|Financing Cities for Sustainable Development - with Specific Reference to East Africa (HABITAT, 1998, 98 p.)|
Kenya's Local Government Act (Cap 265) defines the duties, functions and responsibilities of the local authorities. It also stipulates the sources of their finances by making approvals for each authority depending on sources identified (from the wider range of sources they have as options). Revenue finance is raised to meet the local authorities' recurrent expenditures while capital finances are raised to carry out capital works, such as roads, water and sewerage expansion, housing, street lighting etc.
Local authorities have the following sources open to them, for purposes of raising revenue finance:
- Land rates on property owned by individuals, companies or the government, including parastatals
- Rates on buildings (i.e. developed property)
· Fees and Charges, the key ones being:
- Premises licences;
- Occupational licences;.
- Services or facilities - ambulances, survey fees, etc.;
- Goods or documents supplied - water sewerage, building approvals, transfer fees;
· Commercial activities, including returns from own investments and rental income:
· Cess and royalties;
· Return on investments - investments in companies they do not explicitly control;
· Service charge - of employees and companies resident in their jurisdiction;
· Grants from the government, donations and also transfers from other arms of the government; and
· With the approval of the Minister, short-term borrowing (through bank drafts) to meet immediate needs and long-term borrowing to undertake investments and/or undertake capital works.
Local authorities may finance capital programmes through:
· Internal resources - Money set aside from the budget to pay for projects, commonly known as revenue contribution to capital;
· Local Government Loans Authority - a separate statutory body performing its activities under the supervision of the Ministry of Local Government, with a responsibility for lending funds from the central government to local authorities;
· Domestic housing finance institutions - local authorities do rely on the National Housing Corporation (NHC), a government parastatal, and Housing Finance Company of Kenya (HFCK), a private company in which the government has some interest, to provide housing loans;
· Domestic banks - Local authorities normally rely on local banks and financial institutions to provide short-term finances (mostly bridging) to finance projects;
· Stock issues - The local authorities are empowered to issue stocks and bonds to raise revenue for their own operations. Nairobi is the only local authority that has in the past been able to raise capital by use of this option;
· Capital grants - Grants are also provided to some local authorities by donor agencies and specialized agencies for specific purposes; and
· External loans - Local authorities do borrow from international agencies, such as the World Bank, to undertake big capital projects, such as water and sewerage, road works, housing etc.
The United Republic of Tanzania
In the United Republic of Tanzania, the sources of finance and the manner in which it is to be accounted for are well defined under the Local Government Finance Act of 1982. Equally well defined is the entire budgeting process machinery within every city, municipal, town and district authority.
The main sources of local government revenue are provided for in sections 6-10 of the Local Government Finance Act of 1982. In all, there are over 56 sources of revenue for local government in the United Republic of Tanzania, with grants from the central government being the 57th source. These are listed in Table 1.
Table 1. Sources of local government revenue in the United Republic of Tanzania besides grants from the central government
1. Development Levy
B. OTHER REVENUE SOURCES
49. Bank Interest
56. Other income
For the purpose of budgeting, these sources can conveniently be subdivided into three categories: (a) rates, i.e. development levy, property tax and produce cess; (b) miscellaneous receipts i.e. various fees, charges for services (user charges) and rents; and (c) contributions and grants from the government.
The sources can further be considered on the basis of "own" sources and grants (or subsidies) from the central government. One clear feature of local authority finance in Tanzania is the dependence of both rural and urban authorities on central government grants. During the period 1984-1996, this varied between 55 per cent and over 70 per cent.
In the own revenue category, the main sources of revenue are: development levy, business licence, property tax, road licence fees, industrial/produce cess, hotel levy, taxi/pick up/lorry fees, and petrol levy.
In Uganda, article 190 of the 1995 Constitution gives District Councils powers to prepare comprehensive plans which are to be submitted to the National Planning Authority. Article 191 empowers local governments to levy appropriate taxes. The "..taxes and fees to be levied, charged and collected include rents, rates, royalties, stamp duty, personal graduated lax, cess, fees on registration and licensing and any other fees and taxes that Parliament may prescribe." Among the most important fees in terms of yield are market and taxi park fees.
According to the Local Government Act of 1997 and as part of the current local government decentralization programme, Kampala has been divided into 5 divisions with specific functions. Each division will be expected to retain 65 per cent of the revenue collected, with the balance going to the Council headquarters. In keeping with the provisions of the national constitution, a proposal has also been made that the Kampala City Council collect taxes on behalf of Central Government due to the greater responsibilities arising from the decentralization initiative, including salaries of local level civil servants inherited from the Central Government and provision of additional services.
Article 193, of the Constitution provides for three types of grants to be given in accordance with the Seventh Schedule of the Constitution. Unconditional grant is the minimum amount to be paid to the local governments to run the decentralised services. Other grants under Article 193 include conditional grants, which are to be spent on services with conditions as agreed upon between the local governments and the central government, as well as equalisation grants, which are supposed to be given to those local governments lagging behind the national standards in specific services. This latter grant has not so far been given, according to the records available.
Article 195 of the Constitution also empowers local governments to borrow, though conditions are attached. The same Article further empowers local governments to receive grants from sources other than the Government of Uganda, with the approval of the latter. In order to borrow, the local governments have to meet a number of set conditions.
An interesting feature in Uganda is the existence of the Local Governments Finance Commission, whose main duty is to advise the President on all matters concerning fiscal transfers and the distribution of revenue between the local governments and the Central Government. The Commission is also supposed to advise on local government taxation and on other sources as well. The Commission has a total of seven members, of which four are local governments representatives, three are nominees of the district councils, one is a nominee of urban local authorities, while the remaining three are nominated by the Minister of Local Government in consultation with the Minister of Finance.