption ( including by the national and local tax authorities), exacting a high cost and regressive effect on the poorer strata Lacks an institutionalized public (Habermas), in which rules of the game are discussed, established and controlled, incl in matters of fiscal policy and taxation?

14 THANK YOU