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UNCDF- LOCAL REVENUE MOBILIZATION INITIATIVE. Final Report 26th
June 2015
Page 1 of 46 PUNTLAND STATE OF SOMALIA LRMI Frameworks Final Report
UN JOINT PROGRAMME ON LOCAL GOVERNANCE
AND DECENTRALISED SERVICE DELIVERY (JPLG)
IN SOMALIA
PUNTLAND STATE OF SOMALIA
Local Revenue Mobilization in Somaliland, Puntland and the Federal
Government of Somalia (FGS)
Local Revenue Mobilization Frameworks
Final Report
Report By:
Kandole B. Patrick
+256-772-409-113 or +256-752-409-113
26th
June 2015
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June 2015
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Contents
FOREWORD ............................................................................................................................................................... 3
ACRONYMS ................................................................................................................................................................ 5
EXECUTIVE SUMMARY ......................................................................................................................................... 6
1. BACKGROUND ................................................................................................................................................ 8
2. ASSIGNMENT OBJECTIVE ........................................................................................................................... 8
3. KEY EMERGING ISSUES FROM MISSION ............................................................................................... 9
4. LEGAL AND POLICY FRAMEWORK CHALLENGES .......................................................................... 10
CONCLUSION OF LEGAL FRAMEWORK ..................................................................................................................... 12
5. ENUMERATION AND REGISTRATION ................................................................................................... 12
CONCLUSION OF ENUMERATION AND REGISTRATION .............................................................................................. 13
6. ASSESSMENT AND BILLING ...................................................................................................................... 13
CONCLUSION ON ASSESSMENT AND BILLING ........................................................................................................... 14
7. SENSITIZATION, CUSTOMER CARE AND PUBLICITY ...................................................................... 14
CONCLUSIONS ON SENSITIZATION, PUBLICITY AND CUSTOMER RELATIONS ........................................................... 15
8. OSR COLLECTION PERFORMANCE AND MONITORING ................................................................. 15
CONCLUSIONS ON COLLECTION AND MONITORING ................................................................................................. 19
9. RECORDING, AUDIT AND ACCOUNTABILITY ................................................................................... 21
CONCLUSIONS ON RECORDING AND ACCOUNTABILITY ........................................................................................... 21
10. REVENUE ADMINISTRATION- WHAT WORKED AND QUICK WINS ............................................. 23
11. LOCAL REVENUE MOBILIZATION MANUAL AND GUIDE ............................................................... 24
12. TRAINERS MANUAL AND GUIDE ............................................................................................................ 25
13. WORKSHOPS ................................................................................................................................................. 27
14. THE LRMP CONCEPT .................................................................................................................................. 28
15. DEVELOPMENT APPROACH FOR LRMP ............................................................................................... 29
16. SAMPLE LRMP .............................................................................................................................................. 31
17. REVENUE PERFORMANCE PROJECTION 2015-2019........................................................................... 32
18. REVENUE MOBILIZATION ACTION PLAN (R-MAP) ........................................................................... 33
19. R-MAP SAMPLE FORMAT- COLLECTION AND MONITORING ....................................................... 35
20. GOING FORWARD-NEXT STEPS .............................................................................................................. 36
21. CONCLUSION................................................................................................................................................. 37
22. APPENDIX 1: DOCUMENT REVIEW......................................................................................................... 38
23. APPENDIX: 2 PUNTLAND -FIELD CONSULTATIONS ATTENDANCE LOG SHEET ..................... 39
24. APPENDIX 3: CLASSIFICATION OF LOCAL REVENUE SOURCES ................................................ 41
25. ANNEXTURE ONE: SUMMARY OF FIELD MISSION EMERGING ISSUES .................................... 42
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Foreword
The local revenue situation in Somalia has started an upward trend after many years of low
performance. However, the revenue levels are still below the desired levels to adequately fund
the cost of decentralized services. The concept of decentralization implies a legal obligation on
municipalities to strive to enhance revenues and utilize the sources to finance service delivery
within their budget.
The JPLG-UNCDF has partnered with the Ministries of Interior and Federalism (MoIF) and the
Ministries of Finance in the respective regions to provide technical support to the Local
Revenue Mobilization Initiative (LRMI). The overall goal of the Initiative is to improve
revenue generation at the local level and promote better service delivery and local development
through a more effective and efficient revenue administration.
This phase of the Revenue Mobilization Initiative is to support development of Local Revenue
Mobilization Plans [LRMP] and a Revenue Mobilization Action Plans [R-MAP] as a follow up
action on the Local Revenue Mobilization in Somaliland, Puntland and the Federal
Government of Somalia (FGS), Draft Proposal Framework April 2014.
Insufficient revenue generation is most commonly the result of a combination of factors,
including; tax base [what to be taxed], tax coverage [who is paying and how much], tax
assessment [basis of tax determination], Collection effectiveness, [how much of billed is
collected], collection efficiency [cost of collection per shilling] payment procedures and weak
human resource factors.
Developing a LRMP implies that the regional and district governments in Somalia are making a
commitment to putting in place a wide-ranging series of improvements to its policies,
procedures, staffing and organizational structure that impacts on revenues and service delivery.
The R-MAP approach is to have implementation in three phases, Short, Medium and Long Term
where the short term, 0-6months, will be to focus on delivery of early results by initially looking
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at quick win situations. The short term strategy will be to target what is perceived as collectable
and receivable.
Support for development of comprehensive R-MAPs was through workshops for Puntland. This
intervention will require further support by coaching and mentoring staff in respective regions to
come up with a more holistic LRMP and R-MAP by the close of 2015.
To ensure appropriate accountability, an internal Audit manual and guide will be required to
support the accountability and oversight function within local governments.
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Acronyms
AIMS Accounting Information Management System
ALGA Association of Local Governments
BIMS Billing Information Management System
CEO Chief Executive Officer ( Executive Secretary)
CFO Chief Finance Officer
CIA Chief Internal Auditor
CSOs Civil Society Organizations
FGS Federal Government of Somalia
GIS Geographic Information System
IFMS Integrated Financial Management System
ILO International Labour Organisation
IR Inception Report
JPLG Joint program for Local Governance in Somalia
LGs Local Governments
LGs Local Governments
LRMP Local Revenue Mobilization Plan
LGRMP Local Government Revenue Mobilization Plan
MoF Ministry of Finance
MoI Ministry of Interior
MoIF Ministry of Interior and Federalism
OSRs Own Sourced Revenues
RIP Revenue Improvement Plan
R-MAP Revenue Mobilization Action Plan
UNCDF United Nations Capital Development Fund
UNDP United Nations Development Program
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Executive Summary
The underlying intent of the Puntland mission study in February to March 2015 by UNCDF was
to identify issues that will inform the development of Revenue Mobilization Manual and Guide,
support development of LRMP/R-MAP and to conduct workshops for training of trainers in
preparation for a roll out of training in all target districts. Furthermore these findings will
support the development of an internal audit manual and guide.
The key challenges identified by the mission centered on (1) low revenue base due to the level of
economy and poverty (2) Low collection efficiency where all that is billed is not collected (3)
low capacity in terms of equipment and personnel (4) low willingness to pay due to low
downward accountability and lack of awareness (5) the legal framework is not enabling enough
especially during times of collection enforcement (6) charging services below market cost and
generally unrealistic tax tariff rates, (7) a weak internal audit and oversight function.
These challenges are exacerbated by low capital investments into visible services and poor
accountability. The UNCDF has had a series of interventions aimed at increasing service
visibility as a support mechanism for promoting willingness to taxes.
The merging issues from the mission informed the development of Revenue Mobilization
Manual and Guide on which basis the workshops were held. The key workshop outputs was
support for the development of LRMP and R-MAP including skills transfer for personnel who
will participate in the roll out training. A manual for Trainers who will participate in the roll out
training had also been developed.
The workshops held during May and June 2015 conclude that the most crucial next step actions
should involve the following; (1) Roll out of training (2) development of LRMP/R-MAP
focusing on what has been tested, on initiatives that will easily be supported politically and are
administratively feasible (3) Review of Tariffs structure and related legal framework1 (4) review
organization service structure (5) develop accountability and Internal Audit Manual (6) Training
and Skilling of the Internal Audit and Oversight function (7) Complete the Municipal Finance
Policy (8) budget guidance and cost rationalization (9) communication strategy (10 PPP strategy
1 Review of legal framework is on-going in Puntland and it is expected that it will be will be complete by January
2016
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A sound revenue system is essential and serves as a crucial tool for the successful running of
local government. The Municipal Finance Policy must therefore be augmented with development
of Accountability and Internal Audit Manuals and eventually the Finance and Accounting
Manual and regulations. Quality recording and accountability may be difficult in the absence of
computerized systems for revenues, budgeting and spending.
One of the key assumptions in the overall LRMI frameworks is that the people and governance of
target local governments are able and willing to make the necessary effort to increase the
revenue levels, and to undertake all administrative measures within an appropriate time
framework. And that the local governments will have a professional, well empowered and liable
administration with improved financial capacity, strong internal audit and accountability
function.
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UNCDF-LRMI PROGRAM
1. Background
The UN Joint Program on Local Governance and Decentralized Service Delivery (JPLG) in
Somalia is a joint program of ILO, UNCDF, UNDP, UN-HABITAT and UNICEF. The program
has determined that revenue mobilization at the local level will have a marked impact on the
key objective of improvement in good governance, and equitable priority service delivery in
selected locations.
Furthermore, local revenue mobilization has the potential to foster peace through increased
political and administrative accountability by empowering communities, and betterment of
service delivery. For a futuristic Somalia under decentralization, the motivation for increasing
revenue volumes and the effective accountability is a key success factor for good governance and
equity.
The UNCDF, on behalf of JPLG, in partnership with the Ministries of Interior and Federalism
(MoIF) and the Ministries of Finance in the respective regions to provide technical support to
the Local Revenue Mobilization Initiative (LRMI). The overall goal of the Initiative is to
improve revenue generation at the local level and promote better service delivery and local
development through a more effective and efficient revenue administration.
There is evidence that the coast line and other areas within Puntland are endowed with minerals,
emeralds, gas and Oils, which are a potential for future local government revenues through
Royalties.
2. Assignment Objective
The key result area for this assignment was to develop a LRMI framework manual and guide and
further provide supporting skills for development of Local Revenue Mobilization Plan [LRMP]
and Revenue Mobilization Action Plan, [R-MAP] as a follow up action on the UNCDF-Local
Revenue Mobilization in Somaliland, Puntland and the Federal Government of Somalia
(FGS), Draft Proposal Framework, April 2014.
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This objective has been accomplished through; (1) conducting a fact finding mission (2)
development formulation of a Revenue Mobilization Manual and Guide (3) development of a
trainers manual and Guide (4) conducting workshops to provide skills to staff who will
participate in the roll out training.
3. Key Emerging Issues from Mission
The state of revenue mobilization depends on the economic environment of the targeted regions,
Puntland. Puntland has a combined population of about 4,284,6332 persons, with over 34%
resident urban areas, while rest is rural-nomadic. Recent surveys indicate that about 73% of the
population is living in poverty worsened by high unemployment levels.3 The overall economy is
underpinned by the livestock sector, estimated to contribute 60% of GDP.
The population engaged in economic activities is minimal and by implication, there is low
taxable capacity from individual incomes and wealth. Nationally the situation is made more
complicated considering that the population growth rate estimated at 3.14%, which may have the
consequence of ever increasing demand and pressure on the already strained social services.
The Local revenue mobilization situation is therefore becoming more urgent as a means to
provide and deliver the much needed services at a micro level.
The UNCDF mission was conducted during the Months of March and April 2015 and generically
identified major bottlenecks in the revenue administration process. The Revenue administration
process has the following reference points (1) Legal and Policy framework (2) Enumeration and
Registration (3) Sensitization and Publicity (4) Assessment and Billing (5) Collection and
Monitoring (6) Recording and Accountability.
The challenges are exacerbated by low capital investments into visible services and poor
accountability. The UNCDF has had a series of interventions aimed at increasing service
visibility as a support mechanism for promoting willingness to taxes.
2 Puntland Ministry of Planning 27
th May 2015, but still contested, earlier estimates were 2.5m
3 Somaliland sector functional assessment report 2012
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4. Legal and Policy Framework challenges
(1) All the regions operate a decentralized system of governance which allows a level of
discretion in revenue administration at the local level. The centre provides remittances
under the fiscal decentralization process; these are different for each region.
(2) The amount of funds transferred to LGs by the Centre has no relationship with services
rendered4 except in the case of Counterpart funding for Donor funds. There is also no
linkage to the levels of revenues a LG is able to collect.
(3) There is no discernable trend in the level of grants transferred as this depends on the
level of revenues raised by the centre.
(4) Local tax tariffs are approved by the Ministry of Interior on application by the LG
Councils. The last known approved tariffs are dated 2009 and are extremely out of the
current economic reality. LGs are charging different rates according to their own
assessment and generally not following any nationally set guidelines currently.
(5) Puntland State of Somalia has an on-going review of the legal framework and Tariffs
structure which may be complete by January 2016. This is a costly and skills consuming
exercise which may require support of the UNCDF. It hoped that the other parts of
Somalia will emulate the Legal framework review in Puntland.
(6) There are no specific laws to govern specified revenue sources which create
complications during assessment and payment enforcement.
(7) The legal framework5 lists the revenue categories that may be collected by designated
local governments. The range and powers on revenues to be collected are based on
grading of Local governments; they are divided into four grades, A to D, where “A”
designates the capital of each region with more powers to collect revenues, while districts
are graded from “B” to “D” with a smaller range of taxes assigned to them. LGs in Grade
4 The Somaliland government provides 12.5% of national budget as transfers to LGs while Puntland
provides for 2.5%. Municipalities hosting a sea Port get in addition a direct share of customs duty at 10%
and 2.5% in Somaliland and Puntland respectively 5 Law No.7 issued in 2003 lists all Lag revenues. Law no.3 & 12 Regions and districts administration, and
Puntland Taxation framework 2014
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are more endowed and fund their total budget to more than 70% in most cases, while the
lower grades depend much more on transfers from the centre6.
(8) The existing administrative law provides Local governments with more than Twenty (20)
Own Source Revenues (OSRs), which the mission has for ease of reference divided into
four major categories (1) Livestock based
Taxes (2)Land based taxes (3) User fees and
Charges (4)Business License. A number of
these revenues are not yet implemented by
some LGs due to lack of clarity in the law
which assigns them to levels of government,
the centre and LGs.
(9) There is no coordinated Human resources
policy framework that spells out the
structure, responsibilities and pay structure
for LG staff. Low remuneration is said to be
a disincentive for revenue collectors and consequently a low yield. Low remuneration
may also create temptations for fraud and irregularities. This increased risk call for
urgent formulation of monitoring tools and internal audit manuals and guide.
(10) Lack of clarity in the legal framework in respect to revenue responsibilities,
specifying who sets rates, who collects and who retains which source, and what level of
rates?.
(11) Local revenues such as Property tax, Markets, street parking, agricultural taxes….
do not have enabling laws to guide assessments, valuation and enforcement systems. The
absence of a law on taxation of municipal property has made prosecution of defaulters
more difficult. Neither Garowe nor Gardo for example, has had any significant cases of
prosecution of tax defaulters, despite many default cases, and the case is similar in all
municipalities in Puntland. Obscurity within the law encourages political interference,
opens doors for corrupt tendencies and default with impunity.
6 Overall municipalities in grade “A” contribute more that 70% of total budget from OSRs. Bossaso a larger
percentage in central government grants due to the additional share from the Port Authority. Gardo is a grade C
local government and therefore more dependants on CG grants.
Low remuneration may also
create temptations for fraud
and irregularities. This
increased risk call for urgent
formulation of monitoring tools
and internal audit manuals and
guide.
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(12) The enforcement mechanism of removing or locking main doors without judicial
authority has proved unpopular and besides it has no legal backing.
Conclusion of Legal framework
(1) The absence of a relationship between
transfers and local revenue collection may
be a disincentive, especially where the
transfers are significant as in the case of
Bossaso.
(2) Approved revenue sources that are
approved by Law but not yet implemented
should be collected as soon as practicable.
(3) Tariffs that are out of touch with the economic reality must be reviewed as an
immediate short term action.
(4) A transfer formula should be worked out to have a reference weight to local revenue
mobilized as a percentage of potential revenues.
(5) The LDF should include revenue in the performance criteria and provide incentives.
(6) Low remuneration and skills is having an impact on the morale of revenue monitors
and collectors.
(7) For better implementation, all revenue initiatives must be backed by a specific legal
framework, a law for property tax, Royalties, Business and land….
(8) Collection of revenue arrears is difficult to enforce in the absence of specific legal
framework on Property Taxes and other revenues
5. Enumeration and Registration
This process involves identification and registration of tax objects and individuals in a computer
based medium or hard copies of registers. Registers should show name of tax payer, location,
income liable for taxation, type of tax
For better implementation, all
revenue initiatives must be
backed by a specific legal
framework, a law for property
tax, Royalties, Business and
land….
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(1) Whereas the GIS and business registration have improved on the records, there is still a
challenge in the GIS for property. The records contain some property that is exempt,
however, attempt to isolate this are underway in Puntland.
(2) There is insufficient logistics in terms of transport and stationary and human capital
Conclusion of Enumeration and Registration
(1) GIS should be verified physically with a door to door task force so that the real taxable
property is on the roll.
(2) Train enumerators and data entry clerks
(3) Provide computers and stationary in a timely manner.
6. Assessment and Billing
This process involves determining the taxable income or
wealth income basing on approved transparent criteria or tariff
structure.
(1) The assessment criteria especially for business licenses
and land are still underdeveloped. In Garowe the
process for assessment of trading licenses is not well
refined and is exposed to costly loop holes7. Assessment is based on “value” of goods in
the shop at the time of assessment!
(2) There are no assessment committees which are representative and there is no evidence of
an appeals system except for reference to the Mayors.
(3) The absence of comprehensive street nomenclature has often delayed distribution of bills
and therefore leading to revenue arrears build up.
(4) The levels of poverty, deprivation and unemployment are high in the region and this
creates special problems in bringing a larger population to pay for the cost of service
delivery.
(5) Enforcement of compliance to pay is increasingly difficult because of the socio-political
environment.
7 The highest license id about USD 150 per year and the lowest is USD 30. Assessment is based on value of stock
displayed in shop
There is widespread
inequity and unfairness
in assessment; this
perceived unfairness may
result into quite
resistance to pay.
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(6) A large number of the population are engaged in informal trade, vending water on
donkey drawn trolleys road side Quat kiosks, roadside food stalls… and all these present
a problem in taxation because they are mobile and have no business records that can be
used for tax assessment.
(7) The tax tariff rates are considerably extremely low and out of step with the economic
reality. In Garowe, Property transfer tax of 2% is based on cost value rather than the
market value. Land premium for new plots of land is an average shs 1000-20008 as a one
off payment.
(8) Inappropriate valuation and assessments methods especially for land based taxation.
There is widespread inequity and unfairness in assessment, for example, a plot of land in
Garowe which measures 40metres by 60 metres is levied shs 140,000 irrespective of
location, gifted property is exempt from transfer tax, and residential property is rated at
shs 80 while commercial property is rated at shs 140 per square meter irrespective of
location. This perceived unfairness may result into quite refusal to pay.
(9) The GIS shows property but in a majority of cases has not been able to classify exempt
and non-exempt property and this could have the effect of indicating higher revenue
potential than would be the case if there was valuation on only taxable property.9
Conclusion on Assessment and billing
Unstructured assessment systems may result into low capture of tax objects and lower than
expected revenue volumes. The absence of an appeals tribunal may create challenges for fairness
and transparency in assessments which may result into tax payer apathy and resistance
7. Sensitization, Customer Care and Publicity
This involves activities that lead to tax payer buy-in, acceptance to pay and hence reduction of
resistance to pay with an overall result of reduced administration costs. Specific activities
include holding sensitization workshops and seminars for revenue collectors. Taxpayer
awareness campaigns on the importance of tax payments. Outputs may be radio programs, talk
shows, drama.
8 USD=20,000 shs
9 This matter was brought to the attention of HABITAT during discussions and there is a review that will take care
of this challenge.
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(1) This generally is not done on a comprehensive and structured basis although some
municipalities such as Gardo, Garowe have increased publicity using bill boards and
radio programmes and drama.
(2) There is no structured mechanism for publication of where resources come from and
where they go. However, Hergeisa intends to start a magazine and newspaper to inform
residents about resource use and encourage revenues payments.
Conclusions on Sensitization, Publicity and Customer Relations
Arising from the observations above, the following conclusions which will in turn inform the
development of the R-MAP and LRMP have been adduced;
(1) More action to improve on tax payer convenience so they don’t travel long distances in
order to pay taxes
(2) Introduce direct payments to the bank
(3) The mayor may be overwhelmed with complaints from defaulters. Therefore it may be
effective to establish a mechanism for receiving and handling public complaints
(4) Creation of a one stop centre or a complaints box will go a long way to reduce
congestion at the Mayors’ and Executive Secretaries’ Offices
(5) Develop a communication strategy championed by the MoIF
(6) Holding regular consultative meetings may reduce taxpayer apathy and collection costs
8. OSR Collection Performance and Monitoring
Collection involves activities involved in receiving revenues from taxpayer with a focus on
systems and procedures for ensuring adequate security and controls form any fraud. Monitoring
on the other hand involves activities, procedures, processes and methods used to ensure that local
government have enough revenues to finance their commitments. A process that involves
ensuring that bills are correct, issued to the right persons, collected and accounted for.
(1) Business and property Revenue is gaining significance especially due to the actions of
ILO and HABITAT respectively.
(2) Municipalities such as Bossaso have a large percentage of the budget funded by direct
sharing of customs revenues10
including a share of export taxes for livestock from these
ports. Bossaso receives 2.5% of customs duty on livestock. This may become a
disincentive to evolve new revenues in the long run.
10
The share is paid to the municipalities after every two days.
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(3) There has been significant growth in revenues especially in cases where there has been a
change in the tariff rates and better billing system, a case for Gardo and Garowe in
Puntland.
(4) Local revenue contribution to total budget is significant in municipalities averaging over
70%. Different revenue categories have varied significance between the regions.
Diagram 1: Revenue Category contribution in total OSRs 2014 shows the
significance of different revenue sources in the total budget, a reflection of
opportunities and endowment.
(5) Some tax payers evade taxes because they are not sensitized on the importance of paying
taxes. There is minimal involvement of political leaders in promoting revenues especially
property and business revenues.
(6) Low staff capacity in terms of skills and tools and low pay for revenue collectors
(7) Low logistics in terms of transport and data management. Computers are in short supply.
(8) There is no well facilitated monitoring function.
(9) Insufficient compliance audit of revenue by either the MoIF or the Auditor General.
Source: Consultant Analysis of Secondary Data: Respective LGs
0%
10%
20%
30%
40%
50%
60%
Livestock taxes Land based taxes
User Fees and Charges
Business Licenses
Garowe 10% 52% 23% 16%
Gardo 22% 25% 30% 23%
Galkacyo 32% 16% 11% 41%
A%
SH
AR
E
Diag. 1: Revenue Category contribution in total OSRs 2014 -PUNTLAND
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(10) The diagrams shows that Business and Land Taxes contribute on average is 60%
of the total Own Sourced Revenues (OSRs). The significance of the sources appears to
be on tax objects that are difficult to hide and more related to immediate earning of
income especially for animals in the market and immovable property. The local
governments also indicated that their major revenue sensitization focused on wealth in
terms of animals, land and buildings. Whereas there appears an opportunity to raise more
revenues from land taxes in the urban areas, there is still a state of low business activity
especially in lower grade local
governments and
impoverishment11
.
(11) Monitoring and
involvement of internal audit is
weak and this may be the
underlying cause of low
collection returns in many cases.
(12) OSRs growth trends varied widely from 244% for land based taxes to 7% for
commercial licenses, averaging at 51% overall growth between 2013 and 2014.
Diagrams 2: OSRs Growth Rates 2013-2014, shows how each category faired in target
local governments.
11
A quick survey within the Gardo and Garowe shows many old structures and a generally impoverished resident
population. The mission visited markets and witnessed a very low tempo of business activity. The urban areas in
Puntland show severe signs of deprivation and rundown buildings.
Monitoring and involvement of
internal audit is weak and this may
be the underlying cause of low
collection returns in many cases.
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Source: Consultant Analysis of LG Secondary Data
Diagram 3: Relative Importance of OSRs in Total Budgets 2014, below gives a graphic
representation of the relative importance of OSRs within the total budget.
-20%
0%
20%
40%
60%
80%
100%
120%
140%
Garowe Gardo Galkacyo averageLivestock taxes -8% 13% 21% 9%
Land based taxes 72% 11% 122% 69%
User Fees and Charges 107% 19% 23% 50%
Business Licenses 93% 41% 19% 51%
% O
SRs
Gro
wth
Diag. 2 OSRs Growth Rates 2013-2014 Puntland
0%
10%
20%
30%
40%
50%
60%
Livestock Land User fees LicensesGarowe 9% 51% 22% 15%
Gardo 14% 15% 18% 14%
Galkacyo 32% 15% 11% 41%
Axi
s Ti
tle
Diag. 3: Individual OSR share of Budget 2014
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Diagram 4: Total share of OSR in total budget 2014 illustrates the relative importance
of total OSRs in financing the budget 2014.
Source: Consultant Analysis of LG Secondary Data
Conclusions on Collection and Monitoring
Arising from the observations above, the mission makes the following conclusions which will in
turn inform the development of the LRMP.
(1) Any significant financing for service delivery will depend on the effectiveness of
OSRs mobilization initiatives and therefore the success of the LRMP and R-MAP is
critical.
(2) Opportunities for revenue impact on the overall
budget are from property [wealth] and business.
(3) High levels of poverty diminish opportunities
for more revenues. Initiatives to tackle poverty
and enterprise growth such as LED should be
part of early actions
(4) Land and user fees present better opportunities
for faster revenue growth and improvement due
0%10%20%30%40%50%60%70%80%90%
100%
Garowe Gardo GalkacyoOSRs 97% 61% 99%
External funding 3% 39% 1%
% C
on
trib
uti
on
Diag.4 Importance of OSRs in Total Budget 2014
Any significant action to
improve revenue
management must address
the criteria for adjustments
in tariff rates as an initial
step and quick win.
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to the elastic nature of the source. Therefore initial focus should be on land based
taxes and user fees, including new sources in fees
(5) Property and livestock taxes are the most prominent source of revenues in all regions,
with livestock revenue although less prominent in Puntland.
(6) The reason for growth in municipalities such as Gardo is due to an increase in Tariffs.
By implication this makes the revision of the tariffs which are currently too low and
meaningless in some cases as a quick win which must be pursued in the short run R-
MAP.
(7) The non collection of some approved revenues has distorted the performance ranking
especially in user fees and business licenses. All revenue sources as approved should
be implemented without delay.
(8) Property tax and business tax have a higher acceptability rate and therefore a higher
opportunity for collectability. Improvement action will be better based on these
sources.
(9) Livestock revenue is less significant in the Puntland region so the focus should be on
property and business especially in municipalities such as Bossaso and Garowe.
(10) Any significant action to improve revenue management must address the criteria
for adjustments in tariff rates as an initial step.
(11) Better revenue related data capture and management such as BIMs and AIMS has
a significant resultant impact on out-turn
(12) There is a need to develop revenue monitoring tools
(13) Develop internal audit manuals and procedures focusing on revenues
(14) Develop systems of enforcement that will ensure compliance, prosecution and
controls
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9. Recording, Audit and Accountability
Recording refers to activities that will result into showing where the money came from and
where the money went. Taxpayers need downward accountability where revenue is linked to
services delivered. The LDF is one tool that will enable increased service visibility and hope
fully increasing tax payer willingness to pay. Therefore the process of auditing, creating an
assurance that all is well is another critical factor in revenue mobilization. Linking services to
revenues must be seen to done and not merely said. The emerging issues are;
(1) No systematic regular reporting, analysis and discussion of revenue performance by
council on a regular basis.
(2) There is a skills gap in the internal Audit and oversight function and no adequately
trained internal auditors.
(3) The external audit reports are not annual as would be desired
(4) There is an absence of a monitoring system and tools for such a function
(5) The court system as a means to enforce payment is seldom used, either because of the
absence of a relevant framework or due to human weakness.12
(6) Absence of policy for enforcement of tax compliance- Aggressive enforcement methods
such as removal of doors in the event of failure to pay may alienate taxpayers and could
have a political back lash!
Conclusions on Recording and Accountability
Arising from the observations above, the mission concluded that there is a need for increased
focus on activities that promote transparency and accountability. Showing where the money
comes from and where the money goes in terms of visible services and information on all aspects
of LG operations.
1) There is a general perception that service visibility is low13
except for some recent
infrastructure work under donor funding although the decentralization policy requires at
least 40% of OSRs to be spent on investments.
12
There has not been rigorous enforcement because some senior staff believe that residents are poor and unemployed. 13
Mayor of Gardo.
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2) A participatory budgeting process is at low key and this denies the population a direct
linking of revenues to services rendered.
3) There are no public accounts committees to follow up audit and monitoring queries
creating an opportunity for irregularities.
4) Data on approved revenue sources is either absent or not updated regularly
5) Registers on potential payers not updated especially property owners although a set of
books is available
6) Internal audit staff is unqualified and poorly facilitated where they exist. They have a
general basic training of secondary school level.
7) Reports and budget are not displayed for the community and other stakeholders.
8) In order to have a holistic and more structured attention to the emerging challenges,
development of a Participatory Revenue Mobilization Action Plan is critical in order
to have a measurable monitoring process and management of the challenges.
9) Whereas the trends in shilling amounts appear to be on the increase, weakness in
monitoring and audit creates an opportunity for revenue leakages. This perception of
weakness in monitoring and leakages is shared by both the centre and Municipality.
10) Establishment of an internal audit function and design of internal audit manuals is
critical
11) More support and planning for a communication strategy on revenues is critical
12) New laws to cover new revenues such as royalties, use of beaches and user fees based on
recovery of full marginal cost are a necessity
And in order that accountability is part of this LRMP, preparation of internal audit manuals
and guides including some training will be a critical success factor for the consequent
R_MAP. In the meantime, the Habitat is developing a Municipal Finance policy document
which will institutionalise some of the agreed actions through training sessions.
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10. Revenue administration- what worked and quick wins
Summary and analysis of key emerging issues.
(1) Increase in tariffs in user fees, livestock and land tax. Tariff on land was changed from the
previously fixed amount to a tariff based on area of the land and space occupied by a building.
The market value for land transfer fees was changed from cost value to market value. Whereas
the tariff is still very low, a small change creates a significant impact in revenue growth. The
overall concept and effect is to increase revenues moderately from similar number of tax objects.
The changes may appear negligible but create a significant effect from the volume of
transactions. However, these adjustments require tacit approval by the MoIF in accordance with
Law 7.14
(2) Better data management especially in the case of property tax which has to a significant
degree been supported by HABITAT with the GIS. The use of the GIS and BIMS developed
under HABITAT is said to have provided the much needed data although the full exploitation
has not been experienced. Gardo and Garowe in Puntland are yet to take full advantage of the
BIMs for both Business licenses and property tax.
(3) Structured sensitization of communities by the political leadership and staff.
Municipalities such as Gardo have a community sensitization program on revenues although it is
not well funded and not done on a regular basis. ILO has funded some revenue awareness
campaigns using media and bill boards.
(4) Reduced political interference in matters of revenue management. All municipalities
consulted indicated that the political leaders do not interfere with revenue collection. And almost
always the tariffs set and approved by councils are endorsed by the Ministry of Interior. The
Office of the Decentralization Champion in all the regions, has been very supportive and more
especially so since it is directly under the office of the Vice President.
(5) Introduction of new tax initiatives. On average not all the revenue types indicated and
approved under the laws have been implemented. Some municipalities have not only gradually
14
The Law allows for reductions and not increments unless specifically approved in writing by the Centre.
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introduced these neglected sources, but are venturing into newer areas. Land premium is another
newly introduced revenue source and is charged in some municipalities such as Garowe.
(6) Collection effectiveness is highest in property taxes because there is a record against which
measurement can be done. Whereas there is a growth of over 100% in user charges in Gardo
Municipality, it is difficult to develop an opinion on whether this is a good performance or not
unless the potential is fairly estimated..
(7) Staff remuneration and motivation is varied between municipalities and there are loud
complaints about the disparity. Garowe offer incentives to collectors and this has shown
collection improvements.
11. Local Revenue Mobilization Manual and Guide
The LRMI Manual and Guide will support all levels of Lgs in acquiring new skills in revenue
mobilization processes and to acquaint themselves with the best practices in revenue
mobilization. Furthermore, the guide will enable a structured implementation of revenue
initiatives; support development of LRMPs and R-MAPs which is critical to the overall revenue
mobilization process in the short and long term time framework. This guide aims to support the
LRMP and R-MAPs through enabling staff and
politicians to achieve the following;
1) Identify and understand the importance
the major sources of LG revenues
2) Describe the procedures for revenue
policy, sensitization, assessment,
collection, recording , monitoring and
accounting
3) Explain the roles of the stakeholders
involved in mobilization of revenue and
particularly the implementation of the LRMP and R-MAP
4) Acquaint staff and politicians on the need for performance measurement and
reporting
The LRMI Frameworks Manual
and Guide will support all levels
of LGs in acquiring new skills
in revenue mobilization
processes and to acquaint
themselves with the best
practices in revenue
mobilization.
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5) Identify best practices and experiences in revenue mobilization
6) Share other international experiences in revenue mobilization
The manual and guide is arranged in three sections and covers the following discussion issues.
(1) Local Revenue Mobilization concept
(2) Rationale for revenue mobilization
(3) Categories of OSR, meaning and legal framework
(4) OSRs Performance analysis for 2013 and 2014 in target LGs in Puntland
(5) OSR Administration Processes, challenges and solutions
(6) OSR administration best practices
(7) Principles of a good revenue system
(8) Identification and evaluation of a new revenue source
(9) Development of a LRMP and R-MAP
(10) OSR monitoring concept
(11) Revenue Collection Targets
(12) Control Systems
(13) Performance Measurement process
(14) Performance monitoring Reports
(15) Administrative and political accountability- ensuring transparency
(16) Projection of priority expenditure-linking revenues to services
(17) Other international experience
Annexure to the manual include illustrations and diagrams for revenue analysis, LRMP and R-
MAP schedules for approved OSRs, control system sample documents, monitoring tool and
Tariff structure. These will be used during training to exemplify especially the key output, the
LRMP and R-MAP.
12. Trainers Manual and Guide
Following the development of the LRMI manual and guide, it is planned that there will be roll-
out training for politicians and technical staff at the municipalities and districts. A Trainers
manual Guide and Handbook has therefore been developed to support this process.
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This manual has been specifically developed for the use of trainers who will be providing
capacity building support under the JPLG/UNCDF in the municipalities and districts under the
LRMI.
The manual provides a guide for the trainer and participants in respect to the expected activities
during training. A separate LRMI “Participants” manual and Guide has been made available
for reference of more detailed discussions on issues in the curriculum. Trainers will be expected
to make reference to the participants’ manual, which also may be used to extract notes as may be
required. As a further guide in presentation, a set of Slides has been prepared to be modified to
suit the learning environment. To optimally deliver the course content trainers will develop case
studies; obtain real situation examples so that the training is as practical as is possible. The
course is participatory and as such, trainers will be required to allocate ample time for
discussions and exercises.
This Trainers’ Manual and Guide contain group and brainstorming exercises, and illustrations. It
is intended that the Trainers will use these materials in a manner that optimally delivers the
course objectives.
This trainers’ manual is organized in session’s format and guides are designed in a manner that
promotes effective participation through discussions and the sharing of experiences by the
participants. For each session, the activities to be performed are given including the training
methods and discussion tasks. All the materials for a session are well explained in the
Participants manual and guide for revenue mobilization under a separate cover.
The expected outcome from use of this manual is expected to be;
(1) Harmonising methods and approaches to LRMI training in all respective LGs
(2) Creating a cadre that will trainers for other Lg staff
(3) Illustration of key concepts in training of adult learners and training methods
(4) Practical delivery and participatory training.
The Manual indicates the appropriate training methodology to be used in this knowledge transfer
and timing. The course is participatory and as such trainers will be required to allocate ample
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time for discussions, exercises and role plays. The Manual has the following key discussion
issues;
(1) Objectives and goals of LRMI
(2) Training Approach
(3) raining Delivery Methodology
(4) Organizing a Training Activity
(5) Training Requirements
(6) Managing a Training Activity
(7) Session Design and Planning
(8) Training Assessment and Evaluation Activity
(9) Local Revenues Concept and Legal Framework
(10) Revenue Administration process
(11) Roles of stakeholders in revenue mobilization
(12) Registrations, assessments and collection of revenue
(13) Mobilizing funds from specific revenue categories- Property, Livestock, Business
(14) Revenue Performance analysis
(15) Monitoring and performance measurement and reporting
(16) Development of the LRMP and R-MAP
(17) Revenue and expenditure projection 2015-2019
(18) Next steps
13. Workshops
Workshops which involved technical staff and politicians from LGs and the centre were held
during May and June 2015 in Addis Ababa and Hergeisa respectively. The key objectives of
these workshops were;
(1) To validate and discuss the mission findings
(2) Analyse the challenges and develop possible solutions together
(3) Discuss contents and concepts in the LRMI manual and guide
(4) Conduct a ToT for staff who will be involved in the roll out training before the close of
2015.
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(5) Have a participatory approach to development of the LRMP and R-MAP
(6) Develop a consensus on the nest step actions.
The key workshop outputs was support for the development of LRMP and R-MAP including
skills transfer for personnel who will participate in the roll out training, and a consensus on next
step actions.
14. The LRMP Concept
The LRMP and R-MAP attempt during workshops was an initial illustration of how it may be
developed and in no way was intended to result into a comprehensive plan for implementation.
The workshops gave an opportunity for politicians to give guidance of possible direction and for
then technical officers to take it up from there.
In order to ensure a higher prospect of success of the revenue mobilization initiative, there is a
need for a structured approach and sequencing of activities that will lead to overall increase in
revenue volumes and sustainability of service delivery.
A Plan helps to determine; what to be done, how, why, when, where at what cost and by whom.
The LRMP will therefore identify and align the activities that will drive the initiative to another
level in all respects. Sustainable Local Revenue Mobilization Initiatives [LRMIs] aimed at a
reduction in service delivery gaps must be initiated and led by LGs themselves.
To ensure successful LRMIs, the Plan will reflect strategies that will apply concurrently with
processes that can substantially expand the tax base, improve collection efficiency, stakeholder
participation, transparency, accountability, and direct linkage of revenues to service provision.
The R-MAP will then be derived from the LRMP by prioritizing the activities basing on
perceived benefits and costs.
The overall R-MAP strategy will start with the quick-wins in the short-term and develop into
more complex initiatives that may require changes in the legal and institutional framework.
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15. Development approach for LRMP
The development process builds on the earlier discussions and analysis of revenue administration
challenges and solutions. The Plan presents a strategy of how the challenges will be handled,
when, the timing, cost and responsible persons. Revenue mobilization initiative framework is
considered through three schematic approaches;
(1) Overall reforms in revenue administration, [revenue policy, assessment, collection,
monitoring, reporting and accountability, enforcement] in the short term,
(2) Identification of new revenue sources, [within the existing legal framework, new legal
framework] in the medium term and
(3) Activities and processes that will encourage expenditure rationalization, [waste reduction,
accountability, procurement processes]
Analysis from the mission findings and discussion in the workshops have identified that
insufficient revenue generation is most commonly the result of a combination of factors and
challenges relating to;
(1) Collection efficiency [cost of collection per shilling]
(2) Collection effectiveness, [how much of billed is collected],
(3) Tax base [what to be taxed],
(4) Tax coverage [who is paying and how much],
(5) Tax assessment [basis of tax determination],
(6) Capacity gaps [Human, space, finance]
These key parameters will be the basis for formulation of the LRMP.
LGs will therefore develop LRMP/R-MAP by identifying these challenges with each revenue
source and solutions. Based on the solutions, cost, timing and responsible persons will be
aligned with each solution activity. The sample formats for the LRMP have been provided in
the LRMI frameworks manual and guide.
The LRMP will initially focus on at least four revenue categories and on some specified sources
as a means of showing early results in the short and medium term. The longer term perspective
will build on the “Quick Wins” sources identified in this beginning phase.
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The focus during development of the LRMP will be on broadening the revenue capture on the
already highly accepted sources, adjustment of tariffs and later on new revenues sources or
those not yet functional but approved. Fundamentally, this revenue management improvement
plan will be a combination of bringing about both additional revenue streams and also
increasing revenue within existing revenue streams.
It includes revenue categories not ordinarily expected to derive substantial revenue in monetary
terms and equally revenue categories where substantial revenue is expected, in other words it
looks at actual and potential municipal revenue across the spectrum.
It will focus on what must be done, how to achieve the objective, the timing of the activities,
define the specific revenue category and the responsibility centres and where possible the cost.
Indicators on performance will relate much more to efficiency and effectiveness of
administration issues. The strategy includes short-term revenue enhancement goals, medium
term and long-term goals.
In development of the LRMP at each LG, the following steps will be desirable for a structured
and comprehensive LRMP.
1) Review of the legal framework clauses including the tariffs structure.
2) Analysis of revenue performance for 2013 and 2014 to assess the collection effectiveness
and efficiency, and importance of OSR in the total budget. Revenue data collected from
target LGs was analyzed using Ms-excel sheets.
3) Analysis of the revenue mobilization challenges and opportunities
4) Developing strategies to overcome the revenue mobilization challenges and other
bottlenecks in the revenue administration process
5) Construction of a mobilization plan activity matrix indicating; goals, activity to be
undertaken, outcome and indicator, timeline and responsible person for each activity and
event.
6) Classification of activities in the LRMP in time frames of short, medium and long term
and developing a R-MAP
7) The comprehensive and resource specific R-MAPs will be developed in a participatory
manner through workshops.
8) Presentation of LRMP for approval by Council.
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The resource specific LRMPs and R-MAPs will be finalized by the local governments
themselves through a series of workshops.
Below is a sample LRMI extract sample for planned activities to impact on Collection
effectiveness and efficiency.
16. Sample LRMP Collection and Monitoring Goal: to ensure increase in revenues to sustain service delivery by
ascertaining that what is assessed is collected and accounted for
Collection effectiveness and efficiency
Planned Activity Outcome/Output/
Indicators
Time line Responsible
Agency
Legal framework and policy on tariffs
Setting monthly revenue targets
Monitoring and analysis of monthly
revenues
Discussion of reports with council
committees
Enforcement systems
Design revenue monitoring forms
Early warning system for defaulters
Follow up on defaulters and arrears
Collection enforcement guidelines
Set cut -off date for payments
Assign specific personnel for certain
revenue sources
Information brochures Publish tariff
rates
Popularize tariffs Hold public
discussions and workshops
Create out posts for payment of revenues
Introduce direct revenue payment into
banks
Agree at least two installment payments
for property taxation
Improving taxpayer relationships and
customer service Shorten payment
procedures
Communicate the enforceable legal
codes
Review fines
Collection performance
at above 98%
Sustainability of service
delivery
Ensuring that all who
are billed pay
Increased taxpayer
convenience
Media programs
Prosecution for all
defaulters
End 2016 Mayor, CEOs
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17. Revenue Performance Projection 2015-2019 The projections are based on the following assumptions (1) New revenue sources will identified,
(2) User fees and charges will be adjusted towards fair market rates (3) Improved data
management and computerization will result into more revenue capture, (4) Training will
enhance staff and management kills, (5) Enactment of relevant legal framework will ensure
appropriate enforcement, (5) the growth rates between 2013-2014 will be the baseline and will
be sustainable.
Key assumption is that revenues from property will double in the first year of completion and
update of the GIS and BIMs and due to changes in the tariff levels there will an average 70%
growth in business permits, user fees and livestock taxes within the first year.
The Diagram 5: Gardo-Revenue forecast 2014-2018, below illustrates the possible revenue
movement beyond 2018 based on a mixture of the assumptions above. The projection is based
on growth rates between 2013 and 2014 tapering downwards as reforms are gradually
implemented. The following exponential trend could be possible for Gardo. Directors of
revenues will develop assumptions in each case basing on the R-MAP and the LRMP. In each
case these assumptions will be documented and referenced.
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
2014 2015 2016 2017 2018 2019
Livestock taxes
Land based taxes
User Fees and Charges
Business Licenses
Total OSRs
Expon. (Total OSRs)
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Table 1: Revenue Projection2014-2019 for Gardo gives an indication of revenue growth
considering implementation of reforms, moving from hundreds to millions of revenue shillings.
Growth 2013/2014 OSRs category 2014 2015 2016 2017 2018 2019
-8% Livestock taxes 193,326 328,654 492,981 640,876 769,051 845,956
72% Land based taxes 220,213 374,362 636,416 1,018,265 1,527,397 1,985,617
107% User Fees/Charges 259,487 493,025 887,446 1,419,913 1,973,679 2,368,415
93% Business Licenses 198,947 358,105 537,157 698,304 1,047,456 1,361,693
Total OSRs 871,973 1,554,146 2,553,999 3,777,357 5,317,583 6,561,680
Source: Consultant Analysis of LG Secondary Data
The diagram illustrates that Gardo may attain the 6.5 billion approximately 3.5 million USD at
today’s prices, mark by 2019.
Revenues are collected so that services are rendered. Priority expenditures will be projected
during the next phase so that a comprehensive plan for service delivery is linked to revenue
mobilization.
18. Revenue Mobilization Action Plan (R-MAP)
In order to put into effect the LRMP, activities and processes will be broken into “bite size
activities” in the form of a Revenue Mobilization Action Plan [R-MAP]. The priority in the short
term will be on what has been tested, on initiatives that will easily be supported politically and
are administratively feasible.
The R-MAP approach is to have implementation in three phases, Short, Medium and Long Term
where the short term, 0-6months, will be to focus on delivery of early results by initially looking
at quick win situations. The short term strategy will be to target what is perceived as collectable
and receivable. The comprehensive R-MAPs will be developed in a participatory manner
through workshops at the municipal and district levels to ensure ownership, commitment and
willingness to implement the plan.
Successful implementation of the R-MAP concept will deliver most of the following outcomes;
(1) Socialization of revenue planning (revenue compact)
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(2) Improved revenue administration system
(3) Socialization of revenue mobilization and decreased costs of revenue administration
(4) A participatory revenue planning process to underpin a social compact
(5) linking between an increase in revenue
collection and improvements in basic services
delivered
(6) Improved databases on taxable activities and
tax payers
(7) Improved assessment methods and techniques
(8) Improved revenue forecasting and planning
practices
(9) Client orientation- favourable customer environment
(10) Improved collection methods
(11) Increased revenues leading to improved delivery of basic services
(12) Greater transparency of revenue administration and local governance in general
(13) Institutional and regulatory reforms
(14) Establish clear links between the revenues raised to service improvements
The R-MAP brings out the specific activities that will deliver the intended outcomes as
envisaged in the Local Revenue Mobilization Initiatives Framework proposal within the short,
medium and long term periods. Increased revenues will spinoff in increased public investments
creating more resident satisfaction which then implies more willingness to pay taxes. The activity
that will break the vicious cycle of inadequate revenues is increased investment now. Therefore
without external financing, the initial stages must involve both compulsion and persuasion.
Increased revenues will spinoff
in increased public investments
creating more resident
satisfaction which then implies
more willingness to pay taxes
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19. R-MAP Sample format- collection and monitoring
Strategy and actions during planning periods
Increase Collection efficiency and effectiveness
Activity Short term [ 0-6 months] Medium [6-12 months term] Long term [12-24 months]
Legal and policy framework
Enforcement guidelines Communicate the enforceable legal codes Incentive schemes
Early warning system for defaulters Take legal actions
Consistent enforcement
Revision of tariffs
Socio-economic analysis of revised tariffs Review all tariffs Hold public discussions and workshops
Publish tariff rates Popularize tariffs
Information brochures
Monitoring systems
Setting monthly revenue targets Monitoring and analysis of monthly revenues Discussion of reports with council committees Revenue targets Internal audit manuals and guide
Design revenue monitoring forms Early warning system for defaulters Collection enforcement guidelines Publish tariff rates
Information brochures Hold public discussions Follow arrears Popularize tariffs
Reporting and Publicity
Sensitization and Improving taxpayer relationships and customer service Develop internal audit manuals and guides Participatory budget conferences Regular reporting Provided registers for each revenue source Convenience in paying
Train staff in revenue records management Provide for computerized receipts Provision of required computers Link BIMS to AIMS-collection and billing Regular Internal audit reports
Publication of financial and service information and programs Conduct public accountability surveys and meetings Upgrade recording and monitoring software
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20. Going Forward-Next steps Basing on consultations during the mission and findings during the workshops, the following
next step actions will be critical to the overall success of the next phases of the LRMI
Sn Activity/ processes Est. Time Who?
1 Translation of LRMI manuals and guides into
Somali language
July/August
2015
UNCDF
2 Develop accountability and Internal Audit Manual July/August
2015
UNCDF
Roll out of training to municipalities and districts Oct/Nov
2015
UNCDF
Complete the Municipal Finance Policy July 2015 HABITAT
3 Review tariffs and implement quick wins Oct. 2015 MoI/LGs
4 Implement new revenues identified- low hanging
fruits[ street parking]
Oct. 2015 MoI/LGs
5 Training and Skilling Internal Audit and Oversight Sept 2015 UNCDF
6 Develop and implement LED strategies Set 2015 ILO/LGs
9 Selection of a revenue steering committee at each
municipality
Nov 2015 MoI/LGs
10 Complete Review of policy and legal framework Dec 2015 UNCDF/LGs/MoI
11 Support and coaching champions for LRMP Jan 2016 UNCDF
12 Support Development of LRMP/R-MAP Jan 2016 UNCDF
13 Review and draft resource specific legal framework May 2016 MoI
14 Review organization service structure May 2016 UNCDF/MoI
15 Develop Human resources policy June 2016 ILO/MoI
16 Budget and cost rationalization, cost centre
budgeting
Sept 2016 UNCDF
17 Communication strategy Oct 2016 HABITAT
18 Develop PPP strategy Feb 2017 ILO/MoI
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21. Conclusion
The overall goal of the revenue mobilization initiative is to have an increase in revenues from all
regions of Somalia so that the quality of governance and service delivery is enhanced.
A Revenue Improvement Plan [RIP] serves as a crucial tool
for the successful management of LG revenues. Ensuring a
sound local revenue mobilization system is an essential
ingredient in actualizing fiscal decentralization. Successful
revenue mobilization creates the effect and the potential to
foster political and administrative accountability by
empowering communities and sustaining peace.
For any futuristic local government, the attraction of
exploiting to the full potential revenues and the effective
accountability of the same are paramount and key success factors. A comprehensive Revenue
Mobilization Action Plan will address how the challenges earlier identified will be managed to
result into increased revenues.
It is further hoped that action and implementation of the proposed measures will enhance local
revenues in the target local governments by more than 90% of the potential initially and
eventually 100%. With a long coastline, mineral wealth, animals, tourism attractions, LGs in
Somalia have substantial potential for enhancing local revenues especially from business
licenses, user charges and property rates.
Revenue Mobilization is quite difficult and cumbersome without computer assisted
methodologies especially in valuation billing and reporting. Therefore, the issue of automating
the revenue mobilization process should be given preferential attention by all LGs
Finally, in construction of LRMPs one of the key assumptions is that the people and governance
of target local governments are able and willing to make the necessary effort to increase the
revenue levels, and to undertake all administrative measures within an appropriate time
framework. And that the local governments will have a professional, well empowered and liable
administration with improved financial capacity.
Revenue Mobilization is
quite difficult and
cumbersome without
computer assisted
methodologies especially
in valuation billing and
reporting
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22. Appendix 1: Document Review
1. UN-JPLG LRMIP for Somalia framework proposal draft 2014
2. Puntland, State of Somalia Constitution
3. Puntland Law No 12: Investigation and suppression of financial violations
4. Municipal Finance and Public service delivery in Puntland, UN Habitat, Puntland
5. Puntland Taxation Framework 2014, MoF, Puntland State of Somalia
6. MoU: Local Development Fund for Puntland and UNCDF
7. LRMIP for Puntland, outline proposal
8. Revenue Assessment Report, Puntland, Ministry of Interior and Finance
9. Puntland Business License Tariffs, 2010, Ministry of Interior
10. Puntland: Facts and Figures
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23. Appendix: 2 PUNTLAND -Field Consultations Attendance Log Sheet
MINISTRY OF INTERIOR, FINANCE, ACCOUNTANT GENERAL 28-02-2015
PARTICIPANTS
NAMES DESIGNATION CONTACT
1 Ahmed Ada Consultant MOI [email protected]
2 Osman Ali Consultant -OAG [email protected]
3 Ahamed Noah Program Officer, UNCDF
4 Abadi Aziz Deputy Auditor General
5 Ahamed M. Hassan Accountant General +252090720679
6 Abshi M. Abshir Consultant-MoF +252907993715
7 Mohamed Abdulkadir Consultant MoI-UNCDF +252907746515
GAROWE MUNICIPALITY 01-03-2015
8 Pasim Mohamed Abdi Executive Secretary [email protected]
9 Sharmake Jema Planning Officer [email protected]
10 Maini liid Cali Revenue Officer [email protected]
11 Karim Aden Hassan Revenue Officer
12 Abdinlek Mohamed Planning Officer
13 Mohamed abdurahman Finance & Administration Consultant +252907790575
14 Mohamed Abdu Kadir MoI Consultant [email protected]
Saidi Abdi Mohamud Director -Planning dept [email protected]
GARDO MUNICIPALITY -02-03-2015
15 Mohamed Said LG Mayor +252907793770
16 Mohamed Famief Shire Executive Secretary +252907736125
17 Mohamed Abdi UNCDF Consultant +252907793454
18 Wanys Aidams Gare Finance Officer +252907736125
19 Mohamed Cussor Internal Audit +252907748370
20 Claudi Saidi Musal Internal Audit +252907736125
21 Mohamed Yusuf Finance Officer +252907736125
22 Basin Ah Jamal Director Revenues
UN HABITATAT/ILO -03-03-2015
22 Osman Mohamud Osman HABITAT [email protected]
23 Mohamed Said ILO officer [email protected]
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GALKACYO MUNICIPALITY 04-03-2015
NAMES DESIGNATION CONTACT
24 Yusuf Elmi Mohamed Director Revenues +252907757006
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24. Appendix 3: Classification of Local revenue Sources Livestock Taxes
1 Livestock Market Tax
2 Livestock-Live export taxes
3 Hides & Skins Sales Tax
Land Based Taxes
4 Property Taxes Building
5 Property Taxes Urban Land
6 Agricultural Production
7 Property Ownership Transfer fees
8 Tax on Rain fed farms
9 Irrigated Farms Tax
10 Rents from Municipal buildings
11 Rent from Markets and Shops
Charges and User fees
12 Hygiene and Sanitation ( Cess emptier)
13 Public Health sanitation Fines and Penalties
14 Stamp Duty
16 Markets traders and Hawkers dues
17 Public Transport operation permit [Annual]
18 Abattoir and butchery tax
19 Architectural Tax- Building plans approval
20 Fines and Penalties
21 Registration of Births
22 Goods and Miraw (Kat) tax
23 Electricity use tax
Business Licenses, Fees and Permits
24 Business Trading Licenses
25 Commercial Sign Boards
26 Personal Registration/Census Fees /ID Cards
27 Public Market Tax
28 Concerts and Videos
29 Sports and Open spaces
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25. ANNEXTURE ONE: Summary of field mission emerging issues
1. FINANCING TRENDS AND SERVICES
(1) CG transfers- The Puntland government provides 2.5% of national budget as transfers to
LGs. Municipalities hosting a sea Port get in addition a direct share of customs duty at
2.5% in Puntland. The grading between A to D determines the level of discretion given
in revenue collection.
(2) Services devolved- Services rendered by respective municipalities and districts are
spelled out in the Regional and Districts Law.
(3) OSR performance-Municipalities fund over 70% of the total budget (including donor
funds). Bossaso for instance is able to fund over 90%, Given that locally recruited staff
salaries are met from OSRs, there is intense pressure to sustain operations of other
services.
(4) JPLG Support-The intervention of JPLG funds has had a significant impact in
infrastructure development. Visibility of development works has an impact on the level
of willingness to pay taxes..
2. REVENUE ADMINISTRATION
(1) Legal Framework and Policy- Law No.7 must be reviewed to provide specific on
enforcement and penalties for defaults in revenues payment. There are no clear sanctions
for defaults. There are no specific laws enabling revenue collection. Specific laws for
property tax, Business license, markets, and several user fees must be made if the LGs
have to effectively assess, collect and enforce payment.
(2) Revenue policy direction - Changes in tariffs have had significant impact of revenue out
turn and appears to be room for further increase without rocking the boat. Revision of
Tariff structure is most critical as it does NOT reflect the operating environment.
(3) Taxpayer attitudes and equity- tax tribunals or appeals system not in place. Taxpayers
must consider the taxes fair and equitable. Charges levied on property and other tariffs
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are so far not being displayed. The systems of assessment are not generally understood
even by the staff a situation that may result into unfair taxation. More revenues must not
only be raised but must be fair and equitable. A system of tax tribunals must be quickly
explored before communities feel alienated and harassed
(4) Enumeration ad establishment of potential revenue- Whereas participation of
HABITAT and ILO has increased hope for a faster turn round in improving revenue
administration issues in Land based and business licenses revenues, Physical follow up
must be made to validate the GIS initiative for both business license and property. All
revenue bases must be enumerated and documented so that a fair revenue potential is
established.
(5) Sensitization and community mobilization- a key ingredient in improving tax payer
willingness besides service visibility is tax awareness education. This has been done in a
less structured way in some municipalities such as Gardo. Gardo municipality has
acquired equipment for an fm Radio station and needs money for set up and making
operational programs. They intend to use the system for both social and revenue
mobilization. A comprehensive local revenue improvement communication strategy is
urgent as a means to both popularize revenues and mobilize communities for
development and participation, and raising confidence and trust in LGs.
(6) Data management- - the level of revenue data and resource mapping is inadequate
including physical validation of the GIS and critical. This will key activity area in the
LRMIP. Data management is a critical area for all revenue categories. The intervention of
GIS has had a reprieve in property and Business license in as far as documentation is
involved. In some municipalities full advantage of the system has not been taken
advantage of.
(7) Recording and data processing- Computerization is a key ingredient in improvement of
revenue management especially on accountability and data management. The benefits of
GIs should be rolled to other revenue sources.
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(8) Assessment and revenue budget-the systems of assessment are crude which may create
opportunities for irregularity and possible taxpayer apathy. There is no structured tax
appeals tribunal or system to which taxpayers can take recourse in the event they are not
satisfied. Any complaints are made to either the mayor of the executive Secretary who is
the CEO with no involvement of any other councilor. Good local government revenue
system should keep the councilors positively engaged in the process. The level of fairness
cannot be easily determined.
(9) Collection systems- revenues are collected in cash by staff moving on foot sometimes
for more than 6 kms. Whereas there a bonus system for motivating revenue collectors,
they are generally poorly paid, average USD 50 per month, which in itself increases the
level of fiduciary risk. Overall revenue growth is above 50% between 2013 and 2014.
However, without clear understanding of the potential, it is difficult to make a comment
on the level of collection effectiveness and efficiency.
Reporting and Accountability-regular reporting is done ad discussed with councilors.
However staff will require some training in analysis and presentation of monitoring
reports. Without full engagement of the political leadership in revenue management
issues, policy direction and especially encouraging tax payment will remain a challenge.
BIMS and AIMS appear de-linked basing of complaints in both Puntland. A review may
be urgent.
(10) Enforcement and Compliance- the legal framework is insufficient to enable
penalties for revenue defaulters. Compliance has been much more on persuasion by the
Mayors and appeals to the traditional systems of encouraging debt payments. Crude
methods such as removing main doors from building have been attempted but without a
legal backing this will backfire. The system is weak and cannot sustain a robust
collection drive.
(11) Monitoring and oversight- this function is nearly absent with not support from
internal audit. The internal audit function is manned by unqualified and poorly
remunerated staff. According to the Mayor of Gardo Municipality for instance, the tax
payers are reluctant because they do not trust the politicians, services are not visible and
they see a lot of red flags pointing to impropriety in use of public resources. Revenue
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monitoring of collections is weak, a special unit, revenue Monitoring Unit, (RMU) may
be ideal at this time. A similar unit at MoI in the form of a LG Inspectorate Division is
critical if standards of revenues have to be propped up significantly.
3. ALTERNATE REVENUE SOURCES
(1) Existing approved sources-Whereas the law allows a range of over 20 revenue sources,
less than 20 of these is effectively collected. By implication there is a lot that is not taxed.
(2) New taxable sources- LGs have not generally been able to explore new areas not
specifically indicated in the Regional and Districts law. The mission suggests that the
initial focus should be on those revenues already approved by law before venturing into
new areas that may be controversial. That notwithstanding, LGs should work out bye-
laws to be approved by the ministries of Interior prior to effecting the taxes.
HUMAN RESOURCE CAPACITY
(1) Staff Remuneration- Staff capacity gaps have been made worse by lack of appropriate
skills and low remuneration15
. Low salaries cannot attract well trained personnel. Some
LGs have a clear structure for human resource management but have failed to attract and
retain the qualified personnel because of remuneration. There is a bonus system for
revenue collectors. Selective incentives for revenue collectors may create short term
gains but may result into distortions in work output elsewhere because some other may
become disorientated.
(2) Skills and Training- On average including the top administrators, the level of training is
just above secondary school. Skills training especially in; computer use, analysis,
handling taxpayers, internal audit and accounting is seriously lacking. Additional hands-
on training for staff is use of BIMS and AIMS for more effective reporting and analysis
15
Staff earn an average USD 50 p.m.
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has become critical since the earlier trained and ILO16
funded staff have left for better
pay elsewhere.
4. LOGISTICS AND OTHER CAPACITY
All municipalities have a wide logistics gap in terms of space, transport, equipment and
operational tools. The Mission is of the opinion that in the short run focus may be on data
management tools such as computers, compliance materials such as uniforms, public address
systems, affordable transport such as motor cycles and some already carbonized receipts.
16
ILO was paying each staff USD 500 while the average salary payable by Lgs now is USD70