BASELINE SURVEY ON REVENUE COLLECTION & STRATEGIES FOR IMPROVING LOCAL REVENUE IN PUNTLAND May- June 2013

Transcription

1 BASELINE SURVEY ON REVENUE COLLECTION & STRATEGIES FOR IMPROVING LOCAL REVENUE IN PUNTLAND May- June 2013 Jointly Conducted by: Puntland Ministries of Interior and Finance Garowe 1

2 Acknowledgement The Assessment team would like to appreciate everyone who made this baseline study possible, though it is not able to mention all of them by name. We are very thankful to the MOI and MOF for facilitating this study without which, very little could have been achieved. We thank to all district mayors, executive secretary and other staff for their assistance and response study questions. Further appreciation goes to all enumerators who worked tirelessly gathering data without which the writing of this report would not have been possible, as well as for doing the data entry. We thank them deeply. 2

3 Contents 1.0 Abstract BACKGROUND... 5 ABOUT JPLG PROGRAMME... 5 Purpose... 5 SPECIFIC OBJECTIVES... 5 A Revenue Profile of the Local Government SURVEY METHODOLOGY... 6 Literature Review... 6 Survey Design... 6 Sample Size... 7 Sampling Technique... 7 Survey Instrument... 7 Recruitment and Training Survey Team... 7 Survey Organization and Fieldwork... 7 Data Entry and Analysis SUMMARY OF FINDINGS... 8 Demography of the Respondents... 8 Remove Area Districts Revenue, Budget and Expenditure of the District Municipalities Municipality Budget Central Government Fiscal Support Municipality Report System Challenges Revenue Strategies Way Forward CONCLUSION

4 1.0 Abstract Conducted at district revenue collection baseline survey for seven districts in Puntland, to determine the status of local government in terms of revenue collection and budget prioritization. Puntland state of Somalia has recently launched the implementation of comprehensive decentralization process. Ministry of interior and local government provided training on leadership, good government and revenue collection in order to build the capacity of district council to enable them to offer all public service for district level as part of decentralization process. The JPLG for Somalia was a five year Joint UN Programme consisting of five UN partner organizations namely, the International Labour Organisation (ILO), United Nations Capital Development Fund (UNCDF), United Nations Development Programme (UNDP), United Nations Human Settlement Programme (UN-HABITAT) and United Nations Children s Fund (UNICEF). The purpose of this study is to undertake the revenue collection and public expenditure tracking of funds allocated and disbursed to education, water and health facilities for seven districts in Puntland In Puntland, it is too difficult to have complete picture of the local government fiscal data for the last decade in to compare. The central government budget produces details data on budget items in central government level. The study employed a mixed methods design employing both quantitative and qualitative research approaches. Findings of this study includes that is an increase of revenue collection in urban area and matching between planned budget and expenditure. Shortage of staff is involved one of main challenges, particularly in remote area as their staff not more than four persons. The presented way forwards in order to overcome these challenges. 4

5 2.0 BACKGROUND Puntland state of Somalia has recently launched the implementation of comprehensive decentralization process. The framework for this is embedded in the 2003 local government act, which provides a significant degree of power to the districts, backed by the assignment of revenue and expenditure. Ministry of interior and local government provided training on leadership, good government and revenue collection in order to build the capacity of district council to enable them to offer all public service for district level as part of decentralization process. About JPLG Programme The JPLG for Somalia was a five year Joint UN Programme consisting of five UN partner organizations namely, the International Labour Organisation (ILO), United Nations Capital Development Fund (UNCDF), United Nations Development Programme (UNDP), United Nations Human Settlement Programme (UN-HABITAT) and United Nations Children s Fund (UNICEF). The Participating UN Organizations have appointed UNDP/Multi-Partner Trust Fund Office (MPTF Office) to act as the Administrative Agent (AA) for the JPLG. The stated purpose of the JPLG is to contribute towards peace by enhancing local governance and the delivery of equitable priority decentralized services to the Somali people in Puntland, Somaliland and South Central Somalia. Purpose The purpose of this study is to undertake the revenue collection and public expenditure tracking of funds allocated and disbursed to education, water and health facilities within seven districts in Puntland for the purpose of assessing usage of the funds and area of revenue collection. The objective of the assessment is to identify areas of weaknesses in the revenue collection and budget allocation in order to carry out capacity building training to cover these gaps. Specific Objectives The study was intended to: - Assess the level of revenue collection and budget allocation in each district - Find out allocated budget for education, water, health and others. - Examine and report on the extent to which public funds have been effectively used for the intended purpose in the health, water and education sector. - Provide recommendation in order to fill existing gaps in revenue collection and management. - To bring up strategies for improving local government revenue generation 5

6 A Revenue Profile of the Local Government In Puntland, it is too difficult to have complete picture of the local government fiscal data for the last decade in to compare. The central government budget produces details data on budget items in central government level. The ministry of finance is able to present treasury disbursement data broke down by ministries and any other budget item in central government level. For each ministry, the treasury is able to reveal total amount of each district has been given through government employee in respective ministries as the government does not decentralized finance. However, total amount of disbursement to each district is never tabulated and on reconciliation of budget figures ever take place. Law No. 7 in which has been issued in 2003, declares the source of local government revenue as listed below: a) Taxes, b) Licenses, fees, and permits, c) User charges/tariffs, d) Rents, e) Fines and penalties, and f) Other current own source revenues. 3.0 SURVEY METHODOLOGY The study employed a mixed methods design employing both quantitative and qualitative research approaches. The baseline survey used structured questionnaires and unstructured research instruments. This baseline survey was conducted in a eight-step process as detailed below: Literature Review A desktop review of secondary data provided by the district revenue and relevant stakeholders was conducted. The secondary data review resulted in the identification of existing challenges that the district revenue was facing and a documentation of the status of the district revenue in puntland. Survey Design The survey design involved: Identifying the various types of respondents to be targeted for the survey; to ensure that the results from the baseline survey would be representative of the district revenue collection in Puntland. Determining the sample size 6

7 Developing the questionnaire to be administered and Determining how the data would be collected (field work plan) Sample Size Since Joint Program Local Government (JPLG) is targeting seven districts, It was agreed with the Ministry Interior, Local Government and rural Development to use those district to identify the members to be interviewed while in the field. Therefore, the JPLG target districts formed our sampling frame. Sampling Technique A stratified sampling technique was used to identify members to be interviewed. Targeted respondents were included financial department and revenue collection, as well as meeting with mayor, district council members and local government secretary. Survey Instrument The survey design has been informed by an in-depth situational analysis of the revenue collection, budget and expenditure. A survey tool; the questionnaire and interview were developed and used to collect primary data. The questionnaire was administered through face to face interviews conducted by our research team who interviewed the respondents Recruitment and Training Survey Team In preparation to undertake the fieldwork, the survey team engaged three data collectors who were involved in primary data collection. After recruitment, the research assistants were trained for one day. Also, a one-day pilot study was conducted the day after the training to validate the research instrument. Survey Organization and Fieldwork Data collection started on 16 th May 2013 and was completed on 13 th J u n e A total of eight enumerators and lead consultant participated in the survey. The enumerators worked under the guidance of supervisors, being coordinated by lead consultant who was responsible for conducting interviews with key respondents and any other stakeholders at district level. 7

8 Data Entry and Analysis SPSS software was used for data entry, with data collected from the all districts. Data entry was conducted by two data entry clerks simultaneously and was completed in June Data was analysis on the basis of the baseline objectives. 4.0 SUMMARY OF FINDINGS This section summaries the key finding of the baseline survey on the revenue collection for seven districts in Puntland. The section is divided five sub-sections. Demography of the Respondents This sub-section presents a brief summary on demography of the respondents in terms of gender, age, qualification, experience and participation of training in the last three years. Table below shows details on the demography of the respondents. Table 1: Profile of Respondents in Bosaso district (N=40) District Category Number Percentage Bosaso Gender Male 24 60% Female 16 40% Age < % % >= % Qualification Below Secondary School 12 30% Secondary 12 30% Diploma % University % Experience Less than one year 2 5% 1-2 years 0 0% 3-4 years 8 20% More than 4 years 30 75% Training Attending training % Total

9 In Bosaso district, the survey conducted 40 revenue collection financial staff of which 24 (60%) were male and 16 (40%) were female as indicated in the above table. Results in the Table 1 indicate that most of the respondents (45%) fall in the age group of years, 35% fall in the age group of 29 and below, where as only 20% fall in the age group of 40 and above years. In terms of qualification, in the above table reveals that majority of the respondents 60% have attended secondary school(30%) or have attended an education below secondary school while insignificant 40% have attained tertiary education either as college level or university. The results above indicate that most of the respondents (75%) have more than four years of experience, 20% of the respondents have 3 to 4 years of experiences, while 5% of the respondents have less than one years of experience. In the last three years, the only 37.5% of the respondents had attended training on their task. Table 2: Profile of Respondents in Garowe district (N=35) District Category Number Percentage Garowe Gender Male % Female % Age < % % > % Qualification Below Secondary School % Secondary 0 0% Diploma % University % Experience Less than one year years 7 20% 3-4 years % More than 4 years % Training Attending training % Total According to the survey conducted at Garowe municipality that 88.57% of the respondents were male and 11.42% were female as indicated in the above table. Findings in the Table 2 show that most of the respondents (57.14%) fall in the age group of years, while 42.85% fall in the age group of 40 and above years. In terms of qualification, in the above table 9

10 indicates that majority of the respondents 85.71% have attended an education below secondary school while 14.29% have attained tertiary education either as college level or university. The findings in the above table depict that most of the respondents (65.97%) have more than three years of experience, 20% of the respondents have 1 to 2 years of experiences, while 14.28% of the respondents have less than one years of experience. In the last three years, the only 45.77% of the respondents had attended training on their task. Table 3: Profile of Respondents in Gardo district (N=13) District Category Number Percentage Gardo Gender Male % Female % Age < % % > % Qualification Below Secondary School % Secondary % Diploma 0 0% University 0 0 Experience Less then one year % 1-2 years 0 0% 3-4 years % More than 4 years % Training Attending training % Total In Gardo district, the study reveals that 84.61% of the 13 respondents were males while 15.39% of the respondents were females. The findings in the table 3 reveal that most of the respondents (69.2%) fall in the age group of years, 21% fall in the age group of 40 and above years, while only 7.7% fall in the age group of 29 and below years. In terms of qualification, in the above table reveals that majority of the respondents (53.84%) have attended secondary school, while 46.15% of the respondents have attendant education below secondary school. There is no anyone that attended either college or university. 10

11 Table 3 indicates that most of the respondents (76.9%) have more than four years of experience, 15.38% of the respondents have 3 to 4 years of experiences, while only 7.69% of the respondents have less than one years of experience. In the last three years, all of the respondents (100%) had attended training on their task. Table 4: Profile of Respondents in Galkayo district (N=36) District Category Number Percentage Galkacyo Gender Male % Female % Age < % % > % Qualification Below Secondary School 27 75% Secondary 09 25% Diploma 0 University 0 Experience Less than one year years % 3-4 years % More than 4 years % Training Attending training % Total In Galkacyo district, the survey shows that 94.55% of the respondents were males while 5.44% of the respondents were females. The results in the table 4 indicates that most of the respondents (58.33%) fall in the age group of years, 22.22% fall in the age group of 40 and above years, while only 19.44% fall in the age group of 29 and below years. In terms of qualification, in the above table reveals that majority of the respondents (75%) of the respondents have attendant education below secondary school, while 25% of the respondent attended secondary education. There is no anyone that attended either college or university. Table 4 reveals that most of the respondents (44.44) have three to four years of experience, 33.33% of the respondents have more than four years of experiences, while only 7.69% of the respondents have less than one years of experience. In the last three years, all of the respondents (44.44%) had attended training on their task. 11

12 Remote Districts Newly selected districts in JPLG program are located remote area, particularly coastal area in which host less population and it has limited access in basic service. These districts include Bayla, Eyl and Jariban. In the revenue collection and financial department staff for those three districts is only nine persons. Of these 77.7% were male and 66.66% of the respondents have completed secondary education, %(1) of the respondent has diploma, while only one staff has education qualification below secondary school. The majority of the respondents ( 77.77%) had attended a training in their respective area and the most of the respondents has service experience more two years Table 5: Profile of Respondents in Bayla district (N=4) District Category Number Percentage Bayla Gender Male 4 Female 0 Age < >40 2 Qualification Below Secondary School 2 Secondary 2 Diploma 0 University 0 Experience Less then one year years years 0 More than 4 years 4 Attending training 2 Total Table 6: Profile of Respondents in Eyl district (N=3) District Category Number Percentage Eyl Gender 12

13 Age Male 2 Female 1 < >40 1 Qualification Below Secondary School 0 Secondary 2 Diploma 1 University 0 Experience Less then one year years years 2 More than 4 years 0 Attending training 3 Total 3 Table 7: Profile of Respondents in Jariban district (N=2) District Category Number Percentage Jariban Gender Male 1 Female 1 Age < >40 1 Qualification Below Secondary School 0 Secondary 2 Diploma 0 University 0 Experience Less then one year years years 1 More than 4 years 0 Attending training 2 Total 13

14 Revenue, Budget and Expenditure of the District Municipalities The main objective of the baseline survey was to examine source of revenue, budget and expenditure of the district municipalities. Below table reveals details on revenue collection by source in 2012 for seven districts in Puntland. Table Revenue broke down by District 2012 Bosaso Gardo Garowe Galkacyo Jaribal Eyl Bayla Revenue 21,368,568,000 6,435,613,000 4,960,369,000 30,000,715,000 1,072,000, ,000,000 1,019,700,000 According to above table, the revenue performance in the year 2012 was relatively good in urban districts as there is not big deference between budget which is targeted revenue and total revenue collection. In terms of tax revenue performance, it has been looked at the three major tax heads that include direct taxes, taxes on goods and services and trade taxes. In view of revenue performance by type of tax, it is comparatively more than for the period of 2009/2010 in relation to the period 2008/2009 for direct taxes and taxes on goods and services. However it is lower for taxes on others source of local government revenue. Municipality Budget The respondents were asked to disclose if they are aware for local government financial regulation that is in place. All the respondents mentioned that they are aware and follow local government financial regulation. The respondents also had been asked how they follow these regulations. They revealed that they strictly follow these regulations such as source of revenue, budget items, budget preparations are based upon these regulations. Each district mentioned that they have its own annual budget that prepared by executive members and approved by district council as describes law No.7 issued in 2003 in which clearly states district budget preparation stages. It was noted that public was not full involved district budget preparation and does not have oversight role to ensure that the expenditure is align to priority activities. 14

15 A second remark is that some source of revenue is not functions that are included in the project and it strongly effect budget that is results deficit between expenditure and budgeted items. Table 5 Comparison between budget and Expenditure in Bosaso Gardo Garowe Galkayo Bayla Eyl Jariban Budget 20,113,324,000 10,892,137,600 2,321,068,000 27,345,567, ,800, ,411, ,000,000 Expenditure 16,571,839,000 11,640,595,715 2,316,968,000 28,980,010, ,200, ,193, ,000,000 Balance 3,541,485, ,458,115 4,100,000-1,634,443,000-20,400,000 27,061, ,000,000 The above table compares budget and expenditure in 2012 by district in order to see how budget is adequate to the expenditure of the municipalities. Results in Table 5 show that Gakayo, Gardo and Bayla have over run their annual budget in Below table compares revenue and expenditure in order to assess in which municipality expensed more than their budget in Table 6 Comparison between budget and Expenditure in Bosaso Gardo Garowe Galkacyo Jaribal Eyl Bayla Revenue ,435,613, ,000,715,000 1,072,000, ,000,000 1,019,700,000 Expenditure 16,571,839,000 11,640,595,715 2,316,968,000 28,980,010, ,200, ,193, ,000,000 Balance 4,796,729,000-5,204,982,715 2,643,401,000 1,020,705, ,800, ,807, ,700,000 The above table reveals that only Gardo has fiscal deficit, but other districts have surplus in This is fine indicator that shows how municipalities performed in revenue collection, but in focus group discussion, it was noted that municipality did not collect revenue as planned due to several reasons include limited capacity, low motivated staff, lack of awareness on how taxes contribute rebuilding and development of the region and others. It has been noted that the most of expenditure were spent to the staff salary, administration cost, and contribution of the JPLG program as district contributes 5% of the total project budget, sanitation, security and others basic service. For example, Bosaso municipality in 2012, 50% of its expenditure was spent in salary (34%) and operations, while 0.94% and 0.27% were spent in health and education respectively. Garowe municipality 80% of its expenditure spent in staff salary and development, where as 4.5% and 15

16 13.5% spent in health and water supply respectively. Gardo municipality, 24.68% of it expenditure spent in staff salary and operation, while only 0.88%, 0.43% and 0, 55% spent in health, water supply and education. The reason of this limited amount spent in health and education is that the ministry of health and education pay directly to health and education institutions. In addition, more basic service is still remaining in the hand of central government and municipality partially contributes basic and does not fully finance all basic service. Central Government Fiscal Support In Puntland, the central government budget is based on ministry level and each ministry is responsible to exercise its mandate from central level to the village level, although there is decentralization system, but not fully implement. Therefore, the central government subsidiary reaches district through ministry. It was noted that Garowe and Bosaso get percentage from central government budget. Municipality Report System According to the surveyed districts, municipalities use single entry cash accounting because of its easy to enter transactions that records only expenditure and revenue when funds are received, but this may sometimes gives inaccurate picture on overview of municipalities accounts as a loan from private sector is recorded as revenue. This does not give a clear way on how to reimburse to the loans. Four districts (Bosaso, Gardo, Garowe and Galkayo) exercise to use an account package called AIMS (Accounting Information Management System). However, there is indicates that shows these district still lack enough capacity to fully use account packages. It was noted only Garowe municipality use an account package called PAIMS that is used for real estate taxes and still is piloting stage. The baseline survey sought to know reporting period of the district municipality which is indicate that shows financial management. The entire districts stated that they prepare financial report on monthly basis and presented evidence that clearly shows financials reports and accounting books. Also, they revealed that they use basic accounting books such cash and expenses register, journals, voucher, payrolls, receipt, and others. The respondents were asked whether they exercise internal audit. Only urban districts mentioned that they use internal auditing in quarterly or annual based. In addition, that external audit exercise focuses on urban districts. 16

17 5.0 CHALLENGES In focus group discussion that held for every district in which mayor, executive secretary, head of finance and other district officer participated to discuss challenges of district revenue collection. The following are main challenges in local government revenue collection. Shortage of staff: a total staff of revenue collection and finance department for seven districts is only 120 staff in which is enough to collect revenue as expect. This resulted low income for district municipality as they are unable to reach any revenue source due to limited number of staff in the area of revenue collection and others. Low Capacity: It was noted that the capacity of revenue collection staff is very low due to limited education background or over age. Low Payment and Delay of payment: Salary and administrative cost are very low that could not attract a qualified staff. Thus, it was recruited low capacity staff. There is also delay of payment. This does not motivate local government staff to collect revenue with low payment that was not paid on time. Lack of Transparency: Due to lack of transparency, the community has fear about how the local governments spend tax and this caused to not active pay taxes or pay partially. Security: Insecurity was counted as the barriers of revenue collection as a person can collect revenue in some cities or area because of his/her security. Lack of Widespread Revenue Collection Implementation: Revenue collection was exercised by the main cities only. It was not noted that any district gains revenue from its villages. Also, some of revenue source was not function fully in which the local government may gain more revenue. Ambiguous Revenue Collect Source: Some districts claim that the ministry of finance collects tax in the port, road taxes for livestock telecommunication companies and other. Overuse: District municipality gains revenue from water and electricity companies which are private or public-private properties. The amount of water and electricity that used by public place is more the taxes to be paid by companies, thus local government decided not to ask revenue those companies as public usage of water and electricity is surplus. Delay of Central Government Payment: As local government is the only institutions that generates income, when there is delay of central government payment, in such circumstance, district municipality must pay the cost of all activities that is done in the district level by any government institutions in the district level. Staff Turnover: Some districts states that their staff has left from the job after giving training due to payment. This will lead to recruit a new staff who needs to training as s/he is new to the local government environment. Lack of utilization of Document: during this baseline, the team observed that municipalities did not full exercise prepared document in related to the local government. 17

18 6.0 Revenue Strategies Local government revenue has become challenges in Puntland local government, and once these challenges are not properly dealt with, it becomes a big disadvantage to the local government and citizens of the country, as enough revenue will not be generated to the local government. Various challenges such as poor tax collectors, tax evasion, and inadequate logistics are making taxation difficult in Puntland Local governments. All these challenges reduce the amount of revenue generated by the local Government. The inability of the local government to tackle these challenges will encourage economic instability, poor infrastructural development, service delivery and poor economic growth. Local governments operate at the grassroots and are expected to provide services to their stakeholders. In a decentralization system like Puntland, local governments are not close to the people and hence could effectively alter socioeconomic and political conditions within their jurisdictions. Apart from providing and maintaining basic infrastructures, local governments can complement the economic activities of other levels of government. This of course depends on the availability and proper utilization of funds. Revenue generation is therefore an important issue for Local Government. It is through this activity that the source the finance for funding their operations, thus to a large determining the quantity and quality of services provided to the generality of people within their domain. These reasons, coupled with the fact that Local Governments are engines of growth and development, make imperative the need for Local Governments to map out strategies for improved revenue generation, emphasizing especially the internal sources which are more flexible, and could be in the total control of the Local Governments, unlike the share from the Distributable Pool Accounts. The following are strategies for improving local revenues in Puntland municipalities Develop fiscal decentralization policy in order to recognize what the local government has to collect and central government mandate for collecting taxes. Enhancement of Developing a database of individual taxpayers Establishing data base is very important in generating local government revenue system. 18

19 Strengthen management information systems for revenue administration and control. Institute legal and cost effective revenue recovery mechanisms to reduce on fraud and losses that undermine budget performance. Strengthening internal Audit system in local government so that to fight any fund embezzlement and to improve transparency and accountability in local government level Improving the control process Introducing cost-effective mechanisms in revenue mobilization to reduce administrative costs i.e. administrative costs should not exceed 10%. Establishment of local revenue monitoring committees at all level. Creation of revenue taskforces at all levels to ensure that at least 85% revenue from all collectable sources is realized. There should be continuous capacity building in form of mentoring and support to LG staff on good practices in revenue mobilization, collection, monitoring and accountability. Educating citizen on how to pay taxes and to show them deeply the importance of paying taxes, which will reflect the development of the country through the following strategic actions. Awareness and sensitizing citizens through local radio Delivering effective and efficiency services to community Providing recognitions to community who participated development ongoing programs through contribution both financial and constant consultant. develop Local Taxes acts in order to differentiate central tax Revenue tax collectors are not sufficient to collect and mobilize the required district revenue therefore, there is a need to increase tax collector in Bosaso District 19

20 7.0 WAY FORWARD The following are way out in order to overcome the above challenges and increase revenue of district municipality: Revenue Enhancement: The district municipality has to develop a revenue enhancement strategy through an implementation of revenue policy, transparency and providing good services. The revenue enhancement process needs to be divided into short, medium and long-term activities. Financial Administration: There is a need to strengthen the overall financial administration and internal controls within the district municipality. In this regard, key disciplines such as preparing the budget, reporting on financial management, revenue management, expenditure management, asset and liability management, supply chain management, among others, must be correctly assigned and addressed. Cash Management Strategy: A cash management strategy is required to ensure that cash-flow planning and investment decisions are undertaken and that unspent grant funds are properly safeguarded and utilized only for the intended purposes. It has been noted that the municipality is operating an overdraft, as per the information derived from Table financial year. Human Resource Management: The district municipality s approach to human resource management requires attention and review. It was noted that staff in revenue collection and finance department are getting low payment and need training. Thus, human resource must be taken into consideration with a view to addressing shortcomings. A process to verify employees on the payroll and capacity must be included in this plan. This verification must be completed within this year and must conclude all outstanding human resource management matters. 8.0 CONCLUSION This baseline survey sough to disclose the level of functionality of source of revenue collection in the district municipality level as law 2003 indicates. The survey reached seven districts with a total of 140 respondents in order to obtain the objectives of the study. The survey presented a detailed data on amount of income of each source of revenue collection as well as comparison between budget and expenditure in 2012 financial year to see whether there is surplus or deficit. All district municipalities have annual budget prepared by executive members and approved by the district councils. Also district municipality prepares monthly financial report in which either/both internal and/or external audit oversee it. The survey presented some challenges on district revenue collection and way forward. 20