Assessment of Fiscal Capacity of Urban Local Government on Municipal Revenue in Oromia Regional State: The Case of Sebeta City.
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Date
2016-06
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Addis Ababa University
Abstract
The 1995 constitution is the base for fiscal decentralization in the country, which provided for
the division of power on expenditure and revenue-raising responsibilities of the central
government and the regional state. Fiscal decentralization is one component of decentralization
that gives authority to local governments to collect revenue through taxes and responsibility over
spending decisions. As proclamation No. 65/2003 of the urban local government proclamation of
Oromia regional state, municipalities of the region have powers and responsibilities over
municipal revenue and expenditure. Even though fiscal decentralization has given revenue
raising and spending decision powers to lower levels of government, the implementation process
has often been a daunting task for many local authorities in the region. Although the region
decentralized municipal revenue to its cities/towns on revenue raising and expenditure
management are not efficiently and effectively exercised. Insufficient revenue collection and
weak expenditure management leads to financial incapability such that public infrastructure and
services could not be financed amply. Sebeta municipality faces the problem of financial
capacity to deliver infrastructure and services to its citizens. While a number of studies have
documented the financial incapacities of Ethiopian ULGs, they have been focused on state
revenue which ULGs lack fiscal autonomy both on its revenue raising and expenditure but they
did not gave much emphasis on municipal revenue. Municipals in the region have full autonomy
over municipal revenue, even though there is little interference on the tariff setting, because the
Regional Revenue Authority set the upper and the lower limit. Therefore, the main focus of this
paper is to assess Fiscal capacity of ULG on municipal revenue: the efficiency and effectiveness
of revenue collection and expenditure management of Sebeta Municipality. To obtain edifying
data the paper used a positivist survey study. Municipality financial documentation and
questionnaires were the main sources of secondary and primary data respectively. Descriptive
statistical methods were applied in the analysis of data to arrive at measures of efficiency and
effectiveness in revenue collection and expenditure management of the municipality. The study
revealed that the municipality is not efficient and effective in its revenue collection and
expenditure management. The main explanation for such inefficiency comprise; weak
assessment of taxable sources, poor organizational structure, inadequate accounting system,
absence of clear operational guidelines, poor planning and data base management, and lack of
skilled manpower. To resolve such challenges, the paper recommend the following actionable
measures; Establishing Tax payers data base systems, improving planning and implementing
capacity, Expanding and exhaustively raising the revenue base of local revenue sources,
Establishing appropriate guidelines and methods of revenue collection, strengthening valuation,
enforcement and tariff setting effort, installing accounting system that produces timely and
reliable information, encouraging community participation in planning and resource allocation
and revising municipal organizational Structure.
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Keywords
constitution is the base for fiscal decentralization